12 Agency and partnership

1 Definition

1.1 An agent (A) is a person who is appointed by another (Principal) to enter into a contract with a third party (TP).

2 Creation of agency

2.1 (a) By consent

(b) By operation of law

(c) By estoppel

(d) By ratification

2.2 Consent

(a) Consent may be express or implied. (Actual authority)

(b) Express authority e.g.. by way of contract.

(c) Implied authority, two persons may by their relationship or conduct to each other imply an agreement between them that on is the agent of the other e.g.. employer and employee, company and company director.

2.3 Operation of law

(a) The most important instance in which agency can arise by operation of law is in the case of agency of necessity.

(b) Conditions:

(i) the agency must have no practical way of contacting the principal to obtain instructions.

(ii) there must be some pressing need for action.

(iii) the agent must have acted bona fide (in good faith)

(iv) the action taken by agent must have been reasonable and prudent.

2.4 Estoppel (see 5.7) below.

2.5 Ratification

(a) The principal must exist and have contractual capacity when contract made.

(b) The principal must have been identified at the time of contract.

(c) The principal must have been made aware of all material facts.

(d) The contract must be valid and legal.

(e) The principal must ratify the whole contract.

(f) Ratification must be within a reasonable time.

3 Duties of an agent

3.1 (a) Performance and obedience.

(b) Reasonable care and skill.

(c) Personal performance.

(d) To be accountable.

(e) No conflict of interest.

(f) No secret profit.

4 Rights of an agent

4.1 (a) Reimbursement of expenses and indemnity.

(b) To be paid (if contractual). If the amount is not specified then a reasonable amount must be paid. If the contract provides for a commission to be paid the commission will become due only once the strict terms of the contract are complied with.

5 Authority of the agent

5.1 In order to bind a principal (P) into a contract with a third party (TP), the agent (A) must have authority.

5.2 There are two types of authority:

(a) Actual

(b) Apparent

5.3 Actual Authority – there are 2 types:

(a) Express

(b) Implied

5.4 Express Actual Authority – authority specifically given to the agent by the Principal.

5.5 Implied Actual Authority – if A is appointed to a particular position that A has authority to do everything usual to that position.

5.6 It is possible to restrict A's implied authority, but to be effective, the TP must know of the limitation. (i.e. implied authority may be less than the apparent authority). Watteau v Fenwick.

5.7 Apparent authority – also occurs where it appears to TPs that A has authority. This may result from P making a representation (by words/action/inaction). Consequently although the agent has no actual authority (be it express or implied) contracts are still binding between P and TP as TP is protected by the 'appearance' of authority and P is stopped (or "estopped") from denying A's authority.

6 Effect of an agent acting without actual, implied or apparent authority

6.1 (a) The purported P will not be bound by the contract.

(b) There is no contract between A and TP as TP did not intend to deal with A personally.

(c) The A will be liable to TP and principal for breach of warrant of authority.

7 Termination of agency

7.1 (a) By act of parties (e.g. notice, performance).

(b) By operation of law (e.g. death, bankruptcy).

8 Partnership law

Definition and formation

8.1 (a) Most of partnership law is contained in Partnership Act 1890 (PA 1890).

(b) Partners can agree that their internal arrangements need not necessarily comply with the provisions of the Act, but certain principles cannot be overridden.