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Revision Notes, Commercial Law, courses

Commercial Law (Monash University)

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AGENCY
What an agent is in law
"Agent is a word used in the law to connote (indicate) an authority or capacity
in one person to create legal relations (usually contracts) between a person
occupying the position of principle and third parties" (International Harvester
Co of Australia Pty Ltd V Carrigan's Hazeldene Pastoral Co (1958) Page 418)
The principal is legally responsible for what the agent does
The principals, agents and/or third parties can be individuals or corporations

Agents are not independent dealers or contractors

International harvester Co of Australia Pty Ltd v Carrigans Hazeldene Pastoral

Co (1958) 100CLR 644 (High Court) Page 418
Defendant = International Harvester
Plaintiff = Carrigan

A dealership was used to sell hay-bailers that were manufactured by the

defendant
The hay-bailer was sold to the plaintiff by the dealership in its own right. The
contract referred to the dealership as the dealer and owner and did not
mention the defendant
Result:
o The defendant was NOT the principal in the transaction
o The dealer was NOT its agent

Difference between independent dealers and agencies

Independent users

Dealer
Contract
Contract

Defendant Plaintiff
No Contract

Agency

Agent Contract

Principal Third party

Contract

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Agency relationship

Represents
principal to

Agent Third party

Agency agreement
Legal relationship

Appoints Principal

Indicators of agencies
Are profits kept or are they passed onto the principal
o Independent dealers keep profits
o Agents are paid a commission
Are the sales accounted to the principal?
o An agent must make a full and honest account to the principal
The law doesnt rely on titles or names used, instead the law looks carefully at the
facts that revealed the nature of the relationship

Potter v Customs and Excise Commissioners (1985) STC 45 (Uk court of

appeal) Page 419
The dealers kept the profits they received (over 70% of the price of the profit)
The dealers didnt need to give potter an account of the buyers (no names)
Each dealer was responsible for their own debts
Results:
o The dealers were not agents of potter

Agencies and other relationships

Agencies are different from other relationships, although they may arise from them
Employment (employer-employee): An employer is not usually an agent of the
employer
Relationship may become an agency relationship in circumstances where
employers can give employees special authority to deal with third parties on
its behalf
Example: A sales person who had the authority to make contracts of sale on
behalf of the employer

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Independent contract: Independent contractors are employed by a client to perform

specific work
They may become an agency
Bailment (Bailor-Bailee): A bailee in possession of a bailors goods is not usually
an agent of the bailor, but may be if given authority
Lawful possession does not automatically carry an authority to sell these
possessions to a third party (or create a legal relationship between the bailor
and third parties)

Sachs v Miklos (1948) All ER 67 (UK court of appeal) Page 427

Agent/Bailee = Miklos
Principal/Bailor = Sachs
The alleged agent allowed the principal to store furniture in one of the agents
rooms
The principal failed to contact the agent for 3 years
The agent was unable to contact the principal
The agent wished to use the room so the agent auctioned the furniture and
kept the money for the principal upon their return
The defence of agent by necessity was rejected as an emergency did not
exist (the house hadnt been destroyed leaving the furniture exposed to
thieves so there was no immediate need to sell the furniture)

Partnerships: Each partner is an agent for other partner(s)

Supplier-buyer: Dealer doesnt act as an agent for a supplier

International Harvester Co of Auatralia Pty Ltd v Carrigan Hazeldene Pastrol

Co (1958) 100 CLR 644 (High court) Page 418
The transaction was carried through on the basis that the agent sold the hay-
bailer to the third party and that the principal was not the contracting partner

Franchisor-Franchisee: The franchisee acts independently and not as an agent for

the franchisor
Potter v Customs and Excise Commissioners (1985) STC 45 (UK Court of
appeal) Page 419
Principal/Franchisor = Potter
Agent/Franchisee = dealers
The franchisor was the principal who distributed products for Tupperware
The franchisor found franchisees who got the parties together
The goods remained the property of the franchisor until the franchisor was
paid
Each franchisee was responsible for his or her own debts
Result:
o The dealers were not agents/franchisees of Potter

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How someone becomes an agent (the creation of an agency)

An agent may need to be licensed or have minimum qualifications (example: travel
agents or solicitors)
Creation of an agency

By the parties By operation

of the law

Principal Necessary to protect

principals property
(usually under care
of agent)

Ratifying
Gives authority unauthorised conduct
by the agent Agency by
Cohabitian

Actual Apparent

Express: Clearly Agency by estoppel:

stated in spoken or Reasonably indicated
written words by the to third party by
principal circumstances

Implied by authority
given to the agent

Agreement (Actual authority)

Appointed orally or in writing (mostly in writing so the terms are clear)
Actual authority consists of actual powers given to the agent by the principle -
they can be express or implied
Created by express agreement
The agreement does not have to be binding (does not have to be a contract)
Principal doesnt need to provide consideration (the principle can instruct or
request the agent to do something and the agent can agree to carry out the
request or instruction)
The principle will be legally bound by the agents authorised conduct

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Created by implied agreement

The unspoke authority (not expressly given to the agent) which is given to the
agent due to the circumstances
This authority allows the agent to do anything that is necessary when trying to
carry out set tasks given by the principal
o The principal will be legally bound by the agents conduct

Agency by Estoppel (apparent, appearance or ostensible authority)

Elements for establishing an agency by estoppel exists:
o There has been a representation (either by word or conduct - act or
omissions) by the supposed principle that gives the impression that the
supposed agent is the principles agent
o The third party reasonably relied on this representation
o The has been a change in the third parties position as a result of
relying on the representation
If a third party deals with the agent reasonably believing the agent has
authority, the principal is estopped (stopped) from denying the agent has
authority

Pole V Leask (1861-73) All ER Rep 535 (House of lords) Page 426
Principal = Pole
Acting agent = AG
Third party = Leask
The agent acted as an agent for the principal a number of times in dealing
with the third party, the agent also received money from the third party on
behalf of the principal
o The agency was terminated, principal did not directly inform the third
party
o After termination, the agent continued to act for the principal without
authority
o Not knowing about the termination of agency, the third party entered
into an agreement with the principal
o The third party paid money that was intended for the principal to the
agent
o The agent took the money and kept it for himself
Result:
o The agency by estoppel existed (including recept of money)
By failing to inform the third party that the agency ceased to
exist, the principal represented that it continued (by conduct)
The principal was estopped (stopped) from denying the
representation
The third party did not have to pay the money again to the
principal

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Ratification
Rules that needs to me complied with for ratification to be effective
1. The agent must contract as an agent
The third party must be aware that the person they are dealing with is only an
agent
The principal must be sufficiently identified
2. Only the principal can ratify
Ratification must occur within a reasonable period of time
3. The principal must have existed as the time the original contract was made
4. At the time the contract was made, the principal mast have had legal
(contractual) capacity
o no minors or bankrupts
5. The principal must be aware of all the facts and adopt all of the agents
actions
6. Ratification must apply to the whole contract
If the agent entered into a number of separate transitions on behalf of the
principle, the principle may ratify one or more of those transitions
7. Ratification can be implied by the principals conduct (doesnt need to be
express)
8. Ratification will be ineffective where the original transaction is void
9. The ratification doesnt date back to the time at which the contract was made

Keighley, Maxsted & Co Vs Durant (1900-3) ALL ER Rep 40 (House of Lords)

Page 437
Principal = Keighley, Maxted & Co
Agent
Third party = Durant
The principal and the agent received a offer from the third party
The principal and agent agreed to make a counter offer to become purchasers on
joint account
Third party refused counter offer the agent (acting alone) purchased the goods at
a higher price (as a sole purchaser), the principals name was not mentioned
Later the agent told the principal about the deal
Principal agreed to be the purchaser at the higher price
The contract price was not paid and the third party sold the goods at a loss
Result:
o There was not an agency by ratification
o Ratification will only exist when the agent is known to be acting as an
agent and not as a principal
It will not apply in the situation of a undisclosed principal
Undisclosed principal exists when the third party believes
that they are dealing with an agent as a principal (thus the
third party is unaware of any principal)

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Agency by necessity
Contracts for the carriage of goods
Usually do not involve third party
Elements to be satisfied
o The agent must be entrusted with the principals authority
o There must be a genuine emergency
o It must be impossible or very difficult to contact the principal to get
instructions on how to deal with the emergency
o The agent must act in the interest of the principal

Sacha Vs Miklos (1948) All ER 67 (UK Court of Appeal) Page 427

Alleged agent = Miklos
Principal = Sachs
Alleged agent allowed the principal to store furniture in one of the agents
rooms
Principal failed to contact the agent for 3 years
Agent failed to contact the principal
Agent wished to use the room so the furniture was auctions and the money
kept for the principal upon their return
Result:
o Principal wanted to charge with the tort of conversion (dealing with
anothers property in an unauthorized way
o The defence of agent by necessity was rejected as an emergency did
not exist (the house hasnt been destroyed leaving the furniture
exposed to thieves..etc)

Agency by Cohabitation
In many Australian jurisdictions, this common law doctrine had been
abolished altogether by statute
It is presumed that wives have authority ti pledge their husbands credit for the
purchase of household necessities

The powers (authority) of an agent

2 kinds
o Actual authority
And/or
o Apparent (or ostensible) authority
A principal will be bound to a third party by their agents actions if the agent
has either kinds on these authorities
Actual authority is greater than apparent authority
The significance if actual authority
o It may give a principal rights against an agent who has exceeded
actual authority, or acted without authority

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o The principal will be bound to the actions of their agent when the agent
acts within the agents (express or implied) actual authority.

Representation by the principal must occur for ostensible authority to exist

Agents cannot clothe themselves with authority by merely claiming to
have it
A principal must in some way represent to the third party that the agent
has authority (conveyed by agent or any other means)
The agent shouldnt be aware of the principals representations
(although they generally are)
Why apparent (Ostensible) authority is binding
Doesnt depend on the extent of actual authority third parties (usually) have
no way of knowing what an agents actual authority is
Third parties must rely on what the principal and agents communicate to them

Freeman & Lockyer vs Buckhurst Park Properties (Mangal) Ltd (1964) 1 All ER
630 (UK Court of Appeal) Page 432
Principal = Buckhurst Park Properties
Third party = Freeman & Lockyer
A representation was made by the principal to the third party
o The agent has the authority to enter into a contract of the kind the third
party was seeking to enforce
o Agent was never appointed managing director of Buckhurst but he
acted asif he was
The representation was made by a person who had actual authority to
manage the principals business (generally or contract matters)
The third party relied upon this representation
The third party sued when account wasnt paid
Company denied the agent has any authority to engage in making a contract
Result:
o Agent has ostensible authority
o It was reasonable for the third party to believe the agent had real
authority

Herperu Pty Ltd Vs Morgan Brooks Pty Ltd (no 2) (2007) NSWSC 1438
(Supreme Court of New South Wales) Page 434
Principal = Morgan Brooks
Alleged agent = Mr and Mrs Cincotta
Principal entered into a licensing agreement with the alleged agents to create
Morgan Brooks Coffs Harbour Agent and then later on with another person
Morgan Brooks Double Bay Agent
Principal consented to the alleged agent and their business to use the title of
Morgan Brooks Licensees on business cards, stationary and office signage

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A client paid more then 4 million to Mr Cincotta and his company with the
intended purpose to be invested by Morgan Brooks in a particular investment
o Money was misappropriated and misapplied by Mr Cincotta
Client sued Morgan Brooks for a refund and argues that Mr Cincotta and his
company were agents of Morgan Brooks and were acting within scope of
their authority
Morgan Brooks denied they were managers, employees or agents of herm
they were independent contractors who would only receive and forward loan
applications under Morgan Brooks name
Result:
o By allowing the use of her name on signage, stationary, business card
and on their website, Mr Cincotta was an agent of Morgan Brooks
o Client were not aware of the licensing agreement & it was not clear that
Mr Cincotta was operating an independent business separate to
Morgan Brooks
o Client transactions fell within Mr Cincotts ostensible authorise to create
a contract on behalf of Morgan Brooks so she was bound by the
contracts

First Energy (UK) Ltd Vs Hungarian International Bank Ltd (1993) 2 Lloyds Rep
194 (UK court of appeal) Page 435
Third party = First Energy Ltd
Agent = Senior management of bank
Principal = Hungarian International Bank Ltd (Manchester office)
Third party approached the agent for a loan
Due to the substantial size of the loan, it was forwarded to the board of
director in London
Believing the loan was approved, the agent offered (by letter) the third party to
provide the credit facility
The third party accepted
The third party sued the principia for breach of contract
o The principal argued that the agent did not have the actual or
ostensible authority to approve this type of loan this the principal was
not liable
o Third party argued that although they didnt have the authority to
approve the loan, they had ostensible authority to communicate the
banks decision (and deal with relevant documents) , so the letter of
offer is binding on the bank
Result:
o Bank was bound by the contract
Agent did have ostensible authority to convey the decision of the
board

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Undisclosed principal rule

Where an agent (acting with actual authority) doesnt disclose to the third
party that the agent is in fact an agent
The third party can enforce the contract against the agents or the principal
If the rule applies, the principal can enforce the contract against the third party

Elements of the rule:

The agent was not acting on the principals behalf but was acting with express
or implied actual authority
o Ratification doesnt apply
The wording or terms of the contract are not consistant with or include the
possibility of a principal
The identity of the principal is not critical to the third party

Said Vs Butt (1920) 3 KB 497 (Kings Bench Division) Page 442

Undisclosed principal = Banned person
Agent = Friend
Third party = Theatre
Undisclosed principal was banded from the theatre
Undisclosed got an agent to purchase a ticket for him
When the undisclosed principal was refused admission he sued the theatre
for breach of contract
Result:
o The undisclosed principal could not sue the identity of the ticket
purchaser was critical and the theatre wouldnt have sold the ticket to
the agent if hed known it was for the banned person

The third party can raise any defence against the undisclosed principal that
could have been raised against the agent

Minter Vs Mendies (1996) C480-95 QBT 42 Page 442

Third party = Minter
Agent = Mendies
Disclosed principal = Mendies
Third party entered into a contract with the agent to have his roof replaced
But the agent was actually the principal
The principal operated his business as a company
Third party wanted to sue for breach of contract
o Could elect to seek damages from the company or the agent
Result:
o Third party sued the agent personally (for poor workmanship) due to
the few assets the business owned

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Duties of an agent
The primary, but not sole function of an agent is to make contracts on behalf
of the principal by bringing the principal and a third party into a legal
relationship or alter their legal relationship
Breach of duties will render the agent liable to the principal

General duties The agent must:

Perform what he or she has undertaken to perform
Obey instructions
Exercise due care and skill in carrying out the agency
Act personally

Fiduciary duties
To account honestly
To avoid conflict of duty or interest
Not to make secret profits (secret commissions or bribes)
Not to use principals property or information for personal gain
Agents may receive money from the third party on behalf of the principal

Petersen Vs Moloney (1951) 25 ALJR 566 (High Court) Page 421

Principal = Peterson
Third party = Moloney
Principal instructed an estate agent to find a purchaser for her house
No express authority given
Third party paid the price of the house to the agent and a receipt was given
Agent was not the principals agent for he receipt of money (authority didnt
extend to receive money), only to find a buyer for the house
Result:
o The third party had to pay the amount again due to the agent failing to
pass on the first payment

Norwich Fire Insurance Society Ltd Vs Brennans (Horsham) Pty Ltd (1981) VR
981 (Supreme Court of Victoria) Page 424
Third party = Brannans
Principal = Norwich insurance
Agent approached the third party who recommended the principal to cover the
business insurance
All premiums were paid to the agent and the policies were renewed even
though the money never got to the principle
The agent never paid money and went into liquidation
Result:

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o It was held that an insurance agent DID have the authority to accept
premiums on behalf of the principle (Norwich insurance), thus a
payment to the agent was effectively a payment to the insurer

Agents may pay money on behalf of the principal

Example- home buyers using a solicitor to arrange final settlement and to pay
the balance of money due under the contract
Agent make representations on behalf of the principle which the principle with
legally responsible for
Example- real estate agent describing the size of the property for sale
Examples of common agencies include
The same and leasing of land (estate agents)
The sale of company shares (stockbroker)
Dealings by companies (directors, employees and external agents)
Legal matters (barrister and solicitors)

Duties of a principal to an agent

Duty to remunerate the agent according to the agreement between them
The agent has a lien over the principals goods for debts owed by the principal
to the agent
o Example: the agent may withhold and (sometimes) sell the goods
unless the debt is paid
Duty to compensate the agent for expenses/losses incurred, except those
arising from
Unauthorised actions (unless subsequently ratifies)
OR
The agents own default or negligence

Who can sue whom?

The third party can sue the principal where:
The agent acted with express or implied actual authority (whether or not the
existence of the principal was disclosed)
The agent acted within ostensible authority
The principal has ratified the agents unauthorised actions

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When is the principal bound?

The principal can sue the third party where:

The agent acted within actual authority (includes undisclosed principal)
Principal has ratified agents action

Suing the agent

The agent cannot sue or be sued on a contract where the agent was known to be
acting as an agent
This rule doesnt apply when:
o The principal didnt exist at the time of making the contract
o The agent executed a deed or a bill of exchange in his or her own
name
o Custom or trade usage makes the agent liable
o The terms of the contract made the agent liable
Where the agent lacked authority, they may be liable to the third party

Reasons why an agent would claim authority that doesnt exist:

Engaging in fraud
Believe that they can convince the principal to accept the deal after it has
been made
Genuinely mistaken as to the extent of their powers
Genuinely mistaken as to the existence of an agency
o Death, bankruptcy and insanity automatically terminate an agency

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In these situations the third party can sue the agent for:
o Misrepresentation (fraud, negligence, Australian consumer Law section
18) Chapter 3
o Breach of warranty of authority under principal outlined in Collen Vs
Wright
A breach of warrant of authority occur when an agent promises
(warrants) falsely that they have authority to enter into a contract
on the principals behalf

Collen Vs Wright (1843-60) All ER Rep 146 (Court if Exchequer Chamber) Page
441
Third party entered into an agreement to lease particular land belongings to
the principal
o This was handled by the agent (he believed he had the authority to
enter into this contract this belief was shared by the third party)
Agent didnt have authority
Principal refused to proceed with the lease
Third party sued agent for damages
Result:
o There was a contract between the third party and the agent
o Agent didnt have authority
o Agent was in breach of contract (breach of his warranty of authority)
To succeed in an action for breach of warranty of authority the third party
must show:
o The agent warranted (promised) having authority
o The third party relied on the warranty
o The third party wouldnt have otherwise entered into the contract
o Third party has suffered loss as a result

Termination of agency
The agency relationship may be terminated :
o By agreement between agent and principal
o By revocation of the agents authority
o By expiry of the period of the agency agreement
o Upon the death of the principal or agent
o Upon the bankruptcy of the principal or agent
o Upon the insanity of the principal or agent
o If the agency agreement becomes illegal or impossible to perform.
To avoid agency by stopped and apparent authority, the principal should
notify third parties of the termination

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Agency Glossary:
Agency: The legal relationship where one party (principal) authorizes another
person (agent) to act for the principal

Agency by estoppel: The authority an agent appears to have to outsiders. The

agent may not actually have any authority at all. (aka apparent authority or
appearance of authority or ostensible authority)

Agency by ratification: A contract with a third party is entered into by someone

claiming to be an agent, but without actual or apparent authority. The contract will be
valid, and an agency will be deemed to exist from the time the contract was originally
made if the principle ratifies (confirms/approves) and adopts what the agent did.

Agency of necessity: A situation where the law gives someone the authority of an
agent, even though the principle has not consented to that authority.

Agent: Someone who is authorized to act on behalf of another person (the principle).

Apparent (Ostensible) authority: The authority an agent appears to have to

outsiders. The agent may not actually have any authority at all. (aka agency by
estoppel or appearance of authority or ostensible authority)

Appearance of authority: The authority an agent appears to have to outsiders. The

agent may not actually have any authority at all. (aka Apparent authority or agency
by estoppel or ostensible authority)

Case Law: A collection of principles and rules based on the decisions of judges in
higher (most important) Courts (aka Common law, precedent, equity)

Common Law: A collection of principles and rules based on the decisions of judges
in higher (most important) Courts. (aka case law, precedent, equity)

Consideration: Something of value done or given (promised to be done or given) to

the other contracting party

Contracts: Legal rules for buying and selling goods and services

Contract Law: Where the plaintiff must prove the defendant breached (Broke) a
specific legal agreement with the plaintiff

Equity: A collection of principles and rules based on the decisions of judges in

higher (most important) Courts (aka Case law, Common law, precedent)

Estoppel: A legal doctrine that prevents someone arguing a position which would
contradict the position implied by their own previous words or actions.

Express actual authority: The authority actually given to the agent (in spoken or
written words) from the principle that allows the agent to act on behalf of the principle.

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Implied actual authority: The 'unspoken' authority which is necessary for an agent
to carry out the job.

Lien: a right to keep possession of property belonging to another person until a debt
owed by that person is discharged.

Ostensible authority: The authority an agent appears to have to outsiders. The

agent may not have any authority at all. (aka agency by estoppel, appearance of
apparent authority, appearance of authority)

Partnership: The relations between persons carrying on a business in common with

a view of profit (definition from the Partnership Act)

Precedent: A collection of principles and rules based on the decisions of judges in

higher (most important) Courts (aka case law, common law, equity)

Principle: The person giving authority to someone else in an agency.

Statute law: Legislation enacted (made) by federal and state parliaments

Tort Law: Where the plaintiff must prove the defendant's conduct caused some loss
or injury to the plaintiff

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