Professional Documents
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STUDY UNIT 6
Chapter 16
AGENCY
Principal, Agent, 3rd Party
1. Define Agency.
An agent is a person who has been authorised by a principal, to establish legal relations (on behalf of the principal) with a 3rd party.
There are 4 main ways in which an agency can be created: (a) actual authority, (b) apparent (ostensible) authority, (c) ratification, and (d) operation
of law.
2. How was the agency created? Identify the relevant way in which the agency was created, for the Question.
Flip to the relevant guidelines for that category.
* See next few pages for guidelines on each way to create an agency relationship.
* There is also a separate section on Agent's Duties.
** Please read up on (a) Undisclosed Principal, (b) when an Agent will become liable to 3rd Party and (c) Rights of Agents.
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BUS201 - CONTRACT & AGENCY LAW
STUDY UNIT 6
Chapter 16
AGENCY
Category 1 - Actual Authority
(ii) which are reasonably incidental to the discharge of the agent's duties (eg. taking a taxi to from place to place, to perform his duties).
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BUS201 - CONTRACT & AGENCY LAW
STUDY UNIT 6
Chapter 16
AGENCY
Category 2 - Apparent Authority
2. 1st criteria - a representation was made that the agent had authority.
For example, there was a statement made or an Freeman & Lockyer v Buckhurst (1964) - the
company allowed a person to continue acting
action taken that demonstrated that the agent had
as its de facto Managing Director.
authority, such as issue of name cards to the agent, or
allow someone to continue acting as agent.
3. 2nd criteria - such representation was made by a person who was granted "actual" authority by the principal.
For example, the representation was made by
someone who had "actual" authority eg. CEO, general
manager.
4. 3rd criteria - the 3rd party was induced by the representation to enter into the contract (ie, the 3rd party relied on the representation).
For example, the 3rd party thought the agent had
authority to represent the principal, and happily
signed the contract.
5. 4th criteria - the principal had the capacity to enter into such a contract. IMPORTANT!
For example, the company had capacity under its An articles of association is a company document that
binds all members (usually shareholders) of a company
articles of association to enter into such contracts.
and sets out the specific activities which a company can
do, and the procedures of shareholders' meetings,
directors' meetings etc.
6. 5th criteria - the agent was unaware that the agent lacked authority.
For example, the 3rd party did not know that the
principal specifically instructed the agent not to do
certain activities.
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BUS201 - CONTRACT & AGENCY LAW
STUDY UNIT 6
Chapter 16
AGENCY
Category 3 - Ratification
4. 3rd condition - the principal must have capacity to Case law IMPORTANT!
enter into such a contract.
The principal must have the capacity to enter into such Ashbury Railway Carriage v Riche (1875) Section 25, Companies Act (cap. 50) of Singapore states
that in certain situations, a contract will not be invalid
a contract (a) at the time the agent entered into the
just because a company did not have the capacity to enter
contract, on its behalf and (b) at the time of the into such a contract.
ratification (confirmation).
5. 4th condition - the principal must ratify within a reasonable time period. IMPORTANT!
What is "reasonable time period" is based on the At the very least, it should be ratified before the date on
which the contract is to be performed.
circumstances of each case.
7. Conclude if the principal had validly ratified the agent's act (or the contract). IMPORTANT!
Need to consider if other categories of authority are also
If yes, then the contract is binding on his principal vis-à-vis the 3rd party.
applicable to him. An agent can possess more than 1
If no, then the contract may NOT be binding on his principal vis-à-vis the 3rd party. category of authority.
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BUS201 - CONTRACT & AGENCY LAW
STUDY UNIT 6
Chapter 16
AGENCY
Category 4 - Operation of Law
Law may deem an agency relationship to exist even if there is no agreement between the principal and the agent to create such a relationship.
7. Conclude if the principal had validly ratified the agent's act (or the contract). IMPORTANT!
Need to consider if other categories of authority are also
If yes, then the contract is binding on his principal vis-à-vis the 3rd party.
applicable to him. An agent can possess more than 1
category of authority.
If no, then the contract may NOT be binding on his principal vis-à-vis the 3rd party.
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BUS201 - CONTRACT & AGENCY LAW
STUDY UNIT 6
Chapter 16
AGENCY
Agent's Duties
3c. The agent must not, without the knowledge and De Bussche v Alt (1878)
consent of his principal, become the other party to a
contract with his principal.
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STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS
4. 4th duty - Duty not to Delegate. Case law
John McCann v Pow (1975)
The agent has a general duty to perform his principal's
instructions personally.
If the agent had made a secret commission or bribe, the principal can claim it from the agent.
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