a. (i) Explain the duties that the law imposes on an agent towards his principal. (5 marks)
(ii) Define the term ‘agency’ and the contractual relationship that arises in an agency agreement. (4 marks)
b. (i) Explain two situations where an agent may have an apparent/ostensible authority. (5 marks)
(ii) Explain the term ‘secret profit’ under the context of agency. (3 marks)
c. Explain how a person may become an agent by necessity. (3 marks)
(i) Duties the law imposes on agent towards principal refers to S.164 to 174 of Contracts Act, 1950 posted here.
Similar question was asked in:
Agent's duties to Principal CA50, complete answer.
MIA QE 2008/3 Q3 (a) duties of an agent in an agency relationship.
MIA QE 2010/3 Q3 (a)(i) duties that the law imposes on an agent towards his principal.
MIA QE 2011/3 Q4 (b) 5 of the duties of an agent towards his principal.
MIA QE 2013/9 Q2 (d) 3 of the duties of an agent towards his principal by citing the corresponding statutory provisions.
(ii) Definition of 'Agency' from Black's Law Dictionary:
A relation, created either by express or implied contract or by law, whereby one party (called the principal or constituent) delegates the transaction of some lawful business or the authority to do certain acts for him or in relation to his rights or property, with more or less discretionary power, to another person (called the agent, attorney, proxy, or delegate) who undertakes to manage the affair and render him an account thereof.
Law Dictionary: What is AGENCY? definition of AGENCY (Black's Law Dictionary)
MIA model answer:
Agency is the relationship which subsists between the principal and agent who has been athorised to act for him in dealings with others;
“Agent” and “principal”
135. An “agent” is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the “principal”.
Two types of contracts under agency:
- Contract between the principal and agent;
- Contract between the principal and the third party.
(i) 2 situations where an agent may have apparent or ostensible authority.
1. When his association with the Principal can be very representative of Husband - Wife, or Director - Chief Operating Officer, partners in a partnership or Sole Representative of a Board.
2. When there is no way to contact the Principal by Estoppel or Holding Out.
Readings on apparent or ostensible authority refer to earlier posts below.
2012/3 Q3 (d) distinguish actual and apparent or ostensible authority.
2013/9 Q2 (b) apparent authority and holding out.
2015/3 Q2 (b) distinguish actual and apparent or ostensible authority.
Legal position of dealing with apparent or ostensible authority is protected by the principals of Estoppel or "Holdong out", and as well as the Turquand Rule.
The company is bound by his ostensible authority in his dealings with those who do not know of the limitation. He may himself do the "holding-out." Thus, if he orders goods worth £1,000 and signs himself "Managing Director for and on behalf of the company," the company is bound to the other party who does not know of the £500 limitation, see British Thomson-Houston Co Ltd v Federated European Bank Ltd., which was quoted for this purpose by Pearson L.J. in Freeman & Lockyer.
Even if the other party happens himself to be a director of the company, nevertheless the company may be bound by the ostensible authority. Suppose the managing director orders £1,000 worth of goods from a new director who has just joined the company and does not know of the £500 limitation, not having studied the minute book, the company may yet be bound. Lord Simonds in Morris v Kanssen, envisaged that sort of case, which was considered by Roskill J. in the present case."
So, apparent authority is very much taken as actual authority in Royal British Bank v Turquand (1856), where the outsider, not familiar with the internal operation of the company, cannot be held wrong in dealing with the company.
Answer provided by Model Answer of MIA was to me, not very clear on the above. It only touched on the choice of ratification of a contract made outside the authority or in the first place, no agent was appointed.
- Agent who has been appointed but has exceeded his authority when he entered into a contract with a third party;
- A person who has no authority to act for the principal but he acted as if he has the authority to enter into a contract with a third party.
Right of person as to acts done for him without his authority. Effect of ratification
149. Where acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or to disown the acts. If he ratifies them, the same effects will follow as if they had been performed by his authority.
Ratification may be expressed or implied
150. Ratification may be expressed or may be implied in the
conduct of the person on whose behalf the acts are done.
(a) A, without authority, buys goods for B. Afterwards B sells them to C on his own account; B’s conduct implies a ratification of the purchase made for him by A.
(b) A, without B’s authority, lends B’s money to C. Afterwards B accepts interest on the money from C. B’s conduct implies a ratification of the loan.
(ii) Definition of ‘secret profit’ under the context of agency.
See 'Agency Bribe and Secret Money' and below.
MIA model answer:
Secret profit is: bribe, such as payment of a secret commission by a third party, outside the knowledge of the principal;
- Any financial advantage the agent received from a third party on top of the commission or remuneration that has been agreed by the agent and principal.
The provisions in Contracts Act 1950 that deal with this is S.168 - 169.
Right of principal when agent deals, on his own account, in business of agency without principal's consent.
S.168 ...The principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed (secret money) from him by the agent, or that the dealings of the agent have been disadvantageous to him.
Principal's right to benefit gained by agent dealing on his own account in business of agency.
S.169 If an agent, without the knowledge (secret money) of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit (secret money) which may have resulted to him from the transaction.
(c) Becoming an agent by necessity is provided by:
Refer earlier post on 'Agency by necessity in an emergency' here.
S.142 Agent's authority in an emergency.
In such emergency, it is impossible to get the principal's instruction.
Action is necessary in view of the limited time.
In the condition of emergency, the action of agent must be in good faith - example to prevent loss incurred to the goods in hand which may be spoilt.
Acted in good faith to do good to the Principal
In an emergency, an agent has authority to do all such acts for the purpose of protecting his principal from loss as would be done by a person or ordinary prudence, in his own case, under similar circumstances.
S.149-150 Contracts Act, 1950.
S.168-169 Contracts Act, 1950.