Table of Contents - StudentVIP

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AGENCY: THE CREATION OF AN AGENCY RELATIONSHIP AND THE AUTHORITY OF THE AGENT

The nature and definition of agency:

 Agency is a set of legal relationships governed by common law principles.

 The concept of ‘agency’ involves three persons, where an agency relationship exists:

1. The ‘agent’ (A) has the authority to legally bind 2. the ‘principal’ (P) in relation to;

3. a ‘third party’ (TP).

 Agency is a relationship where one party (P) authorises another party (A) to act on his behalf in dealings with third parties (TPs).

o Relationship (agreement) between 2 persons (P & A), created when A affects or has the authority to affect the capacity of P.

 Principal (P) - person who is represented by the Agent and appoints A to act on its behalf –

“agreement”.

 Agent (A) - person who represents the Principal and deals with TP on behalf of P and thus binds P to TP.

o No contract between A and TP rather P and TP.

 Third Party (TP) – person with whom Agent brings Principal to a legal relationship

 “Agency is a legal relationship under which one person (the agent) acts on behalf of another (the principal)” – Professor Stone.

 “Agency is a word used in the law to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties”

- International Harvester

 It exists to enable two of these persons (P and TP) to enter into a contract, or some other transaction, without dealing with each other personally. Instead, the contract, or other transaction, is brought about through A who, when dealing with TP acts, or purports to act, on behalf of P.

 With this concept in mind, ‘agency’ may be defined as the relationship between the principal (P) and the agent (A) whereby A has the authority to create a legal relationship between P and a third party (TP).

 At the heart of Agency is the consensual relationship between the P and A o Both must consent to the relationship

o For example: Garnac Grains (1968)

Agent (A)

Principle (P)

Binds

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 For an agency relationship to be present, a contract doesn’t need to exist.

 In determining the existence or extent of an agency the court will have regard to all of the circumstances, including the commercial context of the relationship.

o For example: CML Life Assurance Soc. Ltd v P & C Co-operative Assurance Co. of Australia Ltd (1931) 46 CLR 41

o For example: Investec Bank (Aust) Ltd v Colley (2012) 91 ACSR 597

 The practical effect of the agency relationship is to increase the legal personality of P by allowing him to transact in different places at more or less the same time.

 Two major problems in agency is formation and compliance.

o Formation: was there an agency? Ie has an agency relationship developed?

- Does this person have the authority to get into contracts on my behalf?

- Have I given this person actual (express/implied) or ostensible authority?

- Did I ratify what this person has done on my behalf?)

o Compliance: whether the agent acted within its authority ie fulfilment of obligation?

- I paid you money for a specific task: what have and haven’t you done?

 The fundamental question is whether the actions of A have affected P’s rights and obligations in relation to TP.

o The only way in which this can happen is if “A” is in fact an agent of P.

For example:

You (P) say to your friend (A), ‘buy me a Subaru up to $20,000’. Your friend (A) signs the contract with a third party (TP).

Answer: A has bound P contractually to TP.

For example: Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130

 Contracts in July 15 Allied Crude Vegetable Oil Refining Corp ( Allied) sold to Garnac Grain ( Garnac) 15000 tons of lard at $193 per ton.

o Company A contracted to sell goods to Company B for $

 Garnac sold to HMF at $195 per ton

o Company B then contracted to sell goods to Company C for $ + $1 o At this point Company B was bound in contract to Company C

 HMF sold back to Allied at $197 per ton (Garnac were not aware that HMF had agreed to sell back to Allied but thought it was an ordinary transaction)

 Nov 1963 Allied went into liquidation, no lard forthcoming, and Garnac and HMF had heavy losses

o Company A defaulted but Company B could not recover

 Then Company C sued Company B for $ + $1

 Company B alleged that C was in fact an agent for A

 Company B because could not prove that

 Held:

o HMF did not enter into contract on behalf of Allied. It was a buy/sell situation. HMF were Principals not Agents.

o There were two separate contracts.

- Agreement was to buy from Garnac and sell to Allied.

o Issue: What is it that the supposed Agent is alleged to have done on behalf of the supposed Principal?

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o The relationship of P & A can only be established by the consent of P and A.

o “The relationship of principal and agent can only be established by the consent of the principal and the agent” - Lord Pearson.

o “They will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognize it themselves and even if they have professed to disclaim it” - Lord Pearson.

Other rights/duties created affected by an A:

 Pay or receive money for P.

 Make or receive representation on behalf of.

 Impose liability on P for tortious act of A (negligence).

Agents:

 A person who acts (or purports to act) on behalf of another person when dealing with a third party.

 The Agent represents the Principal and is not a party to the contract

 Agency facilitates the creation and performance of the contract and is the intervening part of the performance

 Once the contract is performed b/w the P and TP the Agent withdraws.

 Commercial convenience (salespersons).

 Necessity to use A’s in corporations as companies are not humans.

 Use A’s for their expertise in areas such as real estate or insurance.

 The aim for the appointment of an agent is the performance of a service for the principal:

what the principal finds it impracticable, inconvenient or difficult to do for himself, he proposes to do through another” Kerr, Law of Agency, Butterworths 1993.

 The following are some examples only of relationship that may create a legal agency:

o Employee o Broker

o Powers of attorney

 An entity that purchases stock for retail may be termed a retail agent but would not be an agent at law.

o The retail agent in this example is a principal in their own right, as they enter the contract with the wholesaler directly (not via an agent) and they also enter the retail sale directly. Independent contractors also are not normally agents in the first instance.

- For example: if you were to contract with a builder as an independent contractor to construct a shed, then the builder is not your agent as they employ their own labour and acquire the materials for the construction in their own name. They do not enter contracts on your behalf.

 However, it is important to note that a party may act as an agent in one capacity and not in another.

o In the previous example: the builder’s contract may not include landscaping, but nearing the completion of the house the builder indicates that he knows a good landscaper and you authorise the builder to arrange the landscaper to carry out the work that you have outlined. Giving the building contractor the authority to arrange the landscaping work on your behalf creates an agency agreement for this act with you as principal and the building contractor as your agent.

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 Given that it is the substance rather than the form of the relationship which is critical to the establishment, or otherwise, of an agency relationship, agency must therefore be associated with a specific act that the agent has authority to carry out on behalf of the principal.

For example: Peterson v Moloney (1951) 84 CLR 91

 An estate agent as such, was instructed by the vendor "to find a purchaser" for her house.

 The real estate A found a purchaser (TP) and received from him the whole of the purchase price.

 The vendor (P) did not receive the money from A and sued the purchaser for recovery of the purchase price.

 The purchaser pleaded that he had paid the estate agent who was the vendor's agent with authority to receive the purchase money.

 The High Court held:

o There was no evidence to support a finding that A had authority to receive the purchase money nor was there evidence of any ratification by the vendor.

o Being an agent for finding a buyer, does not mean that you can also receive the money from him/her and finalise the purchase.

o Being an agent in one (legal) capacity does not necessarily imply that you are an agent in another capacity.

o To determine whether an agency existed it was necessary to identify the act which the agent was purported to have authority to perform.

o It is not a question of whether the person is an agent but whether that person was an agent with authority to enter that particular contract or perform that particular act on behalf of the principal.

o “a person who is able, by virtue of authority conferred upon him, to create or affect legal rights and duties as between another person, who is called his principal, and third parties”.

Distinguishing agency from other relationships:

 It is important because the term ‘agent’ may be used in commerce to describe a party who is in fact not an agent at law.

1. Just because an agent for one purpose does not make them an A for all.

2. When assessing whether A was agent of P, ask “was A the agent of P for this act” not

“was A the agent of P”.

- Agent must relate to an act.

- Principal must have legal capacity to perform the act authorised to the agent.

- Agent must have authority for this act.

 For example: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) HCA 52;

For example: Beazley v Seed & Grain Sales Moree Pty Ltd (1988) 4 BPR 9529

 An agent, authorised to sell certain land, prepared a written record of an oral agreement between vendor and purchaser and sent copies to both the purchaser and the vendor.

 The vendors argued the written record constituted a written memo signed by them.

 Issue: was there an enforceable contract?

 Held:

o It is never sufficient to say of a person that he is an agent.

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o One must always ask for what purpose the person concerned was appointed agent, and one must always look to see whether the particular act was being done by the agent as agent or in some other capacity.

- You need real substantive legal skills to write a contract.

o At the time he sent the letter, the agent was not actually an agent for this aspect of this particular transaction.

o He has no authority.

o Contract not enforceable.

3. Look at substance of relationship not its label ie substance over form.

For example: International Harvester Company of Australia Pty Ltd v Carrigans’s Hazeldene Pastoral Company (1958) 100 CLR 644

 At the Sydney Agricultural Show a member of an agricultural firm (Carrigans), being

interested in hay balers, was advised by a manufacturing company, International Harvester, to see Hassan Co, its “agent” at Gunnedah.

 After discussion with a salesman of Hassan Co, an order form for a hay baler made by the manufacturing company, addressed to Hassan Co, was signed by a member of the firm.

 Hassan Co was confusingly referred to as "dealer" and as "owner" and the name of the manufacturing company (International Harvester) was not mentioned

 Hassan gave to Carragans an express warranty.

 Carragans later brought an action against Int. Harvester for breach of warranty on the sale of the machine.

 International Harvester is P

 Hassan Co is A

 Carrigans is TP

 If A are Agents, then there is a contract between P and TP and TP can sue P. Must be proved that A are P’s agent.

 If A are independent contractors then they can’t sue.

 High Court held:

o The manufacturing company (Int. Harvester) was not liable.

o P sold hay baler to A who then sold it to C.

o A as ‘agent’ was trying to get out of paying (bankrupt anyway) and if they could prove they were P’s Agents then P would have to compensate C.

o It does not matter ‘what people say’: business people say all sorts of thing and this is not relevant from the legal perspective.

- It is not to be implied from the fact that a manufacturer appoints

"distributing agents" or "exclusive agents" in a particular "territory" for a commodity that a sale by such an "agent" is done on behalf of the manufacturer.

o To determine whether a legal agency exists it is necessary to look at the substance of the arrangement between P and A, not just the form of the relationship such as the use of the term ‘agent’.

o “Agency is a word used in the law to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties. But in the business world its significance is by no means thus restricted”.

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o Agency does not exist for its own ends but to serve the ends and purposes of other legal transactions

- However, merely calling itself an agency does not mean that A is an Agent.

o Therefore look at substance over form.

The difference between an agency and distributer:

 the key difference is that the distributer buys the goods from the manufacturer (P) on his own account and then resell to its own customers as opposed to an agent which sells the goods to the customer (TP) acting and negotiating on behalf of the manufacturer (P).

The difference between an agency and bailment:

 Bailment: the delivery or transfer of a chattel (thing) with a specific mandate which requires either the identical item to be returned to the bailor or dealt with in a particular way by the bailee.

o Bailee has no power to make contracts on behalf of the bailor.

The difference between an agency and employee:

 Employee is under the control of an employer thus it is possible that it is an A.

Specific categories of general agents:

 Brokers: legal agent for only one of the parties and not entrusted with possession of goods.

 Factors: entrusted with possession of goods to seel in own name.

 Commission agents: appoint to buy or sell on behalf of principal.

 De credere agents: extra duty to principal in ensuring principal gets paid.

 Powers of attorney: principal confers authority on agent perform certain acts and is regulated by statute.

Agency not restricted to contracts:

 Sometimes it is suggested that an agency can only exist when A has the authority or capacity to create a contractual relationship between P and T.

liable

Gave guarantee

to C H is a distributor

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 However, whilst this is the most common form of agency (and is the one we will be concerned with) an agency relationship can exist even though A does not have this power.

For example: CML Life Assurance Soc. Ltd v P & C Co-operative Assurance Co. of Australia Ltd (1931) 46 CLR 41

 High Court held:

o That an agency existed between the appellant life insurance company and someone engaged to solicit applications for life insurance on its behalf, even though that person could not conclude a contract of insurance between the applicant and the company.