Commercial law Revision
The Creation of an Agency relationship
What is Agency
- Principal appoints an agent to negotiate/contract on his behalf
- The agent contracts/negotiates with third parties
- A binding contract Is made between principal and agent
The significance of Agency
- Commercial convenience: No one can be expected to be in
several places at once allowing businesspeople to delegate is
crucial
- Agents may have expertise or access to certain markets that
otherwise would not be available
Capacity
The general rule is that a principal can appoint an agent to engage in
any act which the principal himself has the capacity to engage in
Formalities
Agency relationship can be brought about orally or in writing however if
- The agent is appointed to execute a deed this agent will need to
be appointed via deed (Berkeley v Hardy)
- if an agent is engaged to create or dispose of an interest in land,
then he must be authorized to do so in writing (LPA 1925 S53(1)
(a)
Agency by Agreement
Yasuda Fire v Onion Marine 1995
No requirement of contract just consent
- Where an agency is gratuitous consideration does not need to be
provided, whereas consideration must be given for contractual
- Where the agency is gratuitous the duties of each party are set out
in law, where the agency is contractual they are set out in the
contract
Express agreement
Can be orally or in writing all that is necessary is a desire to appoint a as
an agent and a’s desire to act as such (Heard v Piley)
- An express provision stating there is an agency relationship does
not necessarily make it so the court will look to the reality of the
relationship (Garnac Grain Co 1968)
Implied agreement
Marine Blast v Targe Towing 2004
Will be implied where one party acts in such a way ‘ hat it is reasonable
from that other to infer from that conduct assent to an agency
relationship
Examples
, - A (principal) appoints B (agent) to a position which would usually
result in B having the authority to act on A’s behalf (Pole v Leask
1863)
- A may acquiesce to another person acting as his agent however,
there will need to be an indication that the principal has done this.
It will not be presumed from the principals silence (Burnside v
Dayrell 1849)
- Where the agent is acting on behalf of the principal, merely
carrying out instructions will not be enough there must be some
indication present that b was acting on A’s behalf (Kennedy v De
Trafford 1897)
Agency by Necessity
When an emergency arises which requires someone to take an action to
protect the interest of another
Great Northern Railway v Swaffield (1874)
Horse was delivered the recipient refused to collect it, horse was put in
the stables, the recipient eventually took the horse and they were sued
for the costs of caring for. This was an agency of necessity
The Winston 1982
Cp’s boat became stuck 15000 tonnes of wheat were salvaged and
stored at Cp’s own expense. CP could recover the storage costs an
agency had been created by necessity
Requirements for Agency of Necessity
Requirement 1
Tetley v British Trade 1922
The reasonable person must regard the actions necessary for the benefit
of the principal, (objective test)
- Acting in order to avoid mere inconvenience will not be enough
(Sachs v Miklos 1948)
The scope of what is necessary appears to be vague
Australian steam navigation v Morse 1871-73
adopts the course which, to the judgment of a wise and prudent man, is
apparently the best for the interest of the persons for whom he acts in a
given emergency, it is necessary
Requirement 2
Springer v GWR 1921
It is not reasonably practicable for the agent to communicate with the
principal,
- Scrutten LJ – the communication must be commercially impossible
- had time to communicate and ask what should be done with the
tomatoes so no relationship of necessity exists
With the advancement of modern communication techniques this is hard
to satisfy
,Requirement 3
the agent’s actions were reasonable and prudent, and that he acted
bona fide in the interests of the principal
Prager v Blatspiel
Sale was not necessary because the goods were not perishable, BSH
was ordered to compensate for the price of the skins
- Where the agent acts for both their own profit and the profit of its
principal the court will look to the dominant motive (the Winston
1982)
Requirement 4
The principal must be legally competent at the time of the agents act, it
cannot be a dissolved corporation or an entity yet to be incorporated
The scope of necessity
Sims and Co v Midland Railway 1913
There have been many cases non maritime with perishable goods where
the court has found an agency of necessity,
- However the courts seem reluctant to expand it to non maritime
cases
Falcke v Scottish Imperial 1887
‘[n]o similar doctrine applies to anything lost upon land, nor to anything
except ships or goods in peril at sea’
Agency by statute
Examples include
Partnership act 1890 s5
Every partner in an ordinary partnership is an agent of the firm and of his
fellow partners for the purposes of the business of the partnership
Insolvency Act 1986, Sch B1, para 69
The administrator of a company is an agent of the company
Agency by ratification
Where the agent acts without authority or acts beyond authority this act
can be retrospectively ratified
Requirements for ratification
Agent must purport to act for a disclosed principal
Keighley v Durant 1901
KM ‘s ratification was invalid because Roberts did not disclose that he
was acting on behalf of his principal
Re Tiedemann 1899
If an agent falsely purports to act on behalf of another that person can
still ratify the acts of an agent
Watson v Swann 1862
The principle he is acting for does not necessarily need to be named but
there must be such ‘description of him as shall amount to a reasonable
designation of the person intended to be bound by the contract’
, The principal must have been in existence at the time of the
agreement with TP
Kelner v Baxter 1866-67
If a company has not been fully incorporated at the time of the agents
act then upon its incorporation the company cannot ratify the act
- Directors were held personally liable for contracts signed before
the company was ratified
Codified by s51 of the companies act 2006, if the company wishes to
benefit fro the contract the original one must be discharged and created
in new terms (Howard v Patent Ivory 1888)
Ratification must take place within a reasonable time of the
contract being made
Metropolitan Asylums v Kingham and Sons
That reasonable time can never extend after the time at which the
contract is to commence
The principal must adopt the whole contract with full knowledge of
what it entails
Suncorp v Milano SpA
there is a requirement of full knowledge, whilst this is difficult to pinpoint.
- where the principal is aware of ‘the essentials of what happened
as between the agent and the third party’, then the requirement of
full knowledge will most likely be satisfied. (ING Re v R and V
2006)
The principal must have had the legal capacity to make the contract
when the agent made it and when it was ratified
Firth v Staines 1897
must be competent
Boston deep sea Fishing v Farnham 1957
Farnham was deemed an alien enemy due to the invasion of France so
they were not competent to ratify BM’s actions
Grover v Matthews 1910
principal must actually be capable of doing the act himself at the time of
ratification,
- an insurance policy renewal could not be ratified because the
building had burnt down and a contract of insurance cannot be
entered into after the loss causing event had occurred
Ratification must not unfairly prejudice a third party
Bowstead and Reynolds
‘[r]atification is not effective where to permit it would unfairly prejudice a
third party’. This has been accepted by the courts (Borvigilant v Romina
G 2003) but applied inconsistently
The Creation of an Agency relationship
What is Agency
- Principal appoints an agent to negotiate/contract on his behalf
- The agent contracts/negotiates with third parties
- A binding contract Is made between principal and agent
The significance of Agency
- Commercial convenience: No one can be expected to be in
several places at once allowing businesspeople to delegate is
crucial
- Agents may have expertise or access to certain markets that
otherwise would not be available
Capacity
The general rule is that a principal can appoint an agent to engage in
any act which the principal himself has the capacity to engage in
Formalities
Agency relationship can be brought about orally or in writing however if
- The agent is appointed to execute a deed this agent will need to
be appointed via deed (Berkeley v Hardy)
- if an agent is engaged to create or dispose of an interest in land,
then he must be authorized to do so in writing (LPA 1925 S53(1)
(a)
Agency by Agreement
Yasuda Fire v Onion Marine 1995
No requirement of contract just consent
- Where an agency is gratuitous consideration does not need to be
provided, whereas consideration must be given for contractual
- Where the agency is gratuitous the duties of each party are set out
in law, where the agency is contractual they are set out in the
contract
Express agreement
Can be orally or in writing all that is necessary is a desire to appoint a as
an agent and a’s desire to act as such (Heard v Piley)
- An express provision stating there is an agency relationship does
not necessarily make it so the court will look to the reality of the
relationship (Garnac Grain Co 1968)
Implied agreement
Marine Blast v Targe Towing 2004
Will be implied where one party acts in such a way ‘ hat it is reasonable
from that other to infer from that conduct assent to an agency
relationship
Examples
, - A (principal) appoints B (agent) to a position which would usually
result in B having the authority to act on A’s behalf (Pole v Leask
1863)
- A may acquiesce to another person acting as his agent however,
there will need to be an indication that the principal has done this.
It will not be presumed from the principals silence (Burnside v
Dayrell 1849)
- Where the agent is acting on behalf of the principal, merely
carrying out instructions will not be enough there must be some
indication present that b was acting on A’s behalf (Kennedy v De
Trafford 1897)
Agency by Necessity
When an emergency arises which requires someone to take an action to
protect the interest of another
Great Northern Railway v Swaffield (1874)
Horse was delivered the recipient refused to collect it, horse was put in
the stables, the recipient eventually took the horse and they were sued
for the costs of caring for. This was an agency of necessity
The Winston 1982
Cp’s boat became stuck 15000 tonnes of wheat were salvaged and
stored at Cp’s own expense. CP could recover the storage costs an
agency had been created by necessity
Requirements for Agency of Necessity
Requirement 1
Tetley v British Trade 1922
The reasonable person must regard the actions necessary for the benefit
of the principal, (objective test)
- Acting in order to avoid mere inconvenience will not be enough
(Sachs v Miklos 1948)
The scope of what is necessary appears to be vague
Australian steam navigation v Morse 1871-73
adopts the course which, to the judgment of a wise and prudent man, is
apparently the best for the interest of the persons for whom he acts in a
given emergency, it is necessary
Requirement 2
Springer v GWR 1921
It is not reasonably practicable for the agent to communicate with the
principal,
- Scrutten LJ – the communication must be commercially impossible
- had time to communicate and ask what should be done with the
tomatoes so no relationship of necessity exists
With the advancement of modern communication techniques this is hard
to satisfy
,Requirement 3
the agent’s actions were reasonable and prudent, and that he acted
bona fide in the interests of the principal
Prager v Blatspiel
Sale was not necessary because the goods were not perishable, BSH
was ordered to compensate for the price of the skins
- Where the agent acts for both their own profit and the profit of its
principal the court will look to the dominant motive (the Winston
1982)
Requirement 4
The principal must be legally competent at the time of the agents act, it
cannot be a dissolved corporation or an entity yet to be incorporated
The scope of necessity
Sims and Co v Midland Railway 1913
There have been many cases non maritime with perishable goods where
the court has found an agency of necessity,
- However the courts seem reluctant to expand it to non maritime
cases
Falcke v Scottish Imperial 1887
‘[n]o similar doctrine applies to anything lost upon land, nor to anything
except ships or goods in peril at sea’
Agency by statute
Examples include
Partnership act 1890 s5
Every partner in an ordinary partnership is an agent of the firm and of his
fellow partners for the purposes of the business of the partnership
Insolvency Act 1986, Sch B1, para 69
The administrator of a company is an agent of the company
Agency by ratification
Where the agent acts without authority or acts beyond authority this act
can be retrospectively ratified
Requirements for ratification
Agent must purport to act for a disclosed principal
Keighley v Durant 1901
KM ‘s ratification was invalid because Roberts did not disclose that he
was acting on behalf of his principal
Re Tiedemann 1899
If an agent falsely purports to act on behalf of another that person can
still ratify the acts of an agent
Watson v Swann 1862
The principle he is acting for does not necessarily need to be named but
there must be such ‘description of him as shall amount to a reasonable
designation of the person intended to be bound by the contract’
, The principal must have been in existence at the time of the
agreement with TP
Kelner v Baxter 1866-67
If a company has not been fully incorporated at the time of the agents
act then upon its incorporation the company cannot ratify the act
- Directors were held personally liable for contracts signed before
the company was ratified
Codified by s51 of the companies act 2006, if the company wishes to
benefit fro the contract the original one must be discharged and created
in new terms (Howard v Patent Ivory 1888)
Ratification must take place within a reasonable time of the
contract being made
Metropolitan Asylums v Kingham and Sons
That reasonable time can never extend after the time at which the
contract is to commence
The principal must adopt the whole contract with full knowledge of
what it entails
Suncorp v Milano SpA
there is a requirement of full knowledge, whilst this is difficult to pinpoint.
- where the principal is aware of ‘the essentials of what happened
as between the agent and the third party’, then the requirement of
full knowledge will most likely be satisfied. (ING Re v R and V
2006)
The principal must have had the legal capacity to make the contract
when the agent made it and when it was ratified
Firth v Staines 1897
must be competent
Boston deep sea Fishing v Farnham 1957
Farnham was deemed an alien enemy due to the invasion of France so
they were not competent to ratify BM’s actions
Grover v Matthews 1910
principal must actually be capable of doing the act himself at the time of
ratification,
- an insurance policy renewal could not be ratified because the
building had burnt down and a contract of insurance cannot be
entered into after the loss causing event had occurred
Ratification must not unfairly prejudice a third party
Bowstead and Reynolds
‘[r]atification is not effective where to permit it would unfairly prejudice a
third party’. This has been accepted by the courts (Borvigilant v Romina
G 2003) but applied inconsistently
