Revision Notes Commercial Law Courses

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Revision Notes, Commercial Law, courses

Commercial Law (Monash University)

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AGENCY What an agent is in law ● "Agent is a word used in the law to connote (indicate) an authority or capacity in one person to create legal relations (usually contracts) between a person occupying the position of principle and third parties" (International Harvester Co of Australia Pty Ltd V Carrigan's Hazeldene Pastoral Co (1958) Page 418)  The principal is legally responsible for what the agent does  The principals, agents and/or third parties can be individuals or corporations Agents are not independent dealers or contractors International harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100CLR 644 (High Court) Page 418 Defendant = International Harvester Plaintiff = Carrigan  

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A dealership was used to sell hay-bailers that were manufactured by the defendant The hay-bailer was sold to the plaintiff by the dealership in its own right. The contract referred to the dealership as ‘the dealer’ and ‘owner’ and did not mention the defendant Result: o The defendant was NOT the principal in the transaction o The dealer was NOT its agent

Difference between independent dealers and agencies Independent users Dealer Contract

Defendant

Contract

Plaintiff No Contract

Agency Agent

Principal

Contract

Third party Contract

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Agency relationship Represents principal to

Agent

Third party

Agency agreement

Legal relationship

Appoints

Principal

Indicators of agencies  Are profits kept or are they passed onto the principal o Independent dealers keep profits o Agents are paid a commission  Are the sales accounted to the principal? o An agent must make a full and honest account to the principal The law doesn’t rely on titles or names used, instead the law looks carefully at the facts that revealed the nature of the relationship Potter v Customs and Excise Commissioners (1985) STC 45 (Uk court of appeal) Page 419  The dealers kept the profits they received (over 70% of the price of the profit)  The dealers didn’t need to give potter an account of the buyers (no names)  Each dealer was responsible for their own debts  Results: o The dealers were not agents of potter Agencies and other relationships Agencies are different from other relationships, although they may arise from them Employment (employer-employee): An employer is not usually an agent of the employer  Relationship may become an agency relationship in circumstances where employers can give employees special authority to deal with third parties on its behalf  Example: A sales person who had the authority to make contracts of sale on behalf of the employer

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Independent contract: Independent contractors are employed by a client to perform specific work  They may become an agency Bailment (Bailor-Bailee): A bailee in possession of a bailor’s goods is not usually an agent of the bailor, but may be if given authority  Lawful possession does not automatically carry an authority to sell these possessions to a third party (or create a legal relationship between the bailor and third parties) Sachs v Miklos (1948) All ER 67 (UK court of appeal) Page 427 Agent/Bailee = Miklos Principal/Bailor = Sachs  The alleged agent allowed the principal to store furniture in one of the agents rooms  The principal failed to contact the agent for 3 years  The agent was unable to contact the principal  The agent wished to use the room so the agent auctioned the furniture and kept the money for the principal upon their return  The defence of agent by necessity was rejected as an emergency did not exist (the house hadn’t been destroyed leaving the furniture exposed to thieves so there was no immediate need to sell the furniture) Partnerships: Each partner is an agent for other partner(s) Supplier-buyer: Dealer doesn’t act as an agent for a supplier International Harvester Co of Auatralia Pty Ltd v Carrigan Hazeldene Pastrol Co (1958) 100 CLR 644 (High court) Page 418  The transaction was carried through on the basis that the agent sold the haybailer to the third party and that the principal was not the contracting partner Franchisor-Franchisee: The franchisee acts independently and not as an agent for the franchisor Potter v Customs and Excise Commissioners (1985) STC 45 (UK Court of appeal) Page 419 Principal/Franchisor = Potter Agent/Franchisee = dealers  The franchisor was the principal who distributed products for Tupperware  The franchisor found franchisee’s who got the parties together  The goods remained the property of the franchisor until the franchisor was paid  Each franchisee was responsible for his or her own debts  Result: o The dealers were not agents/franchisee’s of Potter 3|Page


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How someone becomes an agent (the creation of an agency) An agent may need to be licensed or have minimum qualifications (example: travel agents or solicitors) Creation of an agency

By the parties

Principal

By operation of the law Necessary to protect principals property (usually under care of agent)

Ratifying unauthorised conduct by the agent

Gives authority

Actual

Agency by Cohabitian

Apparent

Express: Clearly stated in spoken or written words by the principal

Agency by estoppel: Reasonably indicated to third party by circumstances

Implied by authority given to the agent

Agreement (Actual authority)  Appointed orally or in writing (mostly in writing so the terms are clear)  Actual authority consists of actual powers given to the agent by the principle they can be express or implied Created by express agreement  The agreement does not have to be binding (does not have to be a contract)  Principal doesn’t need to provide consideration (the principle can instruct or request the agent to do something and the agent can agree to carry out the request or instruction)  The principle will be legally bound by the agents authorised conduct

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Created by implied agreement  The unspoke authority (not expressly given to the agent) which is given to the agent due to the circumstances  This authority allows the agent to do anything that is necessary when trying to carry out set tasks given by the principal o The principal will be legally bound by the agents conduct Agency by Estoppel (apparent, appearance or ostensible authority)  Elements for establishing an agency by estoppel exists: o There has been a representation (either by word or conduct - act or omissions) by the supposed principle that gives the impression that the supposed agent is the principles agent o The third party reasonably relied on this representation o The has been a change in the third parties position as a result of relying on the representation  If a third party deals with the agent reasonably believing the agent has authority, the principal is estopped (stopped) from denying the agent has authority Pole V Leask (1861-73) All ER Rep 535 (House of lords) Page 426 Principal = Pole Acting agent = AG Third party = Leask  The agent acted as an agent for the principal a number of times in dealing with the third party, the agent also received money from the third party on behalf of the principal o The agency was terminated, principal did not directly inform the third party o After termination, the agent continued to act for the principal without authority o Not knowing about the termination of agency, the third party entered into an agreement with the principal o The third party paid money that was intended for the principal to the agent o The agent took the money and kept it for himself  Result: o The agency by estoppel existed (including recept of money)  By failing to inform the third party that the agency ceased to exist, the principal represented that it continued (by conduct)  The principal was estopped (stopped) from denying the representation  The third party did not have to pay the money again to the principal 5|Page


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Ratification Rules that needs to me complied with for ratification to be effective 1.    2.   3.  4.  5.  6.   7.  8.  9. 

The agent must contract as an agent The third party must be aware that the person they are dealing with is only an agent The principal must be sufficiently identified Only the principal can ratify Ratification must occur within a reasonable period of time The principal must have existed as the time the original contract was made At the time the contract was made, the principal mast have had legal (contractual) capacity o no minors or bankrupts The principal must be aware of all the facts and adopt all of the agents actions Ratification must apply to the whole contract If the agent entered into a number of separate transitions on behalf of the principle, the principle may ratify one or more of those transitions Ratification can be implied by the principals conduct (doesn’t need to be express) Ratification will be ineffective where the original transaction is void The ratification doesn’t date back to the time at which the contract was made

Keighley, Maxsted & Co Vs Durant (1900-3) ALL ER Rep 40 (House of Lords) Page 437 Principal = Keighley, Maxted & Co Agent Third party = Durant  The principal and the agent received a offer from the third party  The principal and agent agreed to make a counter offer to become purchasers on joint account  Third party refused counter offer the agent (acting alone) purchased the goods at a higher price (as a sole purchaser), the principals name was not mentioned  Later the agent told the principal about the deal  Principal agreed to be the purchaser at the higher price  The contract price was not paid and the third party sold the goods at a loss  Result: o There was not an agency by ratification o Ratification will only exist when the agent is known to be acting as an agent and not as a principal  It will not apply in the situation of a undisclosed principal  Undisclosed principal exists when the third party believes that they are dealing with an agent as a principal (thus the third party is unaware of any principal) 6|Page


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Agency by necessity  Contracts for the carriage of goods  Usually do not involve third party  Elements to be satisfied o The agent must be entrusted with the principals authority o There must be a genuine emergency o It must be impossible or very difficult to contact the principal to get instructions on how to deal with the emergency o The agent must act in the interest of the principal Sacha Vs Miklos (1948) All ER 67 (UK Court of Appeal) Page 427 Alleged agent = Miklos Principal = Sachs  Alleged agent allowed the principal to store furniture in one of the agents rooms  Principal failed to contact the agent for 3 years  Agent failed to contact the principal  Agent wished to use the room so the furniture was auctions and the money kept for the principal upon their return  Result: o Principal wanted to charge with the tort of conversion (dealing with another’s property in an unauthorized way o The defence of agent by necessity was rejected as an emergency did not exist (the house hasn’t been destroyed leaving the furniture exposed to thieves..etc) Agency by Cohabitation  In many Australian jurisdictions, this common law doctrine had been abolished altogether by statute  It is presumed that wives have authority ti pledge their husbands credit for the purchase of household necessities

The powers (authority) of an agent 

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2 kinds o Actual authority And/or o Apparent (or ostensible) authority A principal will be bound to a third party by their agents actions if the agent has either kinds on these authorities Actual authority is greater than apparent authority The significance if actual authority o It may give a principal rights against an agent who has exceeded actual authority, or acted without authority 7|Page


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o The principal will be bound to the actions of their agent when the agent acts within the agents (express or implied) actual authority. Representation by the principal must occur for ostensible authority to exist  Agents cannot clothe themselves with authority by merely claiming to have it  A principal must in some way represent to the third party that the agent has authority (conveyed by agent or any other means)  The agent shouldn’t be aware of the principals representations (although they generally are) Why apparent (Ostensible) authority is binding  Doesn’t depend on the extent of actual authority  third parties (usually) have no way of knowing what an agents actual authority is  Third parties must rely on what the principal and agents communicate to them Freeman & Lockyer vs Buckhurst Park Properties (Mangal) Ltd (1964) 1 All ER 630 (UK Court of Appeal) Page 432 Principal = Buckhurst Park Properties Third party = Freeman & Lockyer  A representation was made by the principal to the third party o The agent has the authority to enter into a contract of the kind the third party was seeking to enforce o Agent was never appointed managing director of Buckhurst but he acted asif he was  The representation was made by a person who had actual authority to manage the principals business (generally or contract matters)  The third party relied upon this representation  The third party sued when account wasn’t paid  Company denied the agent has any authority to engage in making a contract  Result: o Agent has ostensible authority o It was reasonable for the third party to believe the agent had real authority Herperu Pty Ltd Vs Morgan Brooks Pty Ltd (no 2) (2007) NSWSC 1438 (Supreme Court of New South Wales) Page 434 Principal = Morgan Brooks Alleged agent = Mr and Mrs Cincotta  Principal entered into a licensing agreement with the alleged agents to create ‘Morgan Brooks’ Coffs Harbour Agent’ and then later on with another person “Morgan Brooks’ Double Bay Agent’  Principal consented to the alleged agent and their business to use the title of ‘Morgan Brooks’ Licensees’ on business cards, stationary and office signage 8|Page


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A client paid more then 4 million to Mr Cincotta and his company with the intended purpose to be invested by Morgan Brooks in a particular investment o Money was misappropriated and misapplied by Mr Cincotta Client sued Morgan Brooks for a refund and argues that Mr Cincotta and his company were agents of Morgan Brooks and were acting within scope of their authority Morgan Brooks denied they were managers, employees or agents of herm they were independent contractors who would only receive and forward loan applications under Morgan Brooks’ name Result: o By allowing the use of her name on signage, stationary, business card and on their website, Mr Cincotta was an agent of Morgan Brooks o Client were not aware of the licensing agreement & it was not clear that Mr Cincotta was operating an independent business separate to Morgan Brooks o Client transactions fell within Mr Cincotts ostensible authorise to create a contract on behalf of Morgan Brooks so she was bound by the contracts

First Energy (UK) Ltd Vs Hungarian International Bank Ltd (1993) 2 Lloyd’s Rep 194 (UK court of appeal) Page 435 Third party = First Energy Ltd Agent = Senior management of bank Principal = Hungarian International Bank Ltd (Manchester office)  Third party approached the agent for a loan  Due to the substantial size of the loan, it was forwarded to the board of director in London  Believing the loan was approved, the agent offered (by letter) the third party to provide the credit facility  The third party accepted  The third party sued the principia for breach of contract o The principal argued that the agent did not have the actual or ostensible authority to approve this type of loan this the principal was not liable o Third party argued that although they didn’t have the authority to approve the loan, they had ostensible authority to communicate the banks decision (and deal with relevant documents) , so the letter of offer is binding on the bank  Result: o Bank was bound by the contract  Agent did have ostensible authority to convey the decision of the board

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Undisclosed principal rule  Where an agent (acting with actual authority) doesn’t disclose to the third party that the agent is in fact an agent  The third party can enforce the contract against the agents or the principal  If the rule applies, the principal can enforce the contract against the third party Elements of the rule:  The agent was not acting on the principals behalf but was acting with express or implied actual authority o Ratification doesn’t apply  The wording or terms of the contract are not consistant with or include the possibility of a principal  The identity of the principal is not critical to the third party Said Vs Butt (1920) 3 KB 497 (Kings Bench Division) Page 442 Undisclosed principal = Banned person Agent = Friend Third party = Theatre  Undisclosed principal was banded from the theatre  Undisclosed got an agent to purchase a ticket for him  When the undisclosed principal was refused admission he sued the theatre for breach of contract  Result: o The undisclosed principal could not sue  the identity of the ticket purchaser was critical and the theatre wouldn’t have sold the ticket to the agent if he’d known it was for the banned person 

The third party can raise any defence against the undisclosed principal that could have been raised against the agent

Minter Vs Mendies (1996) C480-95 QBT 42 Page 442 Third party = Minter Agent = Mendies Disclosed principal = Mendies  Third party entered into a contract with the agent to have his roof replaced  But the agent was actually the principal  The principal operated his business as a company  Third party wanted to sue for breach of contract o Could elect to seek damages from the company or the agent  Result: o Third party sued the agent personally (for poor workmanship) due to the few assets the business owned

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Duties of an agent 

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The primary, but not sole function of an agent is to make contracts on behalf of the principal by bringing the principal and a third party into a legal relationship or alter their legal relationship Breach of duties will render the agent liable to the principal

General duties – The agent must:  Perform what he or she has undertaken to perform  Obey instructions  Exercise due care and skill in carrying out the agency  Act personally Fiduciary duties  To account honestly  To avoid conflict of duty or interest  Not to make secret profits (secret commissions or bribes)  Not to use principals property or information for personal gain Agents may receive money from the third party on behalf of the principal Petersen Vs Moloney (1951) 25 ALJR 566 (High Court) Page 421 Principal = Peterson Third party = Moloney  Principal instructed an estate agent to find a purchaser for her house  No express authority given  Third party paid the price of the house to the agent and a receipt was given  Agent was not the principals agent for he receipt of money (authority didn’t extend to receive money), only to find a buyer for the house  Result: o The third party had to pay the amount again due to the agent failing to pass on the first payment

Norwich Fire Insurance Society Ltd Vs Brennans (Horsham) Pty Ltd (1981) VR 981 (Supreme Court of Victoria) Page 424 Third party = Brannans Principal = Norwich insurance  Agent approached the third party who recommended the principal to cover the business insurance  All premiums were paid to the agent and the policies were renewed even though the money never got to the principle  The agent never paid money and went into liquidation  Result: 11 | P a g e


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o It was held that an insurance agent DID have the authority to accept premiums on behalf of the principle (Norwich insurance), thus a payment to the agent was effectively a payment to the insurer Agents may pay money on behalf of the principal  Example- home buyers using a solicitor to arrange final settlement and to pay the balance of money due under the contract Agent make representations on behalf of the principle which the principle with legally responsible for  Example- real estate agent describing the size of the property for sale Examples of common agencies include  The same and leasing of land (estate agents)  The sale of company shares (stockbroker)  Dealings by companies (directors, employees and external agents)  Legal matters (barrister and solicitors) Duties of a principal to an agent Duty to remunerate the agent according to the agreement between them  The agent has a lien over the principals goods for debts owed by the principal to the agent o Example: the agent may withhold and (sometimes) sell the goods unless the debt is paid Duty to compensate the agent for expenses/losses incurred, except those arising from  Unauthorised actions (unless subsequently ratifies) OR  The agents own default or negligence

Who can sue whom? The third party can sue the principal where:  The agent acted with express or implied actual authority (whether or not the existence of the principal was disclosed)  The agent acted within ostensible authority  The principal has ratified the agent’s unauthorised actions

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When is the principal bound?

The principal can sue the third party where:  The agent acted within actual authority (includes undisclosed principal)  Principal has ratified agents action Suing the agent The agent cannot sue or be sued on a contract where the agent was known to be acting as an agent  This rule doesn’t apply when: o The principal didn’t exist at the time of making the contract o The agent executed a deed or a bill of exchange in his or her own name o Custom or trade usage makes the agent liable o The terms of the contract made the agent liable  Where the agent lacked authority, they may be liable to the third party Reasons why an agent would claim authority that doesn’t exist:  Engaging in fraud  Believe that they can convince the principal to accept the deal after it has been made  Genuinely mistaken as to the extent of their powers  Genuinely mistaken as to the existence of an agency o Death, bankruptcy and insanity automatically terminate an agency 13 | P a g e


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In these situations the third party can sue the agent for: o Misrepresentation (fraud, negligence, Australian consumer Law section 18)  Chapter 3 o Breach of warranty of authority under principal outlined in Collen Vs Wright  A breach of warrant of authority occur when an agent promises (warrants) falsely that they have authority to enter into a contract on the principals behalf

Collen Vs Wright (1843-60) All ER Rep 146 (Court if Exchequer Chamber) Page 441  Third party entered into an agreement to lease particular land belongings to the principal o This was handled by the agent (he believed he had the authority to enter into this contract  this belief was shared by the third party)  Agent didn’t have authority  Principal refused to proceed with the lease  Third party sued agent for damages  Result: o There was a contract between the third party and the agent o Agent didn’t have authority o Agent was in breach of contract (breach of his warranty of authority)  To succeed in an action for breach of warranty of authority the third party must show: o The agent warranted (promised) having authority o The third party relied on the warranty o The third party wouldn’t have otherwise entered into the contract o Third party has suffered loss as a result

Termination of agency 

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The agency relationship may be terminated : o By agreement between agent and principal o By revocation of the agent’s authority o By expiry of the period of the agency agreement o Upon the death of the principal or agent o Upon the bankruptcy of the principal or agent o Upon the insanity of the principal or agent o If the agency agreement becomes illegal or impossible to perform. To avoid agency by stopped and apparent authority, the principal should notify third parties of the termination

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Agency Glossary: Agency: The legal relationship where one party (principal) authorizes another person (agent) to act for the principal Agency by estoppel: The authority an agent appears to have to outsiders. The agent may not actually have any authority at all. (aka apparent authority or appearance of authority or ostensible authority) Agency by ratification: A contract with a third party is entered into by someone claiming to be an agent, but without actual or apparent authority. The contract will be valid, and an agency will be deemed to exist from the time the contract was originally made if the principle ratifies (confirms/approves) and adopts what the agent did. Agency of necessity: A situation where the law gives someone the authority of an agent, even though the principle has not consented to that authority. Agent: Someone who is authorized to act on behalf of another person (the principle). Apparent (Ostensible) authority: The authority an agent appears to have to outsiders. The agent may not actually have any authority at all. (aka agency by estoppel or appearance of authority or ostensible authority) Appearance of authority: The authority an agent appears to have to outsiders. The agent may not actually have any authority at all. (aka Apparent authority or agency by estoppel or ostensible authority) Case Law: A collection of principles and rules based on the decisions of judges in higher (most important) Courts (aka Common law, precedent, equity) Common Law: A collection of principles and rules based on the decisions of judges in higher (most important) Courts. (aka case law, precedent, equity) Consideration: Something of value done or given (promised to be done or given) to the other contracting party Contracts: Legal rules for buying and selling goods and services Contract Law: Where the plaintiff must prove the defendant breached (Broke) a specific legal agreement with the plaintiff Equity: A collection of principles and rules based on the decisions of judges in higher (most important) Courts (aka Case law, Common law, precedent) Estoppel: A legal doctrine that prevents someone arguing a position which would contradict the position implied by their own previous words or actions. Express actual authority: The authority actually given to the agent (in spoken or written words) from the principle that allows the agent to act on behalf of the principle.

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Implied actual authority: The 'unspoken' authority which is necessary for an agent to carry out the job. Lien: a right to keep possession of property belonging to another person until a debt owed by that person is discharged. Ostensible authority: The authority an agent appears to have to outsiders. The agent may not have any authority at all. (aka agency by estoppel, appearance of apparent authority, appearance of authority) Partnership: The relations between persons carrying on a business in common with a view of profit (definition from the Partnership Act) Precedent: A collection of principles and rules based on the decisions of judges in higher (most important) Courts (aka case law, common law, equity) Principle: The person giving authority to someone else in an agency. Statute law: Legislation enacted (made) by federal and state parliaments Tort Law: Where the plaintiff must prove the defendant's conduct caused some loss or injury to the plaintiff

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