BUS201 - CONTRACT & AGENCY LAW

STUDY UNIT 6
Chapter 16
AGENCY
Principal, Agent, 3rd Party

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

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.

3. Conclude whether the agency relationship was IMPORTANT!

validly created, and whether the agent acted within
his scope of authority.
If yes, then the principal is bound to the contract with Note that the principal is liable, even if the agent was acting
fraudulently, so long as the agent was acting within the
the 3rd party, and is liable to the 3rd party .
scope of his actual or apparent authority.

4. If the Question asks, to discuss the duties of an agent.

Flip to the relevant guidelines on Agent's Duties.

* 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

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Define Actual Authority.

An agency relationship can be created when the principal actually grants authority to the agent to act on his behalf. Such actual authority can
be (a) express and (b) implied.

2. Explain Express Authority.

Express actual authority is authority which has been specifically expressed (orally or in writing).

3. Explain Implied Authority.

Implied actual authority refers to the agent's power to do all acts:

(i) within the reasonable customs and trade usages, OR

(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).

4. Conclude if the agent was granted actual authority. IMPORTANT!

Need to consider if other categories of authority are also
 If he was granted actual authority and acted within that scope, then the contract is binding
applicable to him. An agent can possess more than 1
on his principal vis-à-vis the 3rd party. category of authority.
 If he was granted actual authority BUT did NOT act within that scope, then the contract may
not be binding on his principal vis-à-vis the 3rd party.
 If he was NOT granted actual authority, 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
Category 2 - Apparent Authority

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Define Apparent Authority. Case law IMPORTANT!

Lim Kok Koon v Tan Chew Yew (2004) Example: a Finance Director is likely to possess apparent
An agent has apparent authority if prior to his acts,
authority to sign loan agreements on behalf of the
the principal has in some ways held out to the 3rd company.
party that the agent has the principal's authority to
act.
If an agent acts within his apparent authority his
action will bind the principal to the 3rd party.
Apparent authority can be created if the following 5 Freeman & Lockyer v Buckhurst (1964)
criteria are met. Must analyse all 5 criteria.

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.

7. Conclude if the agent possessed apparent authority. IMPORTANT!

 If he possessed apparent authority and acted within that scope, then the contract is binding Need to consider if other categories of authority are also
applicable to him. An agent can possess more than 1
on his principal vis-à-vis the 3rd party.
category of authority.
 If he possessed apparent authority BUT did NOT act within that scope, then the contract may
not be binding on his principal vis-à-vis the 3rd party.
 If he did NOT possess apparent authority, 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
Category 3 - Ratification

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Define Ratification. Case law IMPORTANT!

Example: a Finance Director is likely to possess apparent
Ratification is the process where a principal
authority to sign loan agreements on behalf of the
retrospectively ratifies (confirms) an act done by the company.
agent who had no actual or apparent authority to do
such an act.
Bolton Partners v Lambert (1889)
Once ratified (confirmed), the agent's act is deemed to
have been validly authorised from the date of his act.

The contract is deemed to have been entered into

between the principal and the 3rd party, on the date
of the agent signed the contract, and NOT the date of
the principal's ratification.
For ratification, there are 4 conditions to be fulfilled. Need to analyse all 4 conditions.

2. 1st condition - the principal must have been Case law

identified or disclosed.
For example, the agent states expressly that he is Keighley, Maxstead v Durant (1901)
acting on behalf of an unnamed principal OR the
agent names the principal that he is acting for.

3. 2nd condition - the principal must exist. Case law IMPORTANT!

For example, the principal is not a fake company . Kelner v Baxter (1866) Section 41, Companies Act (Cap.50) of Singapore states
that in certain situations, a company can ratify contracts
that were made on its behalf prior to its incorporation.

4. 3rd condition - the principal must have capacity to
enter into such a contract.
The principal must have the capacity to enter into such
a contract (a) at the time the agent entered into the
contract, on its behalf and (b) at the time of the
ratification (confirmation).
Case law
Ashbury Railway Carriage v Riche (1875)
IMPORTANT!
Section 25, Companies Act (cap. 50) of Singapore states
that in certain situations, a contract will not be invalid
just because a company did not have the capacity to enter
into such a contract.

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

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Explain how an agency can be created via "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.

There are 2 categories. See which is applicable.

2. 1st category - Agency of Necessity. Case law

Couturier v Hastie (1852)
In an emergency where (a) communication with the
principal is impossible and (b) immediate action is
required, the law deems that a person to be conferred
authority to act.
For example, a ship captain finds the cargo of
bananas unexpectedly starting to rot and he was not
able to contact the owner of the cargo. Under the
agency of necessity, the captain can sell the rotting
bananas at the nearest port for the best available
price.

3. 2nd category - cohabitation. IMPORTANT!

Generally, a wife who cohabits with her husband is It is doubtful whether such a concept will apply in modern-
day Singapore.
presumed to have the authority to use his credit to
buy "necessaries".
The husband can be rebut such implied authority of
his wife, by specifically informing the suppliers not to
supply any goods or services to his wife.

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

STEPS ASK YOURSELF SUPPORTING CASE/LAW EXCEPTIONS

1. Briefly explain the duties of an agent.

The agent is required to act in good faith. There are
at least 5 specific agent's duties.

2. 1st duty - Duty to Follow Instructions. Case law

Bertram, Armstrong & Co v Godfray (1830)
If an agent fails to follow his principal's instructions, it
constitutes a breach of their agency contract and the
agent is liable in damages to his principal.

3. 2nd duty - Duty to Use Care and Skill. Case law

An agent must discharge his duties with reasonable
care and skill.
The standard required is that which a reasonable Keppel v Wheeler (1927)
person would expect from an agent in that field .

For example, a property agent should fulfill his role up

the standard expected of property agents in general.

3. 3rd duty - Duty to Avoid Conflicts of Interests. Case law

An agent must not put himself in a position where his

own interests will conflict with his principal's interests.

Of course, the agent can disclose his conflict of

interests to his principal. If his principal still consents
to the agent continuing to act as his agent, then the
agency relationship can continue.

3a. The agent must not accept a bribe or secret

commission. If he did so, the principal can claim the
bribe or secret commission from the agent.

3b. Hippisley v Knee Brothers (1905)

The agent must also not make a secret profit from his
acts as an agent (regardless of whether he acted in
good faith and regardless of whether the principal
suffered any damage).

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.

For example, an agent cannot secretly buy a ship from

his principal, without telling that the buyer is the
agent himself.

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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.

He cannot delegate his responsibilities to another

person, unless the principal agrees.

5. 5th duty - Duty to Keep Separate Accounts.

An agent has a general duty to keep proper separate
accounts, showing all the property belonging to his
principal, and all transactions undertaken on behalf of
his principal.
On demand by the principal, the agent must show
these accounts.

6. Conclude whether the agent has breached any of his duties.

If yes, the principal can terminate the agency relationship and sue for damages.

If the agent had made a secret commission or bribe, the principal can claim it from the agent.

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