Contract - The Law Of Agency

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Agency - Introduction

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The law of agency governs situations where one person (agent) is appointed to act as the representative of another (principal) in the context of contractual negotiations.

Generally, this system will be adopted for a number of reasons, for example it may not be practical for one person to personally enter into all the contracts he/she would wish.

Moreover, where a company enters into contractual negotiations, it is important that someone be appointed as an agent to act on behalf of that entity.

As we have already discussed, the concept of agency is one way of avoiding the privity rule.

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Law of Agency

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The Law of Agency is mainly governed by common law principles.

However, it is important to note that the actions of commercial agents are now governed by the Council Directive on the Co-ordination of the Laws of the Members States relating to Self-employed Commercial Agents.

Essentially this Directive deals with the rights and obligations that arise between a commercial agent and his principal and was incorporated into Irish Law through the European Communities (Commercial Agents) Regulations 1994 & 1997.

Under these Regulations a commercial agent means a self-employed intermediary, who has continuing authority to negotiate the sale or purchase of goods on behalf of another person, i.e. the principal, or indeed to negotiate and conclude such transactions on behalf of and in the name of the principal.

There are a number of exceptions to this definition.

These include: an officer of a company or association who is empowered to enter into binding commitments on behalf
of that association; a partner who is so authorised; a receiver, a receiver and manager, liquidator or examiner or a trustee in bankruptcy; a commercial agent whose activities are
unpaid; a commercial agent working in the commodity market or exchanges; and a consumer credit agent or mail order catalogue agent for consumer goods whose activities are considered
secondary.

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Disclosed/Undisclosed

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In contractual negotiations an agent may be disclosed whereby the other contractual party actually knows that the agent is acting for a principal.

An agent may also be undisclosed where the relationship of agent and principal is not openly exposed.

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Authority

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There are two main types of authority:

( 1) Actual-this is where the principal has in fact granted authority to an agent.

(a) Express: there is a clear agreement to this effect.

(b) Implied: the parties conduct themselves in a way that indicates that one party is acting as an agent of another party.

(2) Apparent-this governs a situation where there is no actual relationship of agency, but there is good reason to believe that the relevant third party has authority to act as agent for another person.

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Ratification

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If the principal discovers that the agent has entered into a transaction without any authority to do so, but upon becoming aware of the transaction decides that he wishes to adopt the transaction, he may do so by ratifying the transaction.

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Agency Relationship

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Akin to any contractual relationship, both the principal and the agent owe certain duties and obligations to each other as part of that relationship.

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Agent's Duties

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The agent is under a duty to obey the principal at all times. He/she must exercise skill and care while acting as agent and must carry out all such actions in person and must account to the principal (in respect of information and moneys). The agent must undertake to act in good faith at all times.

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Principal's Duties

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The principal also owes duties to the agent. The principal must indemnify the agent for any expense incurred by him through the course of his duties.

Moreover, he must pay the agent in accordance with the terms agreed. Indeed, if no such terms have been agreed, terms will be implied that require payment to take place on a quantum meruit basis.

Furthermore, the principal will owe whatever other duties may have been agreed between the parties.

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Agent Acting without Authority

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Where an agent acts without any authorisation from the principal, then the principal is not bound by the actions of the agent, regardless of whether or not the agent purported to act on his behalf. However, the agent in his/her personal capacity may be sued by the third party.

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Agent Acting within Authority: Disclosed Principal

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Where the agent acts within his/her actual or apparent authority and also discloses the fact that he/she is acting for a principal (naming that principal), the contract is between the principal and third party alone; the agent will not incur any liabilities under the contract to the third party.

The actions of the agent will bind the principal only. This is evident from the decision in McGuill v Aer Lingus (Unreported, High Court, 3 October 1983).

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Agent Acting within Authority: Undisclosed Principal

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If the principal remains undisclosed, then the agent may be considered as a being a party to the contract and thus may sue and be sued on that contract as if he/she were the principal.

However, in the event of the principal being subsequently disclosed, the third party may choose to enforce the contract against either the principal or the agent. He cannot sue both.

The latter is known as the doctrine of election and is intended to prevent third parties from enjoying the benefit of having two parties to take an action against as opposed to one. The election once it occurs must be clear and unequivocal.

A principal may also enforce the contract against the third party except where the contract expressly or by implication provides that the agent was the sole principal or the contract is one of a personal nature, so that it would be unreasonable to allow a person who was not a party to enforce it.

Thus, once the principal has been disclosed, the agent loses his rights against the third party and any rights remaining are rights against the principal.