What is an agency relationship?
A business relationship between a principal and agent where a principal gives legal authority to an agent to act on the principal’s behalf when dealing with a third party.
What is an agent’s authority?
An agent can be authorised to act on behalf of a principal through:
- express actual authority
- implied actual authority
- apparent authority
- authority by ratification
What is express actual authority?
Where the principal can expressly authorise the agent, in writing or verbally, to act on the principal’s behalf.
Explain implied actual authority.
Agency arises by implication whenever an agent is expressly authorised to act on the behalf of a principal. There is a grant of implied authority to do all things incidental to carrying out the main task.
When does an agent have apparent authority?
- the third party didn’t know the agent didn’t have actual authority
- the principal held out the agent as having authority to act on the principal’s behalf
- the third party relied upon that holding out, and reasonably assumed the agent had actual authority
Explain authority by ratification.
An agent’s action can be legally binding without actual or apparent authority at the time, if the principal, upon learning of the action, ratifies that action by authorising it retrospectively. There it’s as if the agent was acting with the principal’s actual authority at the time.
What are the agent’s duties?
- to follow instructions
- to communicate information
- to act personally
- to carry out instruction with due care and skill
- to act in the best interest of the principal
- to act confidentially
- to account
What are the agent’s entitlements?
- Remuneration: may be a flat fee or commission based upon the application of formula to a transaction amount
- Indemnity: to be reimbursed for payments made, expenses incurred and liabilities assumed while carrying out the principal’s instructions
What is the agent’s liability?
Any deal negotiated by the agent on behalf of the principal is between them and the third party. The agent is only an intermediary and not personally liable.
When is an agency relationship terminated?
- agent has completed all tasks appointed by the principal
- duration of appointment established expires
- principal and agent agree to terminate the relationship
- principal dismisses the agent due to a breach in contract or duties
- principal revokes the authority of the agent to act on their behalf
What should authorisation in Express actual authority state?
- The duration of the agent’s appointment
- The precise scope of the agent’s authority
- The agent’s entitlement to any commission, or payment
Is a principal legally bound even if the principal expressly told the agent not to enter into a contract or act in a manner on their behalf?
Yes, if they were acting with apparent authority.
It is an agent’s duty to avoid what?
Conflicts of interest. An agent shouldn’t be in a position where the best interests of the principal are in conflict with the agent’s own personal interests. In this event the agent must make full disclosure to the principal.
It is an agent’s duty to not accept what?
Secret commission. Agent’s must not accept payment made by the third party without the principal’s knowledge and permission, or payments intended to induce the agent for acting on behalf of the principal in a way that favours the third party.
When will an agent be personally liable to the third party?
In cases of:
- intentional liability
- undisclosed principal
- breach of warranty of authority
What requirements must be satisfied under a breach of warranty of authority, for the agent to be liable to the third party?
- agent claimed they were making the contract on behalf of the principal
- agent didn’t have authority to act on behalf of the principal
- third party relied upon agent’s representation; and wouldn’t have entered into the contract in the absence of the representation