Definition of Agent and the Relationship with Principal

A principal delegates his authority to his agents for the purpose of performing the operations that had been originally assigned to the principal. Queen v. Kane (1901) 1 QB 472 is the remarkable English case which has provided the definition of agent. In this case it has been held that any person who happens to act on another’s behalf will be called an agent.  Therefore, in light of the aforementioned statement it can be clearly understood that the principal is to be held responsible for the actions of the agent as the agent derives his authority to perform his functions from his principal. The authority the agents derive from the principal can be apparent or ostensible and actual. As held by Lord Diplock in the notable case Freeman and Lockyer v Buckhurst Park Properties both actual and apparent authority can co-exist in a principal agent relationship where either of the two acts independently of each other.  

Agency law aims to create contractual relationship between an agent and principal. Such relationship can take the form of contractual, fiduciary or quasi contractual relationship.  Agency Law can be defined as a branch of English Commercial Law. Agency law governs the terms of the relationship shared between the Agent and the Principal. Directive 86/653/EEC of the European Communities provides the guidelines in relation to the conduct if agent who are self-employed in the commercial sector.  The aforementioned directive of European communities had been implemented in the Commercial Agents Regulations 1993.

Actual Authority is to differentiated from Ostensible Authority. Actual authority is said to be the authority, the principal delegates to the agent directly either in writing or orally. Actual authority can also be implied.  Actual authority is said to arise when the agents consents to accept such authority from the principal.  The consent of the agent of accepting the authority is considered to be factual evidence and cane be used in litigation processes.   A principal can be held responsible for the actions of his agent only if such agent acts with the scope of authority delegated to him. In circumstances when the agent exceeds his authority in performing his action the principal cannot be he held liable. In such an instance, the act of exceeding the authority to perform the action will be held to be in breach of contract terms and the agent will be personally liable to the third party with whom the agent had transacted. Actual authority can also be implied.

Types of Authority in Agency Law

Express authority is be said to be derived by the agent from the principal when the principal delegates the authority to the agent expressly either in writing or orally. Ireland v Livingstone (1872) LR 5 HL 395 is another notable English case, which deals with the provisions of Express Authority.  In relation to the Ireland vs Livingstone case it can be said that express authority arises from contractual agreements between the agent and the principal. As express authority can be delegated to the agent by the principal orally, the principal must be careful in choosing his word while communicating the agents to avoid any miscommunication, which might make the agent, think that an agreement of agency has been formed between the two, when such agreement was not intended to be formed by the principal.

The agreement of agency will generally determine the agent’s extent of authority as delegated to him by the principal. However, in case of oral agreements the evidence related to formation and terms and conditions of the agreement will determine the agent’s authority. The courts can assess the terms of the agency agreement if it is such agreement is found to be ambiguous. However, in most cases the courts interpret the agreement of agency against the principal and in favour of the agent as the terms of the agreement should have been scrutinized by the principal before delegating the authority to the agent.

Implied actual authority is different from express actual authority. In case of implied actual authority the authority the principal does not expressly delegate the authority to the agent to perform actions on behalf of the principal. Implied authority is generally assessed to be delegated by the principal when it is necessary to perform the collateral and incidental acts related to the original duties assigned to the agent by the principal. In the landmark case WATTEAU V FENWICK (1983)1 QB 346 it has been held by Lord Coleridge in concurrence with the judgment of Wills J that a principal can be held accountable for the acts of his agent. Such principal will be liable to the third party who deals with the agent in the belief that the agent  was working on behalf of the principal, even if the principal was unaware of the actions of agent.  Specifically in this case the court stated that the third party was supposed to rely on the usual authority of the manager of buying of tobacco. Usual authority and Customary authority are subdivisions of implied authority.  Usual authority of an agent is considered to be the authority which is necessary to perform the acts which are incidental and collateral to the original task assigned to the agent.

Elements of a Business Contract

However, such usual authority is not required to be expressly derived by the agent from the principal. The next type of implied authority is Customary authority. Customary authority is not derived from the principal directly. Instead such customary authority is said to be derived by the agent from the practices of business usage and the local market.  The case Hely-Hutchinson v Brayhead Ltd [1967] 1 QB is a notable UK company law case which deals with the implied authority of agents.

The cases Rosenbaum v Belson, Brigant v Banque du Peuple and Freeman v Lockyer deal with the provisions of usual authority of agents. Usual authority as mentioned earlier can also be referred to as implied authority. Usual Authority is essential to determine the extent of actual and apparent authority delegated to the agent by the principal. To have a holistic understanding of the principle of Usual Authority, it is essential to discuss apparent or ostensible authority.  Apparent or ostensible authority can be said to be existing in scenario where it is realized by the third party that the agent has derived the authority from the principal to perform the actions on behalf of the principal. If it is established that a reasonable third party had assessed apparently that the agent derived authority from the principal, such principal will be held to be liable for the actions of the agent.  As held in the aforementioned Freeman and Locker case it can be said that apparent authority is based on the principle of estoppel and thus it does not allow the principal to deny the agency’s existence to the third party. However, this provision was rejected in the Royal British Bank v Turquand case.  

Particularly in the Hely-Hutchinson v Brayhead Ltd case it had been held by Lord Denning that Hely-Hutchinson had the authority to act on behalf of Mr Richards and that Mr. Richards had the authority to provide indemnity to the aforementioned party.  Lord Denning had referred to the case of Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd., which governs the provisions of authority of agents while giving the judgment. In the Hely-Hutchinson case, the judge held that by virtue of holding the office of a managing director, such managing director would be considered to have authority over all the acts a reasonable managing director would do.

For drafting a business contract, the following elements have to be considered:

Incorporation of terms- The act of changing the existing terms or adding new terms to a contract under the English law is defined as incorporation of terms. To incorporate any term legally into an existing contract the following criteria must be fulfilled.

Attention- In order to incorporate a new term or change an existing term it is essential to intimate the party who is unaware of the new changes. It is the duty of the party who is willing to change the terms, to take reasonable steps for making the other party aware of such incorporation of new terms. The same provision was held in the case Thompson v LMS Railway [1930]. However, as held in the case Thornton v Shoe Lane Parking [1971] sufficient notice of change of terms cannot be printed on the back of a ticket.

Contractual Document- The contractual document must contain all the terms that have been incorporated in to the contract document. It has been held in the case Curtis v Chemical Cleaning Co [1951] that in case of a misrepresentation of any term in the contract the breaching party cannot rely on the clause of exclusion. Where a party signs a contract without reading it, such party will also be held to be bound by the terms of the contract as held in the case L’Estrange v Graucob [1934].

Notice- the parties to an agreement and contract must be provided with the notice about the addition of neutrons are the change of existing terms in a contract. The cases dealing with the incorporation of terms in the English law are McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 and Henry Kendall Ltd v William Lillico Ltd [1969] 2 AC 31. The principle of providing Notice about any change in the existing terms has illustrated in the landmark case Olley v Marlborough Court Hotel [1949] 1 KB 532. However the exception to the rule of providing notice to the parties to the contract has been illustrated in the case McCutcheon v David MacBrayne Ltd. In this case the court held that a notice is not required to be served if it is is established that the parties to the contract had consistent dealings in the past.

Confidentiality- A confidential agreement is one in which either or both the parties to the agreement agrees to keep the terms of the agreement confidential. According to Pattenden and Sheehan (2016), confidential agreement can also be defined as a non disclosure agreement. In case of a mutual non-disclosure or confidential agreement the obligation of maintaining secrecy about the terms of the agreement is imposed upon both the parties where as in case of a unilateral confidentiality agreement the obligation of maintaining privacy about the terms of the agreement is imposed upon one of the parties. Mutual confidential agreements are suitable for inventor groups whereas Unilateral confidentiality agreements are preferred in the arena of innovation. Unilateral agreements, which are standard in nature, are those in which of the parties delivers secret information to an investor or licensee.

Penalty Clauses- Such clauses are protective in nature. Penalty clauses are incorporated in the terms of the contract to bind either or both of the parties to contract to pay a compensation amount or penalty if any of the parties breaches the terms of the contract. Clause of penalty in a contract intends to bind the breaching to pay huge and unreasonable amount which can be compared to the greatest loss that can be sustained by the innocent party for the breach of the contract terms. However penalties in the English law cannot be enforced by the courts due the penal character. However, which clause constitutes a penalty is subject to interpretation of the court. In relation to the co-joined cases of Cavendish Square Holding BV v Talal El Makdessi, and ParkingEye Ltd v Beavis the Supreme court has ruled that test to assess which clause exists as a penalty has evolved a lot over time. The provisions related to penalties in contract are governed mostly by common law. In addition, the Unfair Contract Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999 also provide relevant insight about how to determine a clause to be a penalty clause. The provisions of common law regarding penalty clauses had been first illustrated in the case Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd. However the interpretation of any clause as a penalty clause has often challenged the courts. In the case Robophone Facilities Ltd v Blank[[1966] 1 WLR 1428 it was stated by Lord Diplock that there had been many attempts to interpret this rule however success has not been achieved. 

Termination of contract- Termination a contract can be due to a several reasons. As opined by Poole (2016), common reasons why contracts are terminated include unsatisfactory performance by either of the parties to the contract, refusal of the parties to perform their obligations or breach of some terms of the contract.  Some of the other reasons due to which a contract can be terminated are stated below:

• The contract has ceased to be practical for either of the parties to the contract
• Either of the parties to the contract are in longer need of the goods or services they had contracted for
• Insolvency of either of the parties which prevents him from performing  his obligations.

Termination of a Contract indicates that the contract has been discharged either by performance or by breach.  In case of termination of a contract, the contract does not in practicality cease to exist but it terminates the rights as well as obligations of the parties.  Some contracts get terminated  in due course of time once the performance of the terms of the contract are done, other contracts require some steps to be taken by the parties to avoid contractual obligations.

A contract can also be terminated following the breach of the following provisions under the common law:

• Breach of condition of contract
• Repudiatory  breach of an intermediate term
• Breach of warranties
• Refusal of the parties to perform their duties

Contract law is branch of common law, which deals with the provisions of how the relationships between the parties to a contract are to be governed. Contract law is also governed by several statutes. It is a branch of law whose origin can be traced back to the period of industrial revolution. It is deeply rooted in the lex mercatoria and activism of the judiciary of the period of industrial revolution. The law of Contract is applicable in all the countries of the commonwealth. According to McKendrick (2014), a contract in legal terms can be defined as an agreement between two parties which is enforceable by law.  One of the parties makes an offer. The other accepts the offer. The person making the offer is termed as offeror and the person accepting the offer is called offeree.  It is held that when tow of the parted enter into the contract, they intend to be legally bound by the terms of the contract. If either of the two parties to contract fails to perform the duties as stated by the terms of the contract, such party would be held to be in breach of the contract terms. A contract generally has a consideration, which acts as a bargain to enforce the terms upon the parties. There are remedies available under common law for the innocent party in case of a breach of the contract terms.  Such remedies include the right of the innocent party to rescind the contract or claim damages for the loss sustained by him for non- performance of the contract terms.

Reference:

Brigant v Banque du Peuple [1893] AC 170

Cavendish Square Holding BV v Talal El Makdessi, and ParkingEye Ltd v Beavis

Curtis v Chemical Cleaning Co [1951]

Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914] UKHL 1

Freeman and Lockyer v Buckhurst Park Properties

Hely-Hutchinson v Brayhead Ltd [1967] 1 QB

Henry Kendall Ltd v William Lillico Ltd [1969] 2 AC 31

Ireland v Livingstone (1872) LR 5 HL 395

L’Estrange v Graucob [1934]

McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125.

McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125 

McKendrick, E., 2014. Contract law: text, cases, and materials. Oxford University Press (UK).

Olley v Marlborough Court Hotel [1949] 1 KB 532

Pattenden, R. and Sheehan, D., 2016. The law of professional-client confidentiality. Oxford University Press.

Poole, J., 2016. Textbook on contract law. Oxford University Press.

Queen v. Kane (1901) 1 QB 472

Robophone Facilities Ltd v Blank^[[1966] 1 WLR 1428 

Rosenbaum v Belson [1900] 2 Ch 267

Thompson v LMS Railway [1930].

Thornton v Shoe Lane Parking [1971]

WATTEAU V FENWICK (1983)1 QB 346