Module 6 - Page 97

Module 6: Agency

Introduction

If a natural person or any entity recognised by the law has the capacity to act directly on their own behalf, then unless commerce is to be severely limited, it must be legally possible for them to authorise another person or legal entity to act on their behalf. And of equal importance, to limit the scope of that second party to bring themthe first party or Principalinto legally binding relations with third parties. Indeed it isand so Agency Law is the subject of this module. It is therefore useful to appreciate that subject to legislative intervention and limitations, any legally recognised person/entity may contract to undertakeor be held to have by operation of law under the holding out principlebusiness or personal transactions on behalf of any similarly recognised person/entity whether resident within the same legal jurisdiction or another. There are numerous types of agents, including sole or exclusive agents. And at common law, a principal may compete with their agents for business with potential clients or customers, unless prohibited by contract between them. On a pedagogical note, students should avoiding mixing up Principal and Principle: this module sets out the common law principles that govern legal relations between Principal, Agent and Third Parties.

On a personal application of these principles, it is even possible in some jurisdictions to formally marry by proxya sort of power of attorney and agency relationship:

A proxy marriage is one where someone stands in for the other party. That is, either the bride or the groom is not physically present for the wedding. During the solemnization of the marriage, based on a power of attorney, an agent acts on behalf of one of the parties. (Stritof & Stritof 2005, p. 1)

By way of example, in a recent study, Susanna Luliano (2000, p. 7) found that, proxy marriages between Italian immigrants and Italian nationals did take place in Canada and Australia after World War Two. Furthermore, these marriages happened frequently enough to rouse the attention of government, ecclesiastic and legal authorities, as well as ethnic organizations, most notably the Italian language press.

Agency law therefore has wider application than students might otherwise initially consider!

Objectives

On completion of this module, you should be able to:

define the essence of the agency relationship and the parties concerned

outline and discuss the main types of agents

describe the various ways in which an agency relationship might arise by contract or operation of law

provide an account of the standardised duties which a principal and agent owe respectively to each other and in relation to third parties

explain how an agency relationship might be terminated.

Readings

Textbooks Turner & Trone 2013 Ch. 13

Davenport & Parker 2012 Ch. 13

Module 6 - Page 98

Definition of agency

An agent is a person authorised to act on behalf of another (the principal).

An agent is a person who is engaged, inter alia, to bring the principal into contractual relations with third parties. Other types of employees, such as independent contractors or servants, do not have authority as such to affect their principals relations with third parties.

As an agent does not contract on their own behalf, the agent does not need full contractual capacity. The contractual capacity of the agent is limited to the contractual capacity of the principal.

In other words, an agent is a person who is employed for the purpose of bringing the principal into contractual relations with third parties. The agent does not make contacts on his/her own behalf and consequently it is not necessary the he/she must have full contractual capacity. For example, an infant or bankrupt may be appointed as agents. The principal, however, must have full contractual capacity, and if the principal has no such contractual capacity, then he/she cannot make a contract even by employing an agent who has full contractual capacity.

To be sure, since historically, agency law is derived from disparate equity, quasi-contract and tort sources, and much of it has effect by operation of lawirrespective of contract or consentits best understood as a power-liability relationship, concerned with:

... the way in which the conduct of principal and agent (or two persons who are treated in law as principal and agent) affects third parties ... These two aspects of the agency relationship have been differentiated as external and internal.

(Fridman 1970, pp. 1314)

In this way, neither internal nor external relationship need be contractual: either may arise alternately (i) by adverse operation of law, or (ii) be consensual but fall short of contract i.e. comprise mere unpaid consensual transacting. The prospective agent may act gratuitously or for reward; and either external/internal contract may arise by inference or expressly. Its therefore fallacious to assume that simply because the external relationship happens for example to be (re)classified contractual by subsequent ratificationa juristic actat the principals option thereby preserving their freedom of choice, that the internal relationship is necessarily contractual by factual inference and should also attract sufficiently specified implied terms including remuneration.

Agency can be by express agreement, by implication, or by necessity. For example, by implication is confirmed by Pickering v Busk (1812) 15 East 38 where A employed B, a broker, to buy hemp for him, and at As request it was entered in the place of deposit in Bs name. B, without As authority, sold the hemp. Held: A was bound by the sale because he had allowed B to assume the apparent right of disposing of the hemp in the ordinary course of trade.

Classification of agents

Universal agent

A universal agent has authority to act for the principal in all matters whatsoever. This type of agency is very rare and is created by deed in the form of a power of attorney.

The power of attorney will usually be worded as:

(i) I appoint Jonathon Hickford of Rockhampton, Scientist, to be my attorney.

(ii) I authorise my attorney to do on my behalf anything that I may lawfully authorise an attorney to do.

A power of attorney will only lapse upon lack of capacity by the attorney.

Module 6 - Page 99

Special agent

A special agent is appointed for a particular purpose (usually not part of the normal business activities). This agent is authorised to make a particular contract only.

In other words, the agent only has authority to perform a particular task. Beyond the specialist task, the agent has no authority whatsoever.

General agent

A general agent has authority to represent the principal in business of a certain kind. The agent has implied authority to represent the principal in all matters coincidental to the business in question, for example, Watteau v Fenwick (1893) 1 QB 46. Here H, the owner of a public house, sold the public house to Fenwick, who continued H as manager. Watteau, who knew nothing of Fenwick, sold cigars to H for the use of the public house. H had been expressly forbidden by Fenwick to purchase cigars upon credit. Being unable to obtain payment from H, Watteau sued Fenwick. Held: (i) as the cigars were such as would usually be dealt with in a public house, H was acting within the scope of his implied authority as manager in ordering them; (ii) Fenwick could not, as against Watteau, set up any secret limitation of that authority.

In other words, the acts of a general agent are binding on the principal if they are within the scope of the agents apparent authority, although they may be outside the scope of actual authority. A private limitation of the apparent authority will not be binding unless it is known by the other party to the contract.

Del credere agent

A del credere agent promises that third parties introduced to the principal by the agent will perform their part of the contract.

This means that the agent guarantees to the principal that the clients introduced by the agent to the principal will pay in terms of the contract. If they do not do so, then the agent must pay the principal: Joycorp v Milton Bradley Australia Pty Ltd [1992] 2 VR 572.

The del credere (in effect for credit) agent is not obliged to take the place of the client and complete the contractual terms, merely to pay the short fall in payment once ascertained: Gabriel & Sons v Churchill & Sim [1914] 3 KB 1272.

Creation of agency

An agency can arise by:

agreement between the principal and the agent, (such agreement may be express of implied)

operation of law through the doctrines of estoppel or necessity or status

ratification of the agents acts by the principal.

Agreement between principal and agent

An agent can be appointed orally, in writing or by a deed under seal. In the case where an agent is to execute an instrument, it is necessary that the agent be appointed by a deed under seal (statute requires that a power of attorney be created by deed also). An express agreement provides the agent with express authority to perform certain actions on behalf of the principal. Incidental to this express authority is the implied authority which is given to the agent as an adjunct to carrying out the express instructions of the principal. The express authority and the corresponding implied authority together make up the actual (real) authority of the agent.

Module 6 - Page 100

An express agreement, therefore, is where the agent is expressly appointed either verbally or in writing. No particular form is required unless the agent is required to make a contract under seal, when he/she must receive their authority under sealthis is called a power of attorney.

Implied authority is therefore when one person by words or conduct holds out another as having authority to make contracts on their behalf. The principal will be bound by such contracts as if expressly authorised by them. For example, where a wife and husband are living together the wife is presumed to have her husbands authority to pledge his credit for necessaries suitable to their style of living. This can be rebutted by the husband if he is paying a sufficient allowance and the necessaries are excessive: Miss Gray Ltd v Cathcart (1922) 38 JLR 562. A wife was supplied with clothes to the value of 215 and the husband refused to pay for them. On his being sued by the plaintiff tradesman, the husband proved that he paid his wife 960 a year as an allowance. Held: the husband was not liable.

Holding out or estoppel

In a situation where P allows A to hold herself out as Ps agent and third parties enter into contracts on this basis, P will be estopped from denying this is so, even in cases where A has no authority at all. In general, there must be some words or conduct on the part of P which leads others to believe that A is Ps agent to raise the estoppel against P.

The type of authority which arises in an agency created by estoppel is apparent or ostensible authority. Apparent authority is the authority of an agent as it appears to others. Apparent authority occurs whether or not the agent has any actual authority, as in the case of an agency arising by estoppel or where an agent acts in excess of their actual authority. The principal is bound by all acts of the agent which occur within the apparent authority of the agent even if such acts are not within the actual authority of the agent. One way of determining the apparent authority of an agent is to examine the usual authority of a person in that particular role. Watteau v Fenwickthe manager of a public house would normally have the authority to purchase tobacco; Freeman & Lockyer v Buckhurst Park Properties [1964] 2 QB 480. Here a property developer and another formed a company to purchase and resell a large estate. The property developer, without authority from his fellow directors, instructed architects to proceed with land development and planning permit applications. Held: although the property developer had no actual authority to employ the architects, nevertheless the company was liable.

The articles of the company gave power to the property developer and, accordingly, the company were estopped from denying his agency. Note the comments of Diplock L.T. which demonstrate four conditions must be satisfied before a company is bound by its agents action:

It must be shown: (a) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor; (b) that such representation was made by a person or persons who had actual authority to manage the business of the company either generally or in respect of those matters to which the contract relates; (c) that he (the contractor) was induced by such representation to enter into the contract, that is, that he relied upon it; and (d) that under its memorandum or articles of association the company was not deprived of the capacity either to enter into a contract of the kind sought to be enforced or to delegate authority to enter into a contract of that kind to the agent.

It was within the authority of a director who acted as managing director to employ a firm of architects. Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711 where a company secretary has the ostensible authority to hire cars.

Lord Denning commented as follows:

A company secretary is a much more important person nowadays than he was in 1887. He is an officer of the company with extensive duties and responsibilities. This appears not only in the day-to-day business of companies; but also in the role he plays in terms of the Companies Act... he is certainly entitled to sign contracts connected with the administrative side of the companys affairs.... All such matters now come within the ostensible authority of a companys secretary.

Sometimes the court will hold that the conduct of P amounts to P conferring actual authority on A rather than giving rise to an apparent authority.

Module 6 - Page 101

In practical terms the problem is that a third party is attempting to make P liable on a contract entered into by A acting on Ps behalf (and P is seeking to avoid the contract). In this situation the third party will try to establish either:

1. that A had actual authority to make the contract either express or implied or by virtue of the office held by A

or

2. that A had ostensible authority because A was held out by P as having this authority.

In a case where the authority has not been expressly delineated the implied actual authority and the ostensible authority will be co-extensive with the usual authority attached to the particular office or position.

Agency arising out of necessity

In cases of emergency

In these cases the purported agent is generally seeking an indemnity from the principal for expenses incurred in the exercise of the agency. The courts are reluctant to increase this class of agent. For this sort of agency to arise:

1. the person must be entrusted with anothers property

2. an immediate expense must be required for the preservation of the propertythere must be some commercial necessity for the actions of the agent

3. it must be commercially impossible or extraordinarily difficult to communicate with the owner of the property

4. the agent must act bona fide in the interests of the principal.

For example, Great Northern Railway Co v Swaffield (1874) LR 9 Ex 132 where the railway company was held to be an agent of necessity of a consignee of a horse and therefore competent to incur expenses in housing it on arrival. The court decided that the person in authority in relation to transportation of goods will be liable in damages.

Husband and wife and de facto relationships

The law presumes that a woman living with a man whether in matrimony or not has authority to pledge his credit for necessaries in domestic matters. This presumption can be rebutted if the man can show either that he forbad her to pledge his credit or that he provided her with a sufficient allowance to pay for necessaries. A married woman living with her husband is entitled to pledge his credit for necessaries. A married woman living apart from her husband (where they have separated by mutual consent) can pledge his credit for necessaries unless there is some other means of support available. A woman who has left her husband has not authority to pledge his credit unless he has been guilty of such misconduct as to justify her leaving him and living apart.

This only applies if the married woman, living apart from her husband, is without adequate means of support. In those circumstances she may bind her husband in relation to any contract which she enters into: Biberfield v Berens [1952] 2 QB 170. However a wife, living apart from her husband voluntarily and without sufficient cause, has no authority to bind the husband to the contract.

Agency by ratification

A principal incurs no liability on contracts supposedly made by:

a duly appointed agent who has exceeded their authority in making the contract

a person who has no authority to act as agent purports to do so.

However, in such cases P may expressly or impliedly rectify the agents transactions and so accept liability on the contracts retroactively.

Module 6 - Page 102

If P does not adopt the contract (ratify), there is no agency relationship established and the person who intended to act merely as agent becomes personally liable to the third party (for any loss which follows from As misinterpretation).

The principal may ratify the contract by:

express ratification

implication by adopting a benefit of the contract.

In other words, if the agent had no authority to contract on behalf of the principal or exceeded such authority as he or she had, the contract is not binding on the principal. The principal may, however, afterwards confirm and adopt the contract so made, and this is known as ratification. The effect of ratification is to render the contract as binding on the principal as if the agent had been properly authorised beforehand. However, if there is no authorised principal the agent will be personally liable: Kelner v Baxter (1866) LR 2CP 174. Kelner agreed to sell a hotel to Baxter, who was acting as agent for a company which was about to be formed. Held: Baxter was personally liable on the contract and no subsequent ratification by the company could relieve him from liability unless Kelner agreed to release him.

Requirements for ratification

A must contract as agent and this fact must be known to the third party.

P must exist at the time when the contract is made.

P must have capacity to make the contract at the date when the contract is made.

P must have capacity to ratify at the date when the ratification occurs.

Only the person on whose behalf A purported to contract can ratify the contract even if the third party did not know the identity at the time when the contract was made.

P must have full knowledge of all material facts at the time of ratification or have agreed to dispense with it.

P must ratify the whole contract.

It was held in Keighly, Maxsted & Co v Durant [1901] AC 240 that no ratification was possible. R was authorised by K to buy wheat at a certain price, but exceeded his authority and purchased at a higher price from D. R bought in his own name, but intended to buy for K. K agreed with R to take the wheat at the price, but failed to take delivery. Held: K was not liable to D, as he could not ratify Rs contract. In effect, there was neither agency or privity of contract.

Relationship between the principal, agent and third parties

Once an agent has made a contract for their principal, the agent drops out of the transaction and the privity of contract exists between the principal and the third party. However:

A is always liable for their own fraud

P is always liable for Ps own fraud

P is vicariously liable for fraud of A committed during the course of agency if A is acting within their ostensible authority.

On the other hand, if the agent does not follow the principals instructions, then the principal can successfully sue in damages: Bertram, Armstrong & Co v Godfray (1830) 1 Knap 381. Here the agent was a stockbroker who was instructed by his principal to sell certain stock once it reached a certain market price. The agent failed to sell the stock when it reached the specified market price. The market price then dropped and the agent was forced to sell for less. Held: the agent was liable for the difference to the principal.

Module 6 - Page 103

Agent acting for a named principal

The agent cannot be sued on the contract by the third party unless the agent has made themselves personally liable; for example, by signing a deed, a bill of exchange, agreeing to accept personal liability, by custom.

For example, in Wakefield v Duckworth [1915] 1 KB 218 Duckworth, a solicitor, was sued by Wakefield. The solicitor had been instructed to defend a man charged with manslaughter. He employed Wakefield to obtain certain photographs. Wakefield was not paid and sought recovery of the costs from the solicitor. Held: Duckworth was an agent of the accused, and Wakefields right of action was against the principal (the accused), not the agent.

Similarly, in Black v Smallwood (1966) 117 CLR 52 a contract was signed Western Suburbs Holdings Pty Ltd, Robert Smallwood, J. Cooper, Directors. Held: they did not sign as agents, but merely in their capacity as directors of a company, not a party to the contract. Therefore they were not liable.

Agent acting for an undisclosed principal

Agency revealed but identity of principal concealed.

Agent incurs no liability on the contract as the third party has made the contract with the principal and knows of the principals existence.

In other words, the agent discloses the existence, but not the name of the principal. In this case, if the agent expressly contracts as agent they cannot be personally liable on the contract: Universal Steam Navigation Co Ltd v James McElvie & Co [1923] AC 492. A charter party was made between X as agent of a shipowner and JM & Co charterers and was signed for and on behalf of JM & Co (as agents), J.A.M.. The ship was to load coal at Newcastle upon Tyne (Britain) and proceed to a foreign port, and provision was made for payment by the charterers of demurrage (daily sum paid where ship detained beyond the contract time) in the event of the ship being detained beyond the stipulated time. X knew when the charter party was signed that JM & Co were acting as agents for another, but they did not know who the principals were. An action was brought by the shipowner against JM & Co for demurrage. Held: having signed as agents, JM & Co were not liable as principals to pay demurrage, although they were described as charterers in the charter party.

Agency concealed altogether

Doctrine of undisclosed principal

The third party can enforce the contract against the agent, or when the third party discovers the existence and identity of the principal, against the principal. In this situation, the third party has the option of whether to compel the agent to accept personal liability, or to shift the liability to the principal as soon as the identity of the principal is revealed.

The option of the third party must be exercised subject to two considerations:

1. The option is alternative, the third party must unequivocally indicate either principal or agent as liable to the third party. The third party cannot later sue the other. Judgment obtained against either principal or agent, even if unsatisfied, bars proceedings against the other.

2. If the third party by words or conduct induces the principal to believe that a settlement has been made between the third party and the agent, the third party cannot later sue the principal on the contract: Heald v Kenworthy (1855) 10 Ex 739.

Thus:

the third party cannot enforce the contract against both A and P

the third party may be estopped from suing P, if P is allowed to think that the third party has settled matters satisfactorily with the agent; for example, by taking unreasonable delay in taking action against P once the identity is revealed.

Module 6 - Page 104

This means the right of the principal to sue the third party is subject to two qualifications:

(a) If the principal allows the agent to contract in terms incompatible with agency, the principal cannot sue on the contract: Humble v Hunter (1848) 12 QB 310. The agent entered into a charter party and described himself as owner of the ship. Held: evidence was not admissible to show that he was an agent.

(b) The principal can be met by any defence which was available to the third party against the agent before the third party discovered the existence of the principal: Montagu v Forwood [1893] 2 QB 350. Montagu employed agents to collect a debt from a debtor. To do this the agents properly employed Forwood who collected the debt. The agents owed money to Forwood. Forwood had no idea that he was being employed by Montagu and claimed money from the agents owing to him. Held: the money owing by the agents was owing to Forwood and he could properly claim the amount outstanding.

Breach of warranty of authority

Principal cannot be held liable if an agent acts in excess of the agents actual and ostensible authority. However, where the act complained of is not expressly authorised by the principal, the latter is, jointly and severally with the agent, responsible if such an act is committed by the agent in the course of his/her employment as agent or within the scope of his/her authority. In Leggo v Brown & Dureau Ltd [1923] HCA 19, Knox CJ restated the rule of law enunciated in Colleen v Wright [1857] EngR 179 to the effect that:

a person who enters into a contract as agent expressly as agent for a principal named implied warrants his authority; and if in fact he has no such authority, he may be sued on that implied contract and is bound to make good to the other contracting party what that party has lost, or failed to obtain by reason of the non-existence of the authority.

Or as alternately stated by Isaacs J in the Leggo case, the essentials of such an action are: (1) assertion of authority; (2) inducement by asserting; (3) transaction which but for the assertion the other party would not have entered into. Where they co-exist there is a warranty. There is no suggestion that there must be belief in the truth of the assertion. Isaacs J then usefully cited UK authority for the proposition that warranty of authority was a separate and independent rule of law extending in scope beyond contract to every transaction of business.

But so long as the agent is acting within the scope of the employment entrusted to the agent, the principal is liable for all frauds committed by the agent, whether for the benefit of the principal or for the agents own profit: Lloyd v Grace Smith & Co [1912] AC 716. In the case, a solicitors clerk who was in charge of the office defrauded a client. Because the clerk was acting within the apparent scope of the business, his employer was answerable for the fraud committed on the client. The employer had placed the clerk in a position to transact business of this kind and was therefore liable for the consequences.

Third party cannot sue A on the contract made as A contracted as agent for P and thus did not incur personal liability on the contract.

The result is that the third party can sue the agent for breach of warranty of authoritythe remedy is for damages which is calculated by the actual loss sustained. An agent will not be held liable for breach of warranty of authority if P gave ambiguous instructions.

Module 6 - Page 105

Duties that a principal owes to the agent

1. To pay the agent commission or remuneration as agreedit depends on the term of the contract as to when the commission becomes payable, for example, completion of the sale.

Cases have emphasised that whether the agent is entitled to remuneration is essentially a question of construction. The problem arises most frequently in relation to agreements with land agents. In Peter Long v Burns [1956] 1 WLR 1083 an agreement for sale and purchase was made after the agent had made an innocent misrepresentation. Because the agreement was liable to be rescinded and had in fact been rescinded by the purchaser, it was not a binding agreement and the agent was not entitled to his commission.

2. To indemnify the agent against liabilities properly incurred in the lawful discharge of the duties.

The agent is entitled to retain possession of property belonging to the principal until the agent has been indemnified.

It is vital to appreciate here that an agents right to indemnificationincluding reasonable costsarises by operation of law (where ratification applies too), so it doesn't comprise consideration as required for contract purposes (Fridman 1970, pp. 3738):

It may be argued that because a principal is always under a duty to indemnify his agent (unless there is an agreement to the contrary) wherever there is an agreement to act as agent there is always consideration moving from the principal, viz., the implied promise to indemnify the agent . It is suggested however that the duty to indemnify is not truly to be regarded as providing consideration for the promise to act as agent, but rather an obligation imposed by the law wherever the relationship of principal and agent arises. The principal in fact, where the agency is not strictly contractual does not promise to indemnify the agent; he is compelled by the law to do so . purely consensual agency differs from contractual agency only in so far as no contract is required. Simple agreement without the formalities of offer and acceptance, consideration etc., necessary for the emergence of a contract at common law is all that is needed. So far as this kind of agency is concerned, whether it be termed agency arising by act of the parties or consensual agency, the emphasis is upon agency arising from contract. Such a contract may be express or implied. It may also arise, however, as a result of subsequent ratification by the principal it is suggested that agency by ratification is also a form of consensual, even contractual agency

Duties of agents owed to principal

1. To exercise due care and diligence.

2. To disclose promptly to P any material information they may receive in the execution of their task.

3. Not to disclose confidential information entrusted to them by P.

4. Not to delegate the performance of their duties.

5. Not to let their interests conflict with the duty owed to P.

6. Not to make any secret profit.

An agent occupies a fiduciary position. A fiduciary is defined as a person occupying a position of trust vis-a-vis another person such that they are bound in equity not to abuse that trust by making unauthorised profits by virtue of their position, or by allowing self-interest to conflict with their duty.

For example, Andrews v Ramsay & Co [1903] 2 KB 635. Andrews instructed Ramsay to sell certain property and agreed to pay him 50 commission. Ramsay sold the property and received 100 from the purchaser as deposit, of which he paid 50 to Andrews, retaining the other 50 in payment of his commission with Andrews consent. Andrews learned that Ramsay had also received 20 as commission from the purchasers and he sued to recover this 20 and also the 50 he paid Ramsay. Held: he was entitled to recover both sums.

Module 6 - Page 106

Thus while the duties of an agent to a principal can vary, however as stated above, a key feature of that relationship is that agents are fiduciaries. The common law implies a number of primary duties upon an agent. The agent must always act in the principals interests; never accept payment from another party; give personal attention to the principal; follow the principals instructions; exercise due care, skill and diligence; and account for all transactions (Pentony et al. 2003, pp. 4778). These duties have been expressed in slightly different ways. Agents are fiduciaries: HPI v US Surgical Corp (1984) 156 CLR 41 (Pentony et al. 2003, p. 477). This means inter alia, that they must act in good faith, that is exercise all their rights and powers for the principals benefit, disclose any personal interests and not make a secret profit (Turner 2013, pp. 212213). The nature of a fiduciary relationship is that the agent must never allow the duty of the principal and personal interest to conflict .In order to protect the principal the agent is not permitted to accept payment from another party except with the principals consent The ultimate breach of the fiduciary duty would be for the agent to accept a secret commission. In brief an agent owes a duty of undivided loyalty- the self-dealing rule. The duty not to accepts bribes being a subset of the agents general fiduciary duty, so that the vice inherent in a bribe is that it is a secret payment that is designed to dissuade the agent from promoting and preferring the principals interests over and above that of the agents in dealing with the third party and to obtain the best possible result for the principal in discharging the mandate entrusted to the agent (Fisher 2000, pp. 104, 110111).

Where fiduciary duties are breached by an agent, as Pentony et al. (2003, p. 478) explain, the principal has the right to: (a) terminate/rescind the relationship and not pay the commission; (b) choose whether to affirm, i.e., continue with the contract or treat is as void ab initio; (c) if its too late to avoid the contract then the principal can recover any secret commission paid; (d) and sue for consequential damages such as recovering an over inflated/below market price; and (e) the payment of the bribe/secret commissions would attract Commonwealth and State legislation, exposing errant agents to criminal prosecution (fines and a jail sentence) plus liability under the law of restitution to recovery on the basis of unjust enrichment, and presumably cancellation of their agency licences.

In addition if fraudulent mispresentationa false statement made knowingly, per Derry v Peek 1889is also an express term of any agency-sourced contract then the principal would have an elective of (a) suing for rescission or (b) contractual damages for breach of warrantythe standard common law damages principles being applicable. Rescission based on the tort of deceit would also be permitted in principle although if a contract (e.g., for the sale of a house property) has been wholly executed and the property transferred, is the buyer was party to the fraud, no further (innocent) party having been involved (any mortgagees interest should be protected in any event) since the rule in Seddons case [1905] expressly allows executed conveyances to be overturned where there is fraud (Graw 2005, pp. 300-302). So, under the rescission option, on court application if necessary, (i) any property subject to the eg. a real estate agents fraud would be retransferred to its original owner, the principal and (ii) related financial compensation would be ordered if necessary to reimburse the principal for all expenses incurred (e.g., recovery of the Agents commission) as part of the object of rescission which is, to put the parties back into the positions they occupied before the contract was made (Graw 2005, p. 300).

There is some overlap of remedies if the aggrieved principal elects instead to affirm the contract and sue for damages in the agency setting. The various related remedies/actions at common law would include: (i) the agent forfeiting their commission; (ii) liability for any bribe/secret commission by way of restitution; (iii) liability in damages for any under-valued salethough it is possible an aggrieved principal can only recover the greater of the bribe or actual loss on the property sale; (iv) loss of the agents right to indemnity and liability to dismissal (though it may often be too late; (and v) constructive trustee for the profits/bribe (Fisher 2000, pp. 1123).

Termination of agency

The termination of agency can be either by act of the parties, or by operation of law.

Acts of the parties

1. Mutual agreement between P and A.

2. Revocation of As authority.If the revocation is unjustified, A may be able to bring an action for breach of contract against P. P should give notice to third parties who usually deal with A of revocation of As authority. The revocation of authority is ineffective where A has executed her authority so that a third party would be affected so that P is unable to revoke. P may be estopped from revoking As authority where it would cause personal loss to A.

Module 6 - Page 107

3. As renunciation of his/her authority.

4. By dismissal if A receives secret commissions.

If the agent has been appointed for a fixed time or for a specific purpose, the authority ends in terms of the agreement when the period has elapsed or the object effected: Jerome v Bentley & Co [1952] 2 All ER 114. J gave T a diamond ring for sale. It was agreed that T should receive any amount in excess of 550 in payment of his services and that if the ring was not sold within seven days it was to be returned to J. T, after seven days had passed, sold the ring to B for 175 and represented himself as the owner. Although B acted in good faith, he was held liable to repay the value of the ring to J, because Ts authority as an agent having been terminated prior to sale (and there being no possibility of T being regarded as an agent by presumption), no title had passed to B.

Operation law

1. Death, bankruptcy, insanity of either A or P.

2. Impossibility of illegality of performance.

3. Expiration of time.

4. Frustration.

5. If P becomes an alien enemy.

Case examples are:

Yonge v Toynbee [1910] 1 KB 215. Here solicitors received instructions from a client to defend an action. They did so, but before the action was commenced their client became insane. Held: the solicitors authority was revoked and their ignorance of their clients insanity was immaterial.

In Stevenson & Sons Ltd v Akt Fr CartonnagenIndustrie [1917] 1 KB 842, Stevenson & Sons were sole agents for a German firm in Great Britain and its colonies for the sale of machines on a commission basis. Held: the outbreak of war between England and Germany terminated the agency.

References

Fisher, S 2000, Agency law, Butterworths, Sydney.

Fridman, GHL 1970, The law of agency, Butterworths, London.

Graw, S 2005, An introduction to the law of contract, 5th edn, Law Book Co, Sydney.

Luliano, S 2000, Italian proxy marriages in post-war Canada and Australia, Italian Australian Institute Inaugural Conference, viewed 29 January 2013, http://www.australiadonna.on.net/english/women_oxen_iuliano_paper.htm

Pentony, B, Graw, S, Lennard, J & Parker, D 2003, Understanding business law, 3rd edn, LexisNexis Butterworths, Chatswood.

Stritof, S & Stritof, B 2005, Proxy marriage: history and legalities, viewed 29 January 2013, http://marriage.about.com/od/proxymarriages/qt/coloproxy.htm

Turner, C & Trone, J 2013, Australian commercial law, 29th edn, Thomson Reuters, Pyrmont.