Internal Agency Relationship

Question 1

What is the requirement of the agent’s authority?

Answer 1

Authority is crucial - the agent must be authorised into entering into contracts. The principal establishes how much authority the agent has and the principal can only be bound to this extent.

There are two types of authority: express and implied.

Question 2

What is the express and implied authority of the agent?

Answer 2

Express:

The extent of the authority may be stipulated either orally or in the contract - if so this is express authority.
The parties must have expressly discussed this and agreed as to what the agent can/cannot do.

Implied:

If the contract is silent as to the extent of authority, the agent has implied authority to do whatever
is necessary and incidental to the completion of the transaction.
⁃ Custom and usage of the trade may help to define the scope of authority.

Question 3

What is the scope of the agent’s authority?

Answer 3

??

Question 4

Why must you distinguish between general and special agents?

Answer 4

Implied authority can only apply to general as opposed to special agents.
⁃ The former are appointed to carry out all of the business of the principal, or all of the principal’s business of a particular kind (e.g. a solicitor acting in general for an individual); the latter to carry out a specific task (e.g. buy a particular item).
⁃ The fact that an agent is a general agent allows third parties to assume that the agent possesses the authority which agents of that type normally have. This presumption does not apply in relation to special agents.
- To determine whether an agent is general or special you must look at what the agent is being asked to do: If they are appointed on wide basis this is likely to be general - special agents are appointed to carry out a specific task.
- In order to determine what authority a particular general agent has (solicitor) then you can look at custom and usage of the trade - I.e. What do other general agents of that type have.
- A Special agent can have authority implied by the nature of the task he has been asked to carry out - but this will be limited. He may have authority to do things to get that task completed but no more.

Question 5

What happens if an agent acts without authority?

Answer 5

There are legal rules to protect the third party from agents without authority[ It is not something which can be used by the principal or the agent.] - these help to prevent inconsistent conduct by the principle. This normally relies on the notion of apparent or ostensible authority

Question 6

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Limited [1964] per Diplock LJ

Answer 6

***The following English case is treated as authoritative in Scotland (and is required reading):

⁃ An agent may not be authorised to act but the principal may have created the impression of authority. If the principal acts in a manner which suggests to the third party that the agent is authorised, the principal cannot thereafter seek to deny that the agent is properly authorised (this is an example of personal bar). [Complex definition of apparent authority][ ⁃ ‘…a legal relationship between the principal and contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted on by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority so as to render the principal liable to perform any obligations imposed on him by such a contract.’]

In other words, if the principal acts in a manner which suggests to the third party that the agent is authorised, the principal cannot thereafter seek to deny that the agent is properly authorised. This Can be rationalised as a type of personal bar in Scots law or estoppel by representation in English law.

Question 7

How can you show apparent authority?

Answer 7

The following three factors must be proved for damages to be available to the third party in such an instance:
⁃ 1) Representation by the principal[ See below for confusing case law.]
i) The Principal must create an impression of the authority of the agent through representation to the third party
ii) There must be a causal link between the principals conduct and the third party’s belief that they are authorised. (Third party must be acting due to and in belief of the representation of the conduct).
⁃ 2) Reliance by the third party
⁃ 3) Loss by the third party

If the above are fulfilled then the principal is not able to deny the agent has the requisite authority if to do so would cause a loss to the third party.

AND see further dicta by Diplock LJ:

‘…a legal relationship between the principal and contractor created by a representation, made by the principal to the contractor, intended to be and in fact acted on by the contractor, that the agent has authority to enter on behalf of the principal into a contract of a kind within the scope of the “apparent” authority so as to render the principal liable to perform any obligations imposed on him by such a contract.’ per Diplock LJ at 644.

In other words, if the principal acts in a manner which suggests to the third party that the agent is authorised, the principal cannot thereafter seek to deny that the agent is properly authorised.

Can be rationalised as a type of personal bar in Scots law or estoppel by representation in English law.

Question 8

How then can the third party sue for breach of contract?

Answer 8

The issue of damages is complex since there is no contract
Further, since the primary Scottish remedy for breach of contract is specific implement, may this action be afforded to the third party?[ MacGregor has found it difficult to find any cases where a party has got specific implement in these instances - normally only damages are obtained.] It seems as though the concept is based upon a legal fiction.

Question 9

What is the meaning of the first requirement?

Answer 9

The first requirement is that the misleading representation must come from the principal. This was set out in the following case:

Armagas Ltd v Mundogas SA [1986]

Question 10

Armagas Ltd v Mundogas SA [1986]

Answer 10

Tells us that if only the agent creates the impression then there is no apparent authority - the representation must come from the principal.

Question 11

**International Sponge Importers Ltd v Watt & Sons 1911 SC (HL) 57

Answer 11

Leading Scottish case:**International Sponge Importers Ltd v Watt & Sons 1911 SC (HL) 57
Agent (Cohen) - authorised to sell spongers on behalf of the pursuer. He called on the defenders to sell the sponges. The usual method of payment was for defenders to make a cheque directly to the principle.

On some occasions the customers had made a cheque out to cohen to give to the pursuers. On four occasions cohen had induced the defenders to make the cheques out to him personally or would receive cash.

He absconds with the money and they do not reach the principle.

HOL held: the pursuers could not recover these funds from the defenders (could not seek payment from customers) judges reached decisions on basis that pursuers had tacitly consented to these other methods of payment (I.e. Cheque to agent) - they knew this was going on and failed to intervene.

There is not positive action by principle but inaction with knowledge of the authority -this meant agent has ostensibly authority to take payments in irregular ways.

Because the irregular payments occurred with knowledge by the principle this was enough to constitute a representation to the customer that the agent was authorised to take payments in this way.

[Look up this case - bad description]

Question 12

Gregor Homes v Emlick 2012 SLT (Sh Ct) 5

Answer 12

Here pursuers and defenders had entered into missives (contract for the sale of land). Defenders purchasing property from pursuers. The date of entry is very important.

They could not say what date of entry would be. Provisional date in contract - question arose of whether practical completion had been achieved. If it had there was a date of entry.

Practical completion was to be agreed between the parties. Rutherford had been granted authority by defenders to instruct the pursuers to variations and alterations of the property and had represented the defenders interests throughout the transaction.

The question arose as to whether Mr Rutherford had actual or ostensible authority to agree the date of entry on behalf of the defenders. The defenders said R had no authority.

The comments made by sheriff in relation to ostensible authority: “IT was not a matter of the principle seeking to exercise, but the law …the two key elements are representation and reliance…”

Agent does not have authority but principle is prevented from withdrawing on his obligations.

Sheriff held: R had actual authority but he hadn’t found hint to have this. Of the opinion he had the defenders ostensible authority. Both parities had relied on strength of R’s authority at certain times.

The agent does not have authority but by virtue of principle holding him out to have authority the principle cannot discount the agents action.

[Look up this case - bad description]

Question 13

First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] [English court of appeal case so only persuasive authority in Scotland].

Answer 13

The following case introduced confusion into the area[ Since it conflicts with Armagas which is a higher level English decision.]:

⁃ This case is an English Court of Appeal case - so it cannot overrule a HL case (yet it could be seen to conflict with the principle of Armagas. In all other cases the impression was created by the principal[ And the principal is thus being punished in a sense for creating this misleading representation.]. But in this case, the impression was created by the agent alone.
⁃ The facts were that there was an agent called ‘Jamieson’ working for the defender (a bank). Jamieson was negotiating with the plaintiff (First Energy). The plaintiff know that Jamieson is not authorised to grant a specific finance agreement and that he would need head office approval. So Jamieson tells them that he is going to receive head office approval. He returns and tells the plaintiff that he has head office approval (but this was untrue). Jamieson then concludes the contract with the plaintiff, despite not being authorised. The defenders find out about this and deny the contract since Jamieson was not authorised. The problem is that it was Jamieson who had represented that he was authorised, rather than the principal. SO following Armagas, there can be no apparent authority.
⁃ However, Lord Steyn attempted to circumvent this rule because he felt that the third party ought to be protected. His judgement suggests that although the agent may not be entitled to represent the extent of his or her own authority, he may be authorised to communicate information on behalf of the principal. Such information may include the fact that the agent is authorised to carry out a specific transaction. (Does this, in effect, amount to the same thing as a representation by the agent as to the extent of his own authority?)
- Had the bank thus conferred ostensible authority on Jamieson either to make the offer or to communicate on behalf of the bank to make the offer?
- CoA Held: J had no authority to enter into the transaction; however he had apparent (ostensible) authority to communicate the banks authority for the transaction to First Energy. He did not have authority to enter into the transaction however he approved the transaction and had authority to communicate that.

⁃ The end result is that it is very unclear which of Armagas or First Energy is a more accurate representation of the law.

• The case goes some way from the requirement that there needs to be actual conduct by the principal - it takes ostensible authority some way from underpinning personal bar in Scots law.
• The agent could only communicate the banks approval to the customer.
• Judge’s line of reasoning: Want to protect those entering into transactions on what they have been told by agents in important and influential roles (J was senior manager of the bank).

Question 14

Thomas Hayman & Sons v American Cotton Oil Co (1907) 45 SLR 207 Dornier GmbH v Cannon 1991 SC 310

Answer 14

??

Question 15

Bank of Scotland v Brunswick Developments (1987) Ltd No 2 1997 SC 226

Answer 15

??

Question 16

Who is a factor?

Answer 16

A factor is a mercantile agent (who may be unauthorised[ Look up this…why?]) who is usually employed to buy and sell goods. Someone in this position very often has possession of goods or of documents of title of goods. In the ordinary course of carrying out their business they have the authority to sell, buy or raise money or security. If this mercantile agent sells the goods etc, the Factors Act provides that someone in this position is able to validly carry out these sales as if they were the owner. [It is not agreed whether this is implied authority or apparent authority.]
Where the agent is in possession of goods with the owners consent, any transfer by him also is good either by sale or security - which makes acting in the ordinary course of business as valid as if expressly authorised by the owner. So a mercantile agent is able to sell or buy goods etc. if he is doing so in the ordinary course of business.

NB see also Factors Act 1889, ss1- 2, and Factors (Scotland) Act 1890, ss. 1 - 2. The Factors (S) Act 1890 applies the English ‘Factors Act 1889’ to Scotland. The Factors Act 1889 is in the statutes.

Question 17

What are the qualifications as to who can be a factor?

Answer 17

Two qualifications:
⁃ 1) The buyer must be in good faith and must not know that the mercantile agent has no authority.
⁃ 2) It must be for valuable consideration (it must be for a price - not a gift).

Question 18

When may ratification occur?

Answer 18

Where no prior authority has been given, the acts of the agent may be ratified by the principal.

Question 19

How does ratification operate?

Answer 19

Ratification may operate on two different levels:
⁃ 1) the agent may be authorised to do certain acts but exceed his or her authority. Ratification validates the actions carried out in excess of his or her authority;
⁃ 2) there may be no valid agency relationship, but the agent purports to act for a specific principal. In this situation ratification creates the agency relationship.

Question 20

What is the strict criteria ratification is subject to?

Answer 20

Ratification is subject to strict criteria, all of which must be met:

1) The principal must have been in existence at the time the agent entered into the contract
⁃ For promoters purporting to enter into pre-incorporation contracts for a company see Companies Act 2006 s 51.
- Tinevelly Sugar Refining Co v Mirrlees Watson & Yaryan Co Ltd (1894) 21 R 1009
The company did not exist at the time the agent purported to enter into the contract. The principle has to be in existence at the time of contract in order to ratify.
- Boston Deep Sea Fishing v Farnham [1957] 3 All ER 204

2) The principal must have had the requisite legal capacity to enter into the contract at the relevant time (at the time the contract was entered into) in order to ratify the agent’s actions
⁃ Examples include Boston Deep Sea Fishing v Farnham [1957]

3) The agent must have entered into the contract as an agent, and not on his or her own account (agent does not need to name principle but must be clear one exists)
⁃ Keighley Maxted v Durant [1901]
- Lockhart v Moodie (1877)

4) Relevance of time limits and retrospective nature of ratification (NB: There is no Scottish authority on this point.)
⁃ Effective ratification binds the principal in a contract with the third party from the moment that the agent entered into the contract with the third party[ So ratification is fully retrospective (and this links to the requirements of existence and capacity - if the principal did not exist or had no capacity at this point then this would conflict with the fact ratification is fully retrospective).], as though the agent had been properly authorised from that moment (sometimes expressed as omnis ratihabitio retrotrahitur et mandato priori aequiparatur).

⁃ Thus, where an act must be done within a certain time limit, and the agent carries it out within this time limit, subsequent ratification by the principal outwith the time limit will be ineffective:

Goodall v Bilsland 1909
+ English law appears to recognise ratification by the principal after a third party has purported to withdraw from the contract, see:
⁃ Bolton Partners v Lambert (1889)

5) The principal must make an informed choice (in order to ratify)
⁃ Seen in: Forman v The Liddesdale [1900]

6) English cases have suggested that ratification may not be possible if it would cause unfair prejudice to a third party
⁃ See most recently: Smith v Henniker-Major & Co (a firm) [2002]

Question 21

Boston Deep Sea Fishing v Farnham [1957]

Answer 21

• A trawler operated by a french company at an english port when France become occupied during the war.
  
  • The english company carried on trading by using the trawler vessel during war years
  • Purported to act as agents for the french company
  • They did not have the authority of the french company to do so
  • At the end of the war the french company approved what the english company had done - they purported to ratify what the agent had done without authority
  • The court held that the french company could not effectively ratify thte actions of the english company
  • Why? - During occupation of France the french company was an alien enemy. The doctrine of ratification can only operate
  • At the time of doing the purported agency work the french company could not have ratified despite ratifying at the end in total competence - as at the time the actions were taken they were not competent (as an alien enemy).
  • [Look up this case]

Question 22

Alexander Ward v Samyang Navigation 1975.

Answer 22

Firm of solicitors raised action to recover money
At the time the company had no directors in office
A company acts through its directors
Comapny goes into liquidation
The liquidator purports to ratify the court action raised by the solicitor (agent)
HOL asked to decide whether company could ratify the raising of the action - possible for liquidator to validly ratify what solicitors had done?
HOL held: company was a competent principle at the time the actions were taken by the agent
In contrast to Boston case
Since it was competent at time action was raised - then ratification was possible.
The company was thus competent to appoint directors in office
(Need principal to exist that has capacity at the time the actions performed by the agent and also at the time that the principal actually ratifies the action of the agent).

Question 23

Keighley Maxted v Durant [1901]

Answer 23

Keighley authorises an agent to buy wheat up to a certain price. The agent went out to buy wheat at this price but couldn’t find any, so buys at a higher price (only informs principal of this after purchase). He bought as a form of joint speculation between himself and his principal (he wanted to have an interest in the wheat too). Principal was happy and purported to ratify this. The seller tries to deliver the wheat but both Keighley and the agent say that they don’t want the wheat. Durant then try to sue Keighley (principal) for breach of contract.
⁃ The case went to the HL and focuses on whether there could have been ratification here. The HL held that the agents activities could never have been ratified here on the ground that the agent was actually acting for himself rather than for the principal.
- Court found principal was not liable as he was not party to the contract. This was because the contract could not be ratified when the person who made it did not do so in a purely representative capacity (since it was joint speculation).

Question 24

Lockhart v Moodie (1877)

Answer 24

This is an earlier case which reaches an opposite decision on the same point. But most Scottish writers think that Scots law would follow Keighley rather than this case.
Moodie and mackenzie entered into a joint venture agreement for the purchase of yarn.
• Moodie authorised M to buy yarn subject to a maximum price.
• M then purchased at a higher price.
• Agent became bankrupt so seller sued Moodie for sums due for the yarn.
• The opinions in this decision show it was complicated (the joint venture).
• behalf of the joint venture.
• Majority of court came to view that he was acting for the joint venture.
• discussed (the maximum price).
• Only liable for amount agreed to pay as the maximum.

Question 25

Goodall v Bilsland 1909

Answer 25

⁃ Scottish case concerning a solicitor who was authorised by his client (as agent) to object to the renewal of a pub licence. The solicitor is unsuccessful. The solicitor tries to appeal within the relevant time limit but he does this without authorisation from the client.
⁃ He is successful in his appeal. The pub owner was not happy and finds out that the solicitor had no authority - he tried to argue that the decision of the appeal court should be set aside. After this the solicitor’s client tries to ratify the solicitor’s unauthorised appeal. The problem arises in that an appeal must be lodged within 14 days of the original decision. The court held that ratification was not possible because in effect this would have extended the 14 day period.
⁃ [So the principle is that some time limits are so important that they cannot be defeated by ratification.]
- This case is difficult to reconcile with the idea of ratification. The agent takes steps within the time limit after the principal purports to ratify but Goodall tells us that this is ineffective - however, the retrospective nature of ratification suggests otherwise, that the agent always had this power.
- However, ratification outside time limit is always ineffective.

Question 26

Bolton Partners v Lambert (1889)

Answer 26

English law appears to recognise ratification by the principal after a third party has purported to withdraw from the contract, see:
⁃ Bolton Partners v Lambert (1889)
⁃ Facts confusing so this description is in the abstract. What happens where an agent tries to conclude a contract without authority. The third party is unaware of the lack of authority and considers the contract to be valid. The third party then tries to change their mind and pull out of the contract. This should be possible since there wasn’t really a contract. However, what happens if subsequently the principle ratifies the contract? The Court held that there was a contract since the ratification is retrospective to the date the agent entered into the contract. Thus the third party could not pull out.
- An offer was made by an agent to purchase a lease from the plaintiff. The agent was not purported to make such an offer. The third party withdraws before the principal had ratified the agent’s offer. At this time the third party was unaware that the offer had come from an unauthorised agent. The plaintiff raises an agent for the specific performance on 17 January.
- The Ratification by the plaintiff’s relates back to the actions by the work committee, so the withdrawal by the defendant (third party) became effective by the retrospective nature of the ratification.
- [Look this case up - bad description]**
- Criticisms: the retrospective nature of ratification prevented the defendant from withdrawing from the contract at the time they could legally withdraw.
- Alternatively, the ratification was merely holding a party to a contract which was thought by that party to be legally binding at the time of withdrawal. So, giving the right to withdraw from a contract before ratification gives the defendant opportunity to withdraw from what they believed to be a legally binding contract.
- The middle ground approach is to require the principal to ratify within a time limit*.

Question 27

Bedford Insurance Co v Instituto de Resseguros do Brasil [1995] QB 966

Answer 27

English case law suggests that the defendant cannot withdraw even though at the time they purported to withdraw the principal had not ratified the authorised actions of the agent

Question 28

Presentaciones Musicales v Secunda [1994] Ch 271

Answer 28

??

Question 29

Forman v The Liddesdale [1900]

Answer 29

⁃ Agent in charge of a ship who instructs repairs to the ship. These repairs went beyond repairing this particular damage (so he was unauthorised to go this far). Eventually, after the repairs, the principal takes the ship back and uses it. The dispute was whether the principal had ratified the unauthorised repairs by using it. The court held that this was not enough for ratification - there would have to be more obvious indications of ratifying. The principal clearly had no choice but to accept the whole ship incorporating both the authorised and unauthorised repairs. The principal did not have the opportunity of making an informed choice since he could not take the ship with only the authorised repairs.

Question 30

Smith v Henniker-Major & Co (a firm) [2002]

Answer 30

A director of a company purported to sign a claim that a company had to himself personally. He was only director present at the directors meeting where that assignment took place. The other director did not attend that meeting. The director thought he was entitled to assign the claim and resolved to do so at the meeting. In 1999 the director personally issued proceedings on the basis of the assigned claim.
Defendant argued: assignment ineffective in terms of company’s constitution.
In 2001 the plaintiff (now sole director of the company) purported to ratify the earlier assignment (in order to make it competent if it was not previously so).

Court said: ratification is ineffective. Court considered the serious nature of the allegations made against the defendants and the prejudice caused to them in brining proceedings and it would now be unfair for the plaintiff to rely on retrospective ratification of what happened in 1999.

Unfairness of ratification coming 3 years later.

Where you have an agent who does not have ostensible or apparent authority and there is no issue of ratification by the principle - the genera rule is that the 3rd party is not in a contract with the principal. The third party thinks entering into contract with principal…in this situation the agent could be liable to third party for breach of warrant of authority. The third parties recourse is against the agent. The agent can be found liable to third party despite not being bound by a contract.

[Look this case up - bad description]

Question 31

The “Borvigilant” and the “Romina G” [2003]

Answer 31

??

Question 32

What happens where an agent breaches his warranty of authority?

Answer 32

An agent who does not possess authority, and who nevertheless negotiates a contract between his principal and a third party, may be liable to the third party for breaching his warranty of authority. In other words, this is the action that the third party has against the unauthorised agent. [So if an agent does anything unauthorised then they can be sued for damages by the third party - the loss would be the profit the third party expected to receive from the contract.]

There have been two significant Scottish cases on this action in recent years. These cases have concerned the liability of solicitors for breach of warranty of authority. In these cases a fraudster impersonated a real person and the solicitors then acted on their behalf as agents (without the solicitor’s being aware of their true identity). They impersonated a person to receive a loan over a house they didn’t themselves own. The lender then lost a large amount of money. The lender then tried to sue the fraudsters solicitor on the basis that the solicitor warrants that their clients are who they say they are. This was an attempt to extend the warranty from merely a warranty that the solicitor’s are authorised / are a solicitor. Both of these cases held that there is no such warranty under Scots law since it would make the solicitors bear a loss which is actually the loan company’s. [So the ratio is that a solicitor only warrants that they are authorised / are a solicitor.]

Where there is warranty of authority - what is it that he warrants. The scope and extent of warranty is held to be limited. The agent warrants that he has the authority of the principle. He does not want the identity of the principle.

All the agent needs to know is that he is authorised to act on behalf of the principle.

From the cases below it is clear that where the agent warrants that he has the authorisation of the principle.

Question 33

Frank Houlgate Investment Company v Biggart Baillie LLP [2009][ (Although there has been a further hearing in this case ([2013] CSOH 80),

Answer 33

the judgment of Lord Hodge concerns the agent’s delictual liability for fraud and is not covered in these lectures.

??

Question 34

Cheshire Mortgage Corporation Limited v Grandison; Blemain Finance Limited v Balfour + Manson LLP (joined cases) [2011]

Answer 34

??