14 Agency  

Learning objectives

At the end of this Chapter, you should be able to:

  • explain the elements of an agency relationship
  • describe the different types and relationships of agency
  • discuss the appointment and sources of authority of an agent
  • identify the rights, duties and liabilities of agents and principals
  • identify the various means for termination of an agency agreement
  • explain the remedies of a principal for breach by an agent.

Key Terms

You will notice these key terms, which are mentioned throughout the chapter, to help you to better understand and remember the material:

    • Agent: a person employed to act on behalf of, or represent, another person (the principal).
    • Broker: a person who buys and sells things for other people for a commission and are common in the financial world.
    • Del credere agent: a person as a broker for the principal but who also guarantees payment by a third party to the principal after the transaction is completed and who may become liable for that amount.
    • Estoppel: a legal principle that prevents a person from going back on an action or statement that they made in the past.
    • Factor: a type of trader who takes possession of goods, or the documents of title to the goods, on consignment for a principal for commission and sell them in their own name.
    • Mercantile agent: a person who buys, sells and consigns goods for their principal (usually in their name) for a commission but who does not have possession or ownership (documents of title). If the mercantile agent is given possession of the goods he is known as a factor.
    • Principal: a person who gives authority or capacity to another person (the agent) to act on the principal’s behalf and create legal relations with a third party.
    • Ratification: the legal confirmation of the adoption of a transaction by a principal of an act of their agent.
    • Secret commission: a commission or profit which has not been accounted for by the principal and which is like a bribe and may result in both a criminal and a civil law action.

Introduction

The is the last chapter. You have learned about some of the key areas of commercial law that are very important in business, but also equally important in a lot of your day-to–day activities, starting today. In Chapter 12 we began by looking at the doctrine of privity of contract and learnt that only those persons who were immediate parties to a contract acquire rights and liabilities under it. However, what you are about to discover is that agency is an exception to the rule, and hence it is important a have a basic understanding of it. Because of the complexity of commercial dealings today, it is often necessary to deal through others including at the very least bankers, financiers, accountants, managers, partners, and solicitors. Where these persons negotiate on your behalf with third parties, they will often be your agents and they may make you liable for their actions. Just understand that the law of agency exists in specific situations where one person (the agent) acts on the authority of another (the principal) to enter into legal obligations such as contracts. The agent will have some express or implied authority as well as certain rights and duties, with the duty to act in good faith being the most important. There are various specific types of situations where a relationship of agency exists.

What is an agency relationship? 

Where there is an agreement, which may be oral or in writing, between you as a principal and another person (an agent) to do something for and on your behalf, that creates a potential agency situation. It gives an agent the authority to act on your behalf, but with the benefits going to you as principal.   

There is also a contract made by an agent in the exercise of their authority with a third party which is enforceable both for and against you as principal (if an agent has acted within their authority). So, what you are looking at here is a three–party situation – you as a principal who passes authority to an agent to act on your behalf when dealing with a third party. A good example of an agency situation is a real estate agent in the purchase and sale of real estate. 

Who are the parties to an agency agreement? 

An agency agreement involves three parties:

  • a principal who gives their authority to.
  • an agent who, in turn, through the authority given to them by the principal creates the legal relations with.
  • a third party.

What common types of employment relationships can you get?

Can an agency situation be created between an employer and employee?

A common type of agency situation is employer and employee. The employee is subject to the control and direction of the employer (a contract of service) and generally does not have the power to make contracts with third parties. However, if there is evidence of an intention on the part of the employer to give an employee managerial power – for example, a shop manager may be authorised to buy goods or services for the business, or has the power to hire and fire staff, then there is evidence of an intention on the part of the employer to give the employee power to make contracts that could bind the employer.

Can an agency situation arise from an employee–independent contractor relationship?

Generally, an employer-independent contractor relationship will not create an agency relationship. The contractor performs an agreed task specified by the employer for an agreed price, but the contractor, not the employer, controls the manner, methods, and materials needed to complete the task. Unlike the employer-employee relationship, there is usually no evidence of intention to create an agency agreement. However, there is an exception where an agent can be an independent contractor and that is in the case of an auctioneer.

Other examples of where you will come across an agency relationship include real estate agents, partnerships, agents in the entertainment industry, brokers, factors, and del credere agents.

Knowing what kind of agent relationships exists is important, particularly in commercial arrangements as it determines what rights and obligations the parties have with one another.

What are the different classes of agents? 

TYPE OF AGENT DESCRIPTION
Special or limited An agent is authorised to only make a particular type of contract or carry out a particular transaction on behalf of the principal - for example, you ask a friend to bid no more than K15,000 at a car auction and they bid K20,000 you as the principal are not bound because they have exceeded their authority.
General An agent can make contracts of a certain class that are normal for this type of agency or do some act for a principal which is part of the agents ordinary course of business - for example, a manager has implied power to carry out those duties necessary for the running of the business.
Universal An agent can do almost anything a principal can do and are usually appointed under a power of attorney - for example, a person who knows they are getting dementia might appoint a friend to pay debts, collect moneys as though they were a principal.

How can an agent be appointed? 

TYPE OF AGENCY DEFINITION ENFORCEMENT
Express Authority is expressly given to the agent by the principal by agreement. Can be oral, in writing (which is best), or by deed. Principal and the third party are bound to the contract.
Implied by conduct Authority is implied from the conduct of the parties based on an objective test of the reasonable person. Can be by partnership, and in domestic situations by cohabitation. Principal and third party are bound to the contract.
Operation of law Authority is imposed on parties by law in cases of cohabitation and necessity or emergency. Principal and third party are bound to the contract.
By ratification Acts are committed without a principal’s authority, but the principal subsequently ratifies agent’s actions must be complete and unconditional. Principals and third parties are not bound to the contract unless principals ratifies the contract.

In cases of necessity or emergency, four conditions must be satisfied: 

  • there must be a genuine emergency where the principal’s property is in physical danger; and 
  • it must be impossible or extremely difficult to get the principals instructions; and 
  • the person must be entrusted with another’s property; and 
  • A must act bona fide in the principal’s interests, and not merely for an agent’s own convenience. 

In the case of ratification, the following conditions must all be satisfied, or an agent may find themselves liable to a third party for breach of warranty of authority:

  • An agent must clearly be acting as an agent; and 
  • An agent must have a known principal in mind. It is not necessary that principal be named; however, principal should be capable of being ascertained at the time of making the contract; and 
  • A principal must have contractual capacity at the time of making the contract, and 
  • there should be an act capable of ratification. A contract that is void from its inception cannot be made good by ratification, and  
  • A principal must have full knowledge of all the facts at the time of ratification, and 
  • ratification must occur within a reasonable time of the contract being entered into, and 
  • ratification may be express or implied by the conduct of the principal. The only time a special form is required is for the ratification of a deed, and 
  • ratification must apply to the whole contract, and  
  • ratification can only be retrospective.

What are the sources of authority for an agent?

In brief 

The sources of authority of an agent can be conferred either:

  • expressly or by action by principal
  • implied actual, which is inferred from the conduct of the parties, or
  • by way of apparent or ostensible authority which leads a third party to believe that an agent has authority to contract on a principals behalf when this is not the case.  Thus, for example, a transaction by one partner can bind the other partners if the transaction is part of normal partnership business as each partner is an agent for the other partners.

What is actual authority? 

Actual or express authority of the agent will be found in the powers:

  • expressly given by principal to agent
  • implied in the agency agreement, or 
  • arise from the operation of law.

What is implied actual authority? 

An agent has the authority to do anything that is incidental to or necessary for the carrying out of acts within their actual authority – for example, where a person acts as an agent of necessity. 

What is apparent or ostensible authority? 

Apparent or ostensible authority arises where principal, either by words or conduct, leads a third party to reasonably believe that agent has authority to contract on their behalf when this is not true. 

The impression of conferral created by principal must be conveyed to the third party. Agent and principal may be held liable based on apparent authority if their conduct is such that it could reasonably lead a third party to believe that they could rely on that authority. Thus, in the case of a partnership, for example, look closely at the business and see whether a transaction by one partner can bind the other partner/s because each partner is an agent for the other partners. 

The courts use objective evidence to establish apparent or ostensible authority including:

  • the words or conduct of principal
  • custom or trade usage
  • situations where principal has appointed agent to perform a task that implies a certain amount of authority; and 
  • whether the position creates an impression of authority.

A good example of the use of objective evidence is Tooth & Co v Laws (1886) 9 LR (NSW) 154, an Australian case, where Laws was estopped (prevented) from denying that the purchaser of his hotel was not his agent by allowing his name to remain on the sign above the entrance to the hotel, with his name on it as the principal. Third parties such as Tooth & Co had not been told the business had been sold, so they had no reason to believe that they were dealing with anyone but Laws. 

Reflection questions

Time for a break. Have a go at answering these 3 questions from real cases:

  1. A racehorse was consigned by rail to Swaffield at one of the plaintiff’s railway stations. Swaffield was not at the station when the horse arrived, as it arrived late at night. The railway company didn’t have his address, so there was no way it could get in touch with him to tell him the horse had arrived. As the horse couldn’t be kept at the station, it was sent to a stable at the company’s expense. When the railway company sought to recover the expenses for the upkeep of the horse, Swaffield refused to pay. Do you think the railway company will succeed in their claim? 
  2. Lambert made an offer to buy land from an agent who in fact was manager and agent of the property on behalf of Bolton Partners. The agent had no authority to act for Bolton Partners, but he accepted the offer on their behalf. Lambert then sought to revoke the offer. Bolton Partners subsequently ratified the acceptance of the agent. The question here is whether the unauthorised actions of the agent could be ratified by the principal. What do you think? 
  3. Laws sold his hotel to a third party. After the sale, he allowed his name as licensee to continue to be displayed over the front door to the hotel. The persons who bought the business continued to purchase their liquor supplies, as Laws had done, from Tooth & Co on credit. Tooth & Co were not aware of the change of ownership. After several months of the new owners failing to pay their bills, Tooth & Co sued Laws for the cost of the liquor supplied. Who do you think would win – Tooth & Co or Laws? Why? 

 

What are the obligations of an Agent to the Principal? 

The duties of an agent are based in contract law and must include:

  • following principal’s instructions exactly: Failure to follow these instructions will, unless an agent is prepared to ratify the transaction, not only not bind the principal but may result in an agent being in breach of contract (and quite possibly negligent), leaving an agent open to being sued for any losses that may arise.
  • act in person: If personal confidence or skill is required, delegation is generally not possible unless the delegation is sanctioned by the principal, it arises out of necessity or an agent’s duties are purely administrative.
  • exercise due care, skill and diligence: But, the standard of care will vary according to whether an agents services are free or paid for. If the agent charges a fee, then they are expected to exercise such care, skill and diligence that an agent in that business would have. 
  • act in the principal’s interest: As the agent stands in a fiduciary relationship with the principal. If the duty of the agent clashes with the principal’s interests, proper disclosure should be made. The test of what should be disclosed is what a ‘reasonable’ person would consider material in the ordinary course of business.
  • maintain confidentiality.
  • keep separate proper accounts.
  • not make secret profits or take secret commissions: An agent is entitled only to the agreed or customary commission as payment for services that have been performed, and to nothing else. If the principal is aware of an agent being paid an additional commission by a third party and sanctions it, there is not a problem. However, often the secret commission is nothing more than a bribe, the agent may face criminal charges by the police (see, for example, Div 2A, ss 97E-97P of the Criminal Code Act 1974) and civil action by the principal. Under the civil law the principal may: 
    • claim the commission
    • claim the commission and cancel the agency agreement
    • recover damages for any loss suffered from the actions of the agent or the party that has paid the bribe, or 
    • recover the secret commission.

Business tip 

Note that the care agents must exercise will depend on whether they are providing their services free (gratuitous) or for payment. If it is for remuneration, the higher the remuneration, the higher the standard of care, diligence and skill required of the agent. 

What are the obligations of the principal? 

An agent has the following rights against a principal:

  • Right to payment: which can be fixed or implied by the agreement, plus any expenses. If an agent’s services are gratuitous (free), then they are entitled to be reimbursed for any expenses. But note that if the agency agreement is that an agent will find a purchaser, or introduce a prospective purchaser, no commission is payable unless the prospective purchaser is ready, willing, and able to purchase at the principal’s price and terms and enters into a binding agreement.
  • Right to indemnity: against any liabilities and to be reimbursed for any expenses incurred in carrying out the principal’s instructions. An agent loses the right to indemnity and reimbursement where agents acts are not authorised or ratified by the principal, there is a breach of duty by the agent, or the loss is due to the unlawful or negligent acts of the agent. 
  • Right of lien: is available to the agent to retain the goods of the principal until reimbursement of expenses and commission if applicable. A lien is lost if the agent voluntarily parts with possession or principals pays what they owe the agent. 
  • Right of stoppage in transit: is available for an agent where they are personally responsible for the price of goods bought on the principal’s behalf because the seller is placed in the position of an unpaid seller if the principal were to become insolvent (broke or bankrupt). In such a case, an agent may be able to exercise the seller’s right of stoppage in transit if the goods are still in possession of a carrier (see the Goods Act 1951, ss 44-48). If an agent can recover possession of the goods, then the right of lien can be exercised.  

What is the liability of Agents and Principals to Third Parties?

When you think about it, agency involves two contractual situations. The first is between principals and agents while the second is the contract formed by the agent between the principal and the third party. What is interesting here is that generally an agent cannot sue or be sued on a contract between the principal and third party.

Reflection questions

Take a break and think about how you would answer these two questions. Both are real cases. 

  1. Lunghi had a block of land he wished to sell. He approached Sinclair, a real estate agent, to sell the land for him. Sinclair informed Lunghi that his (Sinclair’s) wife was an interested buyer, and after some time, and little buyer interest, Lunghi eventually sold the land to her. Lunghi subsequently discovered that Sinclair’s wife was a partner in the real estate agency and that no real attempt had been made to sell the land. It was, in fact, worth substantially more than he was told, and Mrs Sinclair had resold the land for a significant profit. What would you advise Lunghi of his options, if any?
  2.  Pow appointed McCann & Co, a firm of real estate agents, to sell his flat. Without Pow’s knowledge or consent, the agents gave details to a sub-agent, who subsequently sold the property. While McCann & Co were instrumental in arranging the sale, were they entitled to any commission?

In brief 

As a general rule, an agent cannot sue or be sued on a contract between the principal and a third party where:

  • an agent discloses the agency relationship and names of the principal, or
  • an agent discloses the agency relationship but does not name the principal.

If an agent does not disclose the agency relationship or name the principal, an agent will be personally liable on the contract. A similar outcome will occur where the agent will be liable for breach of warrant of authority if the agent exceeds their authority (express or implied) given to them by the principal.

What is the legal position where there is disclosure of an agency relationship? 

The general rule where agent contracts for a named principal is that agent is completely discharged from the agreement. End of story. But having said that, an agent can still incur liability if:

  • they have executed a deed in their own name
  • usage or custom makes them liable
  • A principal is non-existent
  • they agree to be liable, or 
  • they are in breach of warranty of authority by acting beyond the scope of their actual or apparent authority.

If an agent makes a contract with a third party without naming the principal, to avoid being personally liable, the agent should expressly disclose that an agency relationship exists. It is then up to the third party if they are prepared to accept an unknown principal. If they are, the agent is discharged from the contract.  

If the agent does not disclose the existence of the Principal, then they may find that the third party treats them as the principal and a party to the contract or, if the third party discovers the principal’s identity, sues principal (this is actually called the doctrine of the undisclosed principal). But the third party cannot sue both the agent and principal unless given permission by the court because to do so would potentially allow two judgments for the one debt.  

What is a breach of warranty?

If an agent expressly or impliedly represents that they acted with the authority of the principal, and the third-party acts based on that representation, an agent is taken to warrant that the representation is true. If it is untrue – irrespective of whether it was done fraudulently or innocently (and even if the authority had been terminated without the knowledge of an agent) – agent has committed a breach of warranty of authority. The third party can then sue the agent for damages to the extent of the actual loss suffered.

Business tip 

Avoiding liability as an agent 

Always disclose that you are only an agent acting for a principal and ensure that you act within the scope of your actual or apparent authority if you want to avoid liability for:

  • breach of warranty of authority; or
  • any torts that you commit.

Always disclose that you are only an agent acting for a principal and ensure that you act within the scope of your actual or apparent authority if you want to avoid liability for:

  • breach of warranty of authority; or
  • any torts that you commit.

What is the liability of the principal and agent in tort? 

The principal will be liable to third parties for any tort committed by an agent if the agent has acted within the scope of the agent’s actual or apparent authority or employment, whether or not the tort was committed for the benefit of the principal. 

If an agent was doing something outside the scope of the agency agreement when the tort was committed, the principal would be relieved of any liability.  

How can an agency agreement be terminated?

An agency agreement can be terminated by:

  • acts of the parties, or
  • operation of law.

In relation to termination, any rights vested before the termination, such as an agent‘s right to commission or indemnity, are not affected.  

If the agency is terminated by agreement, the principal is under a duty to notify those third parties with whom an agent may do or has done business. The notice can be from the principal or some other recognised source such as agent. 

Termination ends agent’s actual authority to act on the principal’s behalf. However, if the principal fails to give proper notice of the termination to a third party, an agent still has apparent authority to bind the principal to a contract with a third party who is not aware of the termination. The contract would be enforceable against the principal, and principal’s only recourse then would be to sue the agent for damages caused by the unauthorised contract. 

Business tip

To avoid problems arising for the principal when the principal  terminates:

  • The principal should give direct notice of termination to the parties who deal with an agent, preferably in writing.
  • The principal must give direct or give constructive notice to any third parties who has knowledge of the agreement but with whom the agent has not yet dealt with – for example, notice in the Public Notices section of the local newspaper. It is irrelevant whether third party sees it or not as this is constructive notice of termination of the agency to avoid liability.
  • Generally, a principal is not liable to parties who have no knowledge of the agency agreement. However, if there is written authority of an agency relationship, to avoid possible problems arising with a third party subsequently relying on an agreement to establish liability of the principal, put a notice in the Public Notices section of the local newspaper.

What acts can the parties take to terminate an agency agreement?

Mutual agreement

While the agreement between a principal and agent is still in force, they may mutually agree to its termination.

Revocation of the agent’s authority

Revocation can be done at any time by the principal without an agent’s consent, even though the work of an agent may not be completed. However, this could lead to a breach of contract and an agent bringing an action for wrongful dismissal. Third parties should be notified by the principal to avoid any problems arising from an apparent agency.

Withdrawal of the agent from the agreement

This can be done at any time, but an agent will need to make good any loss that the principal may suffer. An agent is not liable for any loss where the agency is a gratuitous one – that is, there is no commission involved.

Secret commission

An agency may be terminated by the principal if the principal discovers an agent has accepted a secret commission.

Completion of a specific purpose or act agency

Where an agent is appointed for a specific purpose and that purpose has been completed, the agency agreement will be terminated by performance – for example, the sale of a house by a real estate agent.

Time limit

If there is a time limit involved in the agency agreement and the act is not achieved within that time limit, the agency agreement will be terminated – for example, a real estate agent who has 60 days to achieve the sale of a house.

Operation of law

Performance

An agent’s authority continues only up until the purpose for which the agency agreement was created has been completed.

Lapse of time

Where an agent has been appointed for a specific time, then the authority of an agent ceases when the time period expires.

Death

The death of the principal brings the authority to an end. But where the agent is acting in good faith under the scope of a power of attorney, any acts done after the death of the principal, but before notice of the death reaches the agent, are valid and the agent will not be held liable.

In the case of the death of an agent, whether the agreement is terminated will depend on whether the agreement is for the provision of personal services or not. If it is for personal services, then the agency is terminated.

Insanity

Insanity of either the principal or agent terminates the agency agreement.

Bankruptcy

In certain cases, bankruptcy of either the principal or the agent under the provisions of the Insolvency Act 1951 will terminate the agency agreement.

Frustration

Where it becomes impossible for the agent to carry out their obligations owing to the destruction of the subject matter, or by any event that makes the agency illegal or impossible to perform, this will terminate the agency agreement (see also Chapter 12).

What remedies are available to a principal for breach by an agent? 

The major remedies available to the principal for a breach by the agent of an agency contract are the same as a breach of any contract. These include:

What are some common types of agency? 

This is for your information to illustrate the types of situations where an agency arrangement is commonly found:

  • employer-employee (where there is evidence of intention to give an employee power to make contracts and it is within the scope of their employment)
  • auctioneer
  • mercantile agents 
  • Brokers – for example, insurance brokers, stock brokers, financiers
  • del credere agents
  • partners
  • real estate agents; and 
  • partners in a partnership.

It is worth noting that where an auctioneer is concerned, they are the selling agent of land/property or goods for the owner. There may be a ‘reserve price’ on the land or goods and this is the minimum price below which the seller is not prepared to sell. In other words, the auctioneer’s authority is limited by the setting of a minimum price and at some point, either before or during the auction, those in attendance at the auction will be advised there is a minimum price.  

If the auction is ‘without reserve’, that means there is no minimum price and the auctioneer must accept the highest bona fide bid on the fall of their hammer.  

Business tip

An auctioneer is an agent of the vendor (the seller), but after the fall of the hammer they become the agent for the purchaser. If attending an auction as a buyer note carefully whether the auction has a ‘reserve’ or ‘no reserve’ on it. 

 Reflection question 

Take your final break, as this is the last chapter. Reflect on how you would answer this last question.

Harrison, an auctioneer, advertised an auction of horses as being ‘without reserve’. This meant that the highest bona fide bidder should have been the successful bidder, whatever the price bid. At the auction, Warlow submitted a bid but the owner of the mare he bid on submitted a final higher bid that the auctioneer accepted. The plaintiff then sued the auctioneer, alleging a breach of the auctioneer’s contractual obligation to sell the horse to the highest bona fide bidder. Do you think the plaintiff would be successful in an action against the auctioneer? Explain why. 

Key points

 An understanding of the following points will help you to better revise material in this chapter.

  • What is the purpose of agency?
    • An agency is a relationship whereby one person (the agent) is authorised by the other person (the principal) to do certain acts that affect the principal’s legal rights and duties to third parties.
    • Only those persons with full contractual capacity can employ an agent.
    • An agent cannot have greater powers than the principal possesses.
    • If the principal is under some legal disability, an agent is equally limited.
  • How is an agency relationship created? 
    • Expressly:
      • by necessity
      • by emergency; or 
      • by holding out or estoppel.
    • Impliedly:
      • by necessity
      • by emergency; or
      • by holding out or estoppel.
    • Ratification: The principal may accept liability for the agent’s actions after the agent has acted.
  • What is the authority of an agent?
    • Actual authority: if the agent follows instructions and acts within the authority delegated by the principal, an agent will be acting within actual authority. When an agent acts within actual authority, an agent will bind the principal to third parties and never be personally liable to the principal or the third party. 
    • Apparent (or ostensible) authority: by appointing a person to a particular position, the principal may give an agent the appearance of greater authority than has actually been delegated to the agent. If an agent acts outside the actual authority but within this appearance of authority, an agent will bind the principal to the third party and be liable to the principal for any loss the principal suffers as a result of the agents failure to follow instructions.
    • Warranty of authority:  no one is liable for acts done on their behalf without their actual or apparent authority. If a person claims to act as an agent, they impliedly warrant that they have authority from the person for whom they claim to act. If in fact the agent is acting without any authority or in excess of their authority, they will be liable to the third party in damages for breach of warranty of authority. An agent isn’t liable where the third party is aware of the lack of authority, or where the agent has told the third party that they didn’t warrant their authority.
  • What is the agent’s duty to the principal?
    • Agent’s duty is to:
      • follow instructions
      • act in person
      • act in the interests of the principal (fiduciary duty)
      • take care of the principal’s property
      • keep separate accounts; and 
      • keep proper accounts
  • What are the agent’s rights against the principal? 
    • Agent’s rights are:
      • remuneration
      • reimbursement for out-of-pocket expenses
      • indemnity against legal action; and 
      • lien and stoppage in transit.
  • What is the liability of agents and principals to third parties?
    • The liability of the agent:
      • Where the agent contracts for a named principal, an agent is completely discharged and cannot incur either liabilities or rights. 
      • Where there is a named principal, an agent is discharged. 
      • Where there is a disclosed but unnamed principal, an agent is again discharged. 
      • In the case of an undisclosed principal, as an agent has contracted in their own name and the third party may not be aware of the existence of a principal, an agent may be personally liable. When the principal is discovered, the third party may sue either principal or agent.
      • While an agent is saved from personal liability where any actions were within authority, actions outside authority can expose an agent to an action of breach of warranty of authority by the third party. 
      • An agent is liable for tortious acts, such as negligence, but where those acts are committed within the course of the agent’s employment, the principal will also be liable.  
    • Where an agent is liable to third parties: 
      • when contracting under seal (the contract is in the form of a deed) in their own name
      • when professing to act as an agent, when in fact they are the principal
      • where it is the custom or trade practice for this to apply
      • where there is a declaration that agent is acting personally
      • where the agent is acting on behalf of a principal who does not exist
      • where the agent has some interest in the contract other than commission; or 
      • in the case of wrongful acts known to be wrongful and not within the scope of authority.   
    • When principal is liable: 
      • to perform what an agent has promised to a third party when acting according to an agents authority
      • to third parties where an agent has acted beyond authority, but in the ordinary course of the agency; and
      • for frauds and wrongs of an agent committed in the ordinary course of employment.
  • How can an agency be terminated? An agency can be terminated by:
    • mutual agreement
    • revocation of the agent’s authority by principal
    • the agent terminates by notification
    • serious misconduct by agent
    • expiry of the agreed term
    • performance
    • the death of the principal or agent
    • bankruptcy of an agent
    • the mental incapacity of the principal or agent
    • frustration – unknown to the parties the subject matter of the contract has been destroyed or an agent is physically unable to carry out their duties.  

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Introduction to business law in Papua New Guinea Copyright © 2024 by Southern Cross University is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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