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Commercial Law – Agency Contract

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Question 1.
Outline and describe the ways in which an Agency Contract may be established.

According to Nicole Busby, an agency is a contractual relationships that entitles one party to act on behalf, or in favour of, the other party in contractual arrangements with a third party. In this regardthese circumstances, the former is known as an “agent” and the entity on whose behalf the agent performs is called a “principal”. Generally, the agency relationships arises in commercial transactions, partnership and employment. The term “agency” in commercial law is represented in the Latin phrase, qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her own interests. In terms of agreeing an Agency Contract between the parties, tThe Robert Barry & co. v Terence Robert Doyle and another 1998) case illustrates the use of oral communications in commercial contracts which has binding effect to the parties as well. Yet, it is better to exercise a written type so as to avoid further potential technical problems.

According to the Property Misdescriptions Act 1991 s(5)(c), a statement may be made by pictures or any other method of signifying meaning as well as by words and, if made by words, may be made orally or in written form. An Agent can only bind a principal into a contract with a third party if he has the necessary authority. That is, the agent’s authority may be express (either clearly defined, commonly written, and limited to specific areas) or implied (arising out of circumstances, common for the type of business etc.). An agent is not entitled to exceed that authority. However, if he does, the principal may still be held legally responsible for acts entered into by the agent on the principal’s behalf in case the act in question was within the apparent or ostensible authority of the agent. The remedy of the principal is limited to personal claim against the agent. There are general agents and special agents. The formation of the Agency Contract

The Agency relationship may arise in one of five ways: Express agreement, implied agreement (by conduct or law), holding out, ratification or agency of necessity. Agency by express appointment In case of an express appointment, an agent is deliberately appointed by a principal to act on the latter’s behalf. It can be constituted by either oral or written contract (Ashton 2007, 10-05). The set up of an express agency is ideally written, yet it may be oral. An express agency contract specifies the duties of an agent, as well as time, remuneration, commission charges and an agent’s liability in case of failure to perform its obligations. Moreover, A commercial agent is entitled to ask for written terms under the Commercial Agents(Council Directive) Regulations 8.1.1993/3053 reg. 13. If it is to be a sole agency it should say so (Lothian v Jenolite Ltd 1969) and the position of commission not being paid if the sale falls though ought to be clearly stated to avoid difficulties (Menzies, Bruce-Low and Thomson v McLennan 1895). Agency by implied appointment

An agency may arise through the actings of the parties, regardless of the existence of an express appointment. In Barneston v Petersen Brothers a shipbroker was held to have been employed to act as agent for the shipowners, by virtue of his actions on their behalf to which they had not objected. Agency may also be implied by operation of law: for example, a partner acts as agent for his partnership (Ashton 2007, 10-06).

Agency by holding out

Equally, agency may be established from the actings of the parties. It may be established by “holding out”, which is where the principal takes no steps to counter the impression, for example towards the third party, that the agent had the authority to the particular actings (Freeman v Buckhurst Park Properties(Mangal) Ltd 1964). Hence, the party allowing the representation to take place is cannot deny at a later stage that the person is his agent (Busby et al. 2006, 6-12). “If agency by holding out is to be created then it must be shown that there was reliance on the representation and accordingly, of the third party does not know of the representation he cannot rely upon it.” (Busby et al. 2006, 6-12) Agency by ratification

Ratification is the post-dated approval by a principal of an act carried out by the agent. Such ratification may be express or may be established by the principal’s actings, in particular by accepting without demur the agent’s actions. But the ratifying principal must have the full facts before him and the agent must have made it clear to the third party that he was acting as an agent (Keighley Maxstead & Co. V Durant 1901). Furthermore the ratification must be timeous and the principal must have been legally capable of authorising the transactions or act when the agent undertook it (Busby et al. 2006, 6-13). Are all conditions fulfilled we must notice that a third party who contracts with an agent whose actings are subsequently ratified cannot withdraw from the contract (Bolton Partners v Lambert 1889). Agency by necessity

An agency by necessity (negotiorum gestio – management of affairs) occurs when and where an agent does what is vital to preserve a principal’s assets, where the principal is not in a position to do so himself (e.g. because the person cannot be contacted), and where it is likely that authority would have been given. The agent (gestor) can get his expenses and be relieved of any liability (Fernie v Robertson 1871). “The agency by necessity is devoid of prior approval or consent when an emergency situation dictates that the agent is required to act without the prior authority of the principal” (Busby et al. 2006, 6-14). Furthermore, the actings of the agent by necessity should always be in good faith and in the interest of the principal. In modern times an agency by necessity is less likely to occur due to improved communications.

Question 2.
Yvonne is one of six partners in a firm. At last year’s Christmas party Yvonne was arrested for Breach of The Peace after dancing on the tables wearing sparkly hot pants and a set of reindeer antlers. The incident was a shock to all that witnessed it, and now it has been reported in the local paper much to the embarrassment of the other five partners. Three of the partners now want to expel Yvonne from the partnership but the other two do not. (A) Advise the three partners what powers they have to expel Yvonne.

Section 1 of the Partnership Act of 1890 defines a partnership as “the relationship which subsists between persons carrying on business in common with a view of profit.” Hence, every partner is an agent to the firm for the purpose of the business and the acts of every partner within the usual way of business are binding unless no authority has been given and the third party is aware of this. To sufficiently evaluate whether the three partners can expel Yvonne for her misbehaviour at the Christmas party we need to have a look at section 25 of the Partnership Act, which statesd that “no majority of the partners can expel any partner unless power to so has been conferred by express agreement”. So, in order to know if a partnership can expel a partner, we need to know which kind of contract the partners are bound to within the partnership and whether the partnership agreement contains the power of expulsion.? If the partnership agreement does not contain the power of expulsion then majority cannot expel a partner, regardless of the partner’s actings. We can assume that no such agreements are included in the contract of Yvonne and her partners.

Even if an expulsion clause is included, however, there are still limitations in the ways in which it can be enforced. A general authorization authorisation for expulsion will never be enforced by any court. The clauses for the expulsion have to be specified. If the clauses of the contract that bind Yvonne to the firm include refer to also immorality and scandalous personal behaviour, the other partners are then entitled to expel Yvonne. If the clauses of the contract do not include any expulsion for immorality the case will not be forced by the court and Yvonne cannot be expelled for her actions (Busby et al. 2006, 12-43). If the clauses of the contract do not include any expulsion for immorality the case will not be forced by the court and Yvonne cannot be expelled for her actions. It is important to know that any method of expelling a partner must be written into the partnership agreement(s.25) and must be exercised in good faith and “carried out in bona fide in the best interest of the company (Blisset v Daniel)“(Busby et al. 2006, 12-43). If, as in Blisset v Daniel, the expulsion clause is manipulatively enforced for the benefit of the majority partners and not in the best interest of the firm, the purported expulsion will be void (Busby et al. 2006, 12-43). Even if expulsion is carried out in bad faith, it will be considered void by the court. In the case of Yvonne, based on the given information, it is not probable likely that the members will be accused of an expulsion in bad faith. The members that want to expel her are willing to do so to protect the integrity of the firm.

(B) Would it make a difference if Yvonne had been convicted of theft and as a result of this many of the firm’s clients had decided to take their money elsewhere?

The case of Yvonne being convicted of theft does not change the situation; t. There still has to be an expulsion clause in their partnership agreement, as otherwise all the partners are fully liable. However in the case Carmichael v Evans (1904), Carmichael – who was Evans’ partner – was convicted of travelling on the railway intentionally without a ticket. It was held by the court that as the conviction was for dishonesty, it was calculated to be detrimental to the partnership business despite the fact that his expulsion was not covered within his clause (Busby et al. 2006, 12-43). So the fraudulent behaviour Yvonne has shown by being convicted of theft would result in an expulsion as long as any expulsion clause exists, as it is the first duty of every partner to be honest to third parties as well to the partners.

Ashton, C. (2007) Understanding Scots law : an introduction to Scots law, procedure and legal skills, Edinburgh: Thomson/W. Green. Busby, N. (2006) Scots law : a student guide, 3rd / Nicole Busby … et al. ed., Haywards Heath: Tottel. Partnership Act 1890

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