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Lecture

Agency

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Department
Law
Course
JSB171
Professor
All Professors
Semester
Spring

Description
Nick Dowse Agency Agency – Structure of Answer 1. Draw a diagram a. Who is the principal b. Who is the agerd c. Who is the 3 party 2. Make a note of who is trying to enforce against who a. Is the 3 party wanting to sue for the balance of the K price? i. If they fail, they will want to sue the agent for breach of warranty of authority. rd b. Is the principal wanting to ratify but the 3 party is resisting? c. Does the conduct of the agent need to be attributed to the corporate principal? 3. State the issue a. “Did [agent] have [principal’s] authority to [do the thing done]?” b. Be very specific. 4. Definition of agency (brief) rd a. Where one person enters into transactions with 3 parties on behalf of his principal (International Harvester). b. Whether an agency exists is a question of law, examined objectively (Garnac). 5. Preliminaries (only if relevant) a. The principal must have the legal capacity to perform the act done through the agent (Permewan). i. In the case of a corporation, s 124(1) Corporations Act says that they are natural persons (thus a corporation can be an agent). b. An agent does not require contractual capacity to act for another (Watkins v Vince) c. The burden of proof rests on the person seeking to enforce the contract made on the basis of the agency (Robinson v Tyson) d. A prrdcipal may be liable in tort for the careless conduct of an agent causing damage to a 3 party even if the agent is not an employee, and even if there is an express stipulation not to do the tortious thing done (Hollis v Vabu). i. Principal can be liable for improper mode of performing acts that are within the authority of the agent, irrespective of whether the principal authorised the improper mode, and even if the principal had forbidden the wrongful act (Scott v Davis). 1. This is because the principal has put the agent in a situation where the tort could occur, so the principal should be liable. 6. Did the agent have the authority to do the particular thing done? a. Actual Express Authority (AEA) i. Whether the act done was within the agent’s AEA will depend on a construction of the terms in the contract, or instructions given by the principal (Tobin v Broadbent). ii. With AEA, authority will usually be given in a contract, or by spoken word. iii. An agency agreement does not have to be in writing, except in the case of land contracts, which may require some writing under s 11 PLA. iv. If there is some written agreement, the scope of the agent’s authority will be governed by a construction of the terms of that document. 1. If the agency is created by a power of attorney, the deed will be strictly construed (Robin v Broadbent). 2. If it is not a deed under seal, or is given orally, then a more liberal construction will be applied. v. AEA can only be created by consent by the principal (Garnac). vi. Apply: did the agent act within its express authority? If yes, principal will be bound. If not, principal will not be liable on the K. Page 1 of 12 Nick Dowse Agency b. Actual Implied Authority (AIA) i. In the absence of any AEA, an agency may arise on the basis of an implied agreement as to authority based on the parties’ conduct (Norwich). 1. If there is an express limitation on what the agent can do, there cannot be an implied authority to go beyond that (Overbrook). a. However, there may still be a finding of ostensible authority if relevant (Clifford). ii. Incidental Implied Authority 1. This type of AIA exists because the act performed by the agent is regarded as necessarily or ordinarily incidental to the acts that have been expressly authorised (ie it goes without saying). 2. For example, with a real estate agent, if employed to find a purchaser for the property, it will be incidental to show the prospective purchaser the property and to supply info about it etc. But it will not be incidental to actually enter into the K etc. 3. AIA on the basis that the authority is needed to make the agency agreement effective. 4. NOTE: Check for any express limits on authority (Hely-Hutchinson). iii. Usual Implied Authority 1. This type of AIA is implied where the act done was one which an agent in that position would usually have authority to do. 2. For example, a managing director, as opposed to an ordinary director, of a company, has AIA to do all things that someone holding that position would usually have authority to do, which includes: a. Employing people (Hely-Hutchinson) b. Providing services to the company (Hely-Hutchinson) c. Guaranteeing loans made to a subsidiary of the company (Hely- Hutchinson) d. Borrowing money (Crabtree-Vickers). e. Giving securities over company assets (Crabtree-Vickers). f. Authorising agents to enter into Ks on behalf of that company (Crabtree-Vickers). g. Indemnifying guarantors (Hely-Hutchinson) 3. NOTE: Even a managing director’s ability to bind the company may be curtailed by contract, as in Crabtree-Vickers. 4. An ordinary director does not have authority to bind the company, unless given that ability in contract etc (Northside Developments) iv. Customary Implied Authority (Custom and Trade Usage) 1. Arises where the act done is in accordance with reasonable business practice in which the agent is employed (Con-Stan). 2. The custom relied on must be sufficiently notorious, certain and reasonable (Con-Stan). 3. NOTE: The rules of market may be expressly incorporated into the K rd made by an agent of a 3 party. v. Course of Past Dealings 1. Arises where the principal has allowed a course of dealings to consistently arise over a period of time (Hely-Hutchinson). 2. If a board of directors allow a person to enter into Ks of a particular type on behalf of the company over a period of time, without explicit approval nor sanction, then the court may find that the person had AIA to enter into such Ks in the future (Hely-Hutchinson). 3. Points from Hely-Hutchinson: a. Two contracts are enough to show a course of dealings b. AIA is not automatically implied by nature of office of chairman (per Page 2 of 12 Nick Dowse Agency Denning LJ @ 584) c. If board acquiesced conduct of agent, will be easier to show AIA (per Pearson @ 592) d. If don’t go to board for authority, or go for subsequent approval, more inclined to show AIA (per Pearson @ 592). e. If Ks are large and hazardous, doesn’t necessarily mean they are outside scope of AIA (per Pearson @ 592). 4. State what the agent has done in the past, and how the board reacted etc. 5. NOTE: same set of facts can give rise to an AIA on basis of past dealings and ostensible authority – point this out. c. Ostensible Authority (OA) i. Even if there is no actual authority, the agent may be deemed to be acting under OA (Freeman & Lockyer). ii. Its basis is rooted in estoppel (Northside Developments). 1. Thus, it has the usual 3 elements of an estoppel: representation of authority, reliance and detriment. rd iii. Did the 3 party receive a representation that the agent acts for the principal? 1. A representation can be made by words or conduct, and the representation must be to the effect that the agent acts for the principal. 2. A representation can be made by words or conduct, for example: a. By the principal appointing the agent to a particular position within the company, or entrusting them with some special responsibility; or b. A course of dealing between the 3 party and the principal through the agent; or i. Note overlap here with AIA (above). c. The principal standing by mute whilst someone deals with a 3 rd party apparently on behalf of the principal. 3. Common representations include: a. Featuring name and title of agent in public view, may mean principal is estopped from denying agent’s ostensible authority (Tooth v Laws). b. Allowing someone who is not a managing director to act as such = an implied representation that the managing director has authority to bind the company within the usual ambit of authority of a managing director (Freeman & Lockyer). c. Indeed, appointing someone to a particular position of importance (ie MD) = an implied representation to 3 parties that the person would have all the power to do the things a person in that position would ordinarily be able to do (Robinson v Tyson). d. Permitting business cards, letterheads etc of the business to be used = may amount to an implied representation (Derham) e. Entrusting means of completing contracts on principal’s behalf (ie by giving official stamp etc) = representation by principal (BNP Paribas). i. Including giving the agent a signed document etc, arming them with the indicia of authority (Essington Investments) ii. Giving blank order form = no representation (Crabtree- Vickers) 4. The representation must generally come from the principal itself, or from someone actually authorised by the principal (BNP Paribas) a. It is not enough for the representation to come from the agent alone, without more, as there is no recognised doctrine of a self- Page 3 of 12 Nick Dowse Agency authorising agent (First Energy). b. However, the conduct of the agent is not entirely irrelevant, though it is important that the source of the representation is the principal (BNP Paribas). i. Must be able to trace it all back to something the principal has done, or failed to do (ie how it has failed to protect itself, or how it has allowed its corporate structure to present to outsiders). ii. What the agent says may constitute a warranty of authority, but that avails against the agent only (Crabtree-Vickers). c. Where an agent holds themselves out as having authority, the representation by the principal may be: i. The principal’s failure to interfere when it should have (Hely- Hutchinson); or ii. The principal’s failure to take proper safeguards against representations of authority by agents (BNP Paribas; Flexirent Capital). Factors: 1. Placing agent in position which equipped them to deal with the third party (BNP @ [44]); and 2. Form and content of documents themselves (BNP @ [42]); and 3. Stamp of the principal to give impression of authenticity of document on which it appears (BNP @ [42]); and 4. Organisational structure of company (ie where agent is the one who deals with and communicates between the parties), who signs the document (here, the agent), and lack of internal checks or qualifications of capacity when doing transaction (BNP @ [43]). d. Where the principal is a company, the representation must be made by some person who has: (Crabtree-Vickers) i. AEA or AIA from the company to make the representation; or ii. AEA or AIA to do the act concerned, or AEA or AIA to manage the business generally, or in the subject matter of the K e. This means that a person with only OA cannot confer OA on another (Crabtree-Vickers)  NOTE i. Must come from actual authority 5. A representation can be made directly to the 3 party, or to the public at large, provided it can be inferred to have reached the 3 partyd (Inrdrnational Paper Co v Spicer). iv. Did the 3 party rely on such a representation? 1. There must be a causal connection between the representation to the 3 rd party and the dealing between the 3 party and agent. 2. The 3 party cannot hold the principal liable where the 3 party was rd unaware of the rep, did not believe it, or where the 3 party knew, or had the power to know, the truth (Hely-Hutchinson). a. If the 3 party is put on notice, will be difficult to show reliance. 3. Where the 3 party knows there is a limitation of the authority of the agent, it is almost impossible to show reliance (Russo-Chinese). a. NOTE: recent authority to suggest a more liberal approach (Flexirent Capital) Page 4 of 12 Nick Dowse Agency i. State: It is necessary to assess the whole of the principal’s conduct in the particular circumstances ii. In particular circumstances, a holding-out may exist which it would be inequitable to allow the principal to resile from that representation, notwithstanding a known limitation on the rd agent’s authority (per Whelan J @ [203(f)]), [221]. v. Lastly, did the 3 party alter its position because of that reliance (detriment)? 1. Usually easily made out 2. Entry into the contract in question would be enough to satisfy this element (Rama Corp). vi. Effect of Finding of Ostensible Authority 1. If find agent has OA, must first check that what the agent actually did would come within the representation (Nowrani v Brown). a. Don’t just assume that everything will. b. Example: if representation that a person is a commercial manager, have to consider how far that gets you. May still mean acts are outside the scope. 2. If the agent had OA and acrdd within scope, then the K will be effective to bind the principal and 3 party. 3. The principal can sue the agent for breach of duty, in particular, the failure of the agent to follow instructions (see agent’s duties below). 7. Can the principal ratify the agent’s acts? a. Ratification retrospectively grants authority to an agent where the agent, at the time of the act, had no authority (Keighley Maxsted). i. Where an act is done purportedly in the name or on behalf of another (the principal) by a person who has no authority to do that act (the agent), the principal may, by ratifying the act, make it as valid and effectual, subject to certain provisos, as if it had originally been done with its authority (Firth v Staines). b. Firstly, the agent must expressly purport to act for the principal (Keighley Maxsted) i. i.e. needs to sign expressly on behalf of someone else – “Nick Dowse on behalf of QUT” as opposed to just “Nick Dowse” or “Nick Dowse, agent” ii. Will be satisfied if the principal was disclosed, identifiable or was given a reasonable description (Watson v Davies). 1. A reasonable description is a reasonable designation of the person intended to be bound by the K (Keighley), known or ascertainable at the time of the K (Lyell v Kennedy). iii. If the agent signs only using their name, they can be sued personally on the K, whether the principal is named in the K or is known to the King party or not (Cooper v Fisken). iv. If the agent signs their name, and appends the word “agent”, this is a conclusive assertion of agency, and a conclusive rejection of the responsibility of the agent as a principal (Universal Steam) 1. Once the 3 party knows the agent is not the principal, the agent is not personally liable (Marsh & McLennan v Stanyers). v. Go to notes on “undisclosed principal” (below) if necessary… c. Secondly, the principal must ratify the agent’s acts either expressly or impliedly i. This is a question of fact (Borg). ii. Ratification can be implied where the conduct of the principal shows he has adopted or recognises the contract, or where the principal stays mute or acquiesces the conduct (Cox). 1. But there must be no other explanation for the principal’s act (Foreman). d. Thirdly, the principal must have authority/capacity to ratify i. A principal may ratify through an agent, and the agent need only have authority Page 5 of 12 Nick Dowse Agency to ratify (doesn’t need to have authority necessary to perform actual act itself) (Re Portuguese) ii. The principal must be competent to be the principal when the transaction occurred, and at the time of ratification, that is, they must have had contractual capacity at the time of the K (Trident). iii. If it is a company, s 183(1) allows a corporation that was not in existence at the time of the K to later ratify it (Corporations Act s 183(1)) e. Fourthly, the principal must have full knowledge of the relevant circumstances (Taylor) i. A principal can only ratify if they are aware of all material facts at the time of ratification, or displayed an intention to ratify no matter what the circumstances were (Taylor v Smith) 1. NOTE: will be displaced if the principal was shown to have adopted the agent’s acts, whatever they were (Bayley v Fitzmaurice) ii. For example, if doesn’t know about a secret bribe/commission, might not be able to ratify (Howard Smith v Varawa). f. Lastly, the principal must ratify within a reasonable time i. Ratification must occur within a reasonable time of the otherwise unauthorised act (Asylums Board). 1. But if the principal does not know of it at the time, then time starts to run from when they do become aware of it (Belford Insurance) ii. No rigid rule as to what is reasonable (Frigmobile) iii. Question of fact (Celthene) g. Factors Affecting Effectiveness of Ratification i. Notice of ratification is not necessary to effect ratification (McLaughlin) 1. Silence or acquiescence can amount to ratification (Cox v Isles) ii. Where offer withdrawn before ratification 1. A pure application of the doctrine of ratification would render any purported revocation by the promisee ineffectual, because ratification takes effect from the time of the unauthorised acceptance by the agent (Bolton v Lamert). 2. However, this can produce inequitable results and has been criticised by the HCA in Davison v Vickery’s a. Ratification should not operate where it would destroy the rights rd that have accrued to a 3 party, between the purported withdrawal rd and the later ratification, or where identifiable hardship to the 3 party would occur (per Isaacs J). 3. Thus, there is authority to say that a revocation of offer by the 3 party will
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