BTF1010: Commercial Law: Agency Law

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Monash University
Business Research
Mark Bender

Chapter 10: Agency  What is an agent?  The primary function of an agent is to make contracts on behalf of the principal  If the party wishes to sue, they must sue the principal and not the agent: International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958)  Indicators of an agency relationship: o Does the 'agent' keep the profits it makes or does it have to pay them across to the principal? o Is the ‘agent’ paid a commission? o Does the ‘agent’ have an obligation to account to the principal for sales? o Potter v Customs and Excise Commissioners [1985] Functions of an agent:  Most common function: to bring about a contractual relationship between the principal and a third party  A person who has no authority to make contracts on behalf of his/her principal may be an agent if he/she has authority to: o receive money on behalf of principal o pay money on behalf of principal o make representations for which principal is responsible o receive representations on behalf of principal o Petersen v Moloney (1951) 25 ALJR 566 (High Court) Common commercial relationships in agency:  Employer/Employee: not all employees are agents because not all employees have the authority to affect their employer’s legal position with respect to 3 parties.  Independent contractor: may be an agent with wide authority, limited authority or not an agent at all: Perpetual trustees Vic Ltd v Ford [2008]  Bailor/Bailee: A bailee is a person who has lawful possession of the bailor’s goods.  Partnership: Each partner is an agent for each other partner How is an agency created? The relationship of principal and agent may be created by deed, by agreement in writing or orally, or by operation of law.  Agency may be created by express agreement: Between the principle and agent. Does not have to be binding.  Agency may be created by implied agreement: can be implied from conduct. Will occur where it is reasonable to infer from all the circumstances that the parties have conducted themselves in such a way that a principal-agent relationship exists: Norwich Fire Insurance Society Ltd v Brennans (Horsham) Pty Ltd [1981]  Agency may be created by Estoppel: Pole v Leask [1861-73]:  Elements for establishing agency by estoppel: o a representation by the supposed principal to the effect that the supposed agent is the principal’s agent o a third party has relied on such representation o it was reasonable in the circumstances that the 3 party rely on the representation o there has been an alteration in that 3 party’s position as a result of reliance upon the representation  Agency may be created by necessity: agent by necessity must act reasonably and prudently in the circumstances: China-Pacific SA v Food Corporation of India [1981] AND Sachs v Miklos [1948]  not an agent my necessity  Agency may be created by cohabitation (wife/husband) The Agent’s Authority:  Actual authority: o Express actual authority: the power expressly invested in the agent by the principal. o Implied actual authority: Certain powers which may have to be implied. The courts may imply powers based on:  custom or trade usage: See Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance Ltd (1986) AND Bell Group Ltd v Herald & Weekly Times Ltd [1985]  a course of past dealings: See Hely-Hutchinson v Brayhead Ltd [1967]  a need to make the agency agreement effective: See ANZ Bank Ltd v Ateliers de Constructions Electriques de Charleroi (1966)  Ostensible Authority: o Where the agent appears to have authority. o Is an issue where the agent exceeds his/her actual authority (both express and implied) o Three requirements must be shown for ostensible authority:  The ‘holding out’: a representation was made to the third party that the agent had the authority to engage in activity of the kind that occurred, on behalf of the principal.  A person with ostensible authority cannot create ostensible authority in another: Freeman & Lockyer v Buckhurst Park Properties Ltd [1964]  The third party must have been induced by such ‘holding out’ to act upon it – reliance: same case as above o Cases on ostensible authority: o Heperu Pty Ltd v Morgan Brooks Pty Ltd [2007] o First Energy (UK) Ltd v Hungarian International Bank Ltd [1993] Principal may ratify agent’s unauthorised acts:  Ratification: involves the principal’s (retrospective) adoption or approval of the agent’s actions  Rules applying to ratification: o The agent must contract as an agent and the 3 party must be aware that the person they are dealing with acts as an agent only, and the principal is
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