Legal Framework For Managersby

Syed Zul EMIM, MBA01062014

How Agency Can Be Formed

• It is an area of commercial law dealing with a set of :-

• Contractual (an agreement)• Quasi-contractual (a  legal  substitute  formed  to 

impose equity between two parties)  • Non-contractual fiduciary (is  a legal or  ethical 

relationship of trust between two or more parties)

– Section 138 of the Contract Act 1950

The Concept

• Referred as a relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the principal) to create legal relations with a third party

• A principal is a person, legal or natural, who authorizes an agent to act to create one or more legal relationships with a third party

Relationship

• agents and principals (internal relationship), known as the principal-agent relationship

• agents and the third parties with whom they deal on their principals' behalf (external relationship)

• principals and the third parties when the agents purport to deal on their behalf.

Sample Agreement

3 Classes of Agents

• Universal agents (hold broad authority to act on behalf of the principal, e.g. they may hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship, say, as lawyer and client)

• General agents (hold a more limited authority to conduct a series of transactions over a continuous period of time) 

• Special agents (are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time)

Authority

There are essentially three kinds of authority recognized in the law:

1. Actual Authority (whether express or implied)

2. Apparent Authority3. Ratified Authority

Express Actual Authority

• Express actual authority means an agent has been expressly told he or she may act on behalf of a principal. Ireland v Livingstone [1872] LR 5 HL 395

Implied Actual Authority

• Partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation.Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549

Apparent Authority

• Exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship

• This is sometimes termed "agency by estoppel" or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480

Ratified Authority

• Means that after the unauthorised act, the principal may agree to that act making it binding on the third party

(that  the  third party  is not bound to  the agreement created  by  an  agent  with  ostensible  authority  until the principal has ratified it. Whereas in the situation of  an  act  done  under  ostensible  authority,  the principal is automatically bound to the third party)

Principle’s Duty

• To pay the commission or other agreed remuneration

* The agent has the right to retain his principle’s property in his possesion until his remuneration is paid ‘right of lien’ Section 174 of the Contract Act 1950

* If the agent is guilty of misconduct, he loses his right of remuneration  Section 173 of the Contract Act 1950

Principle’s Duty

• The principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal's business If the agent has acted within the scope of the actual authority given Section 172 of the Contract Act 1950

* if the agent has acted without actual authority, the agent is  liable  to  indemnify  the  principal  for  any  resulting  loss  or damage 

Agent’s Duty

• To undertake the task or tasks specified by the terms of the agency (the agent must not do things that he has not been authorized by the principal to do)

• To discharge his duties with care and due diligence • To avoid conflict of interest between the interests

of the principal and his own (the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal)

Termination Of Agency

• An agent's authority can be terminated at any time agreed by both party

If the trust between the agent and principal has broken down, it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice.Section 158, 159 of the Contract Act 1950

Terminated By Operation Of Law

• Upon expiry of the peroid fixed in the contact• By the death of either party• By the insanity of either party• By the bankruptcy (insolvency) of either party;• By frustration of the agency agreement• Agent renouncing the business of agency

References

• Section 138, 158, 159, 172, 173, 174