Agent Law


An Agent in Commercial Law is a person who is authorized to act on behalf of another (called the Principal) to create a legal relationship with a Third Party. Agency law deals with the tripartite relationship between:
  • Agents and Principals
  • Agents and the Third Parties with whom they deal on their Principals' behalf
  • Principals and the Third Parties when the Agents deal on their behalf.

Brief Statement of Legal Principles:

There are three broad classes of Agent:

  • Universal Agents hold broad authority to act on behalf of the Principal, e.g. they may hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship, say, as lawyer and client.
  • General Agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and
  • Special Agents are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time.

Authority:

For these purposes, the Principal must give, or be deemed to give, the Agent authority to act.

  • Actual authority arises where the Principal's words or conduct reasonably cause the Agent to believe that he or she has been authorized to act. This may be express in the form of a contract or implied because what is said or done make it reasonably necessary for the person to assume the powers of an Agent.
  • Apparent authority arises when the Principal's words or conduct reasonably cause Third Parties to believe that the Agent has been authorized to act. This may be called "ostensible authority" or involve the creation of Agency by Estoppel where the Principal will be estoppeled from denying the grant of authority of Third Parties have changed their positions to their detriment in reliance on representations made.
  • Implied authority (sometimes called inherent authority) is conferred by custom, can be inferred by virtue of a position held, e.g. partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation, or it is implied by virtue of being reasonably necessary to carry out express authority.

Even if the Agent does act without authority, the Principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the Principal's behavior, e.g. if the Agent has purported to act in a number of situations and the Principal has knowingly acquiesced, the failure to notify all concerned of the Agent's lack of authority is an implied ratification to those ransactions and an implied grant of authority for future transactions of a similar nature.

Liability of Agent to Third Party:

If the Agent has actual or apparent authority, the Agent will not have liability on any transactions agreed within the scope of that authority so long as the Principal was disclosed, i.e. the fact of the agency was revealed and the identity of the Principal revealed. But where the agency is undisclosed or partially disclosed, both the Agent and the Principal are bound. Where the Principal is not bound because the Agent had no actual or apparent, the purported Agent is liable to the Third Party for breach of the implied warranty of authority.

Liability of Agent to Principal:

If the Agent has acted without actual authority, but the Principal is nevertheless bound because the Agent had apparent authority, the Agent is liable to indemnify the Principal for any resulting loss or damage.

Duties:

The Agent's primary fiduciary duty is to be loyal to the Principal. This involves duties:

  • Not to accept any new obligations that are inconsistent with the duties owed to the Principal. Agents can represent the interests of more than one Principal, conflicting or potentially conflicting, only on the basis of full and timely disclosure or where the different agencies are based on a limited form of authority to prevent a situation where the Agent's loyalty to the any one of the multiple Principals is compromised. For this purpose, express clauses in the agreement signed by each Principal with the Agent may identify specific types or categories of activities that will not breach the duty of loyalty and so long as these exceptions are not unreasonable, they will bind the Principals.
  • Not to make a private profit or unjustly enrich himself from the agency relationship.
In return, the Principal must make a full disclosure of all information relevant to the transactions so that the Agent is able to negotiate effectively and pay the Agent either the commission or fee as agreed, or a reasonable fee if none was agreed. If the Agent reasonably incurs expenses, he or she is also entitled to reimbursement.

Termination:

An Agent's authority can be terminated at any time. If the trust between the Agent and Principal has broken down, it is not reasonable to allow the Principal to remain at risk in any transactions that the Agent might conclude during a period of notice.