Agency under Business Organizations
Agency in Business Organizations
1. Definition of Agency
Agency is a legal relationship where one person, called the principal, authorizes another person, called the agent, to act on their behalf and represent them in dealings with third parties.
2. Characteristics of Agency
Consent: Both principal and agent must agree to the relationship.
Control: The principal has the right to control the agent’s actions.
Representation: The agent acts on behalf of and binds the principal.
Fiduciary Relationship: The agent must act loyally and in the best interests of the principal.
3. Types of Agents
General Agent: Authorized to handle all affairs in a particular business.
Special Agent: Authorized to perform a specific act or transaction.
Sub-Agent: Appointed by the agent to assist in performing duties.
Del Credere Agent: Guarantees the performance of a third party.
4. Creation of Agency
Agency can be created by:
Express Agreement: Oral or written consent.
Implied Agreement: From conduct or circumstances.
Ratification: Principal approves an act done by a person without prior authority.
Estoppel: Principal prevents denying agency relationship when third party relies on it.
5. Authority of Agent
Actual Authority: Express or implied power given by the principal.
Apparent Authority: Authority the third party reasonably believes the agent has, based on principal’s conduct.
No Authority: Acts beyond the agent’s authority bind the principal only if ratified.
6. Duties of Agent to Principal
Duty of Loyalty: Avoid conflicts of interest.
Duty of Care: Perform duties with reasonable skill.
Duty to Obey Instructions: Follow principal’s lawful orders.
Duty to Account: Keep proper records and report.
7. Duties of Principal to Agent
Duty to Compensate: Pay agreed remuneration.
Duty to Reimburse: Pay expenses incurred by the agent.
Duty to Indemnify: Protect agent from losses in authorized acts.
8. Termination of Agency
By mutual agreement.
Completion of purpose.
Expiration of time.
Revocation by principal.
Renunciation by agent.
Death or insanity of either party.
9. Liability in Agency
Principal’s Liability: Principal is generally liable for authorized acts of the agent.
Agent’s Liability: Agent may be liable if they act without authority or exceed authority.
Third Party’s Rights: Can enforce contracts made by agent with authority.
10. Important Case Laws
A. Freeman & Lockyer v Buckhurst Park Properties (1963)
Facts: An agent acted beyond actual authority but had apparent authority based on principal’s conduct.
Held: The principal was bound by the agent’s acts due to apparent authority.
Significance: Established the doctrine of apparent authority, protecting third parties who act in good faith.
B. Watteau v. Fenwick (1893)
Facts: An agent, acting beyond their authority, entered into contracts. The third party was unaware of the limitation on the agent.
Held: The principal was liable for the agent’s acts within the usual authority of such an agent.
Significance: Established liability of principal for acts within usual authority even if actual authority was absent.
C. Hely-Hutchinson v. Brayhead Ltd (1968)
Facts: An agent acted without formal appointment but was treated as agent by principal.
Held: Agency was implied by conduct, and the principal was bound by the agent’s acts.
Significance: Agency may be created through implied authority.
11. Importance in Business Organizations
Agency enables businesses to expand operations by allowing agents to act on behalf of principals.
Agency relationships underlie partnerships, corporations, and other forms of business.
Proper understanding prevents unauthorized acts and protects all parties involved.
12. Conclusion
Agency is fundamental to business operations, allowing principals to delegate tasks while maintaining control and liability. Courts carefully analyze the relationship, authority, and conduct to determine rights and obligations in agency disputes, guided by established case law principles.
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