Nature of Agency
Agency arises where a person has authority to act on behalf of another. The key characteristic of agency is the ability of the agent to enter obligations, most commonly contracts, which are binding on his principal. Equally, the principal may enforce legally significant acts, such as contracts, entered by his agent on his behalf with a third-party. In many cases, this will be so, even though the third-party believes the agent was principal.
Agency law defines the circumstances in which one person may bind another in relation to legal acts and dealings. An agent may have authority to bind his principal, either generally or in relation to certain matters. The principal, who is legally bound by the acts of the agent within the scope of the latter’s authority, may be a person, a firm of partners or a company.
A relationship of agency may be constituted by a contract between the principal and agent. It may arise without a contract. The terms of the relationship may be governed by the contract or by the circumstances. The true nature of the relationship between the parties is a matter of substance. The label will not necessarily be definitive.
An agent must exercise his authority in accordance with the principal’s lawful instructions. The agent may bind his principal in accordance with the terms of the authority given to him.
The scope of authority granted to the agent is a matter of fact in the circumstances. The scope is determined by the terms of the appointment contract if any. As with other legal relationships, the scope is determined by the interpretation of the contract by the courts in the circumstances.
The court’s approach will be much the same as applies in the context of interpreting contracts and other documents. Actions outside the scope of the agency may constitute a breach of contract by the agent, but may nonetheless bind the principal to a third party.
The agent’s authority may be implied. It may arise from circumstances without an express conferral of authority or contract. In this case, the scope of the authority is determined by the courts with reference to the context and circumstances.
An agent is obliged to undertake his obligations in good faith. This principle will commonly inform the interpretation of the terms of his authority.
Any person who is legally competent to do an act himself may generally undertake it through an agent. Conversely, a person who is not competent to do an act such as a minor or person of unsound mind, may not ordinarily do so through an agent.
An agent’s competence may be wider than his competence to contract on his own behalf. A minor may be an agent in certain cases. There is a statutory provision for making enduring powers of attorney which continue to be valid, even where its maker loses mental capacity.
There are common law and statutory principles by which a principal may be bound by an act of his agent, which is outside his capacity. Most such cases arise where an agent appears to have the authority and a third party who deals with him in good faith would be otherwise unfairly prejudiced.
An agency arrangement may arise by the grant of authority by the principal to the agent. Most agents acquire authority to act without any formal appointment as such. There are some classes of agent for whom a formal appointment is required.
An appointment may be based on a contract or may be entirely gratuitous. It may arise by reason of circumstances, without any grant of authority. It may be imposed by reason of the relationships and circumstances.
Even if an action is undertaken wholly without authority (or apparent authority), on behalf of a principal on behalf of a principal, the principal may nonetheless ratify or approve the action and thereby adopt it.
In limited circumstances, an agent has powers to act by reason of necessity without any authority.
An agent may be granted authority in a number of ways. Actual authority arises where the principal gives the agent powers in writing or verbally, to bind him generally, or in relation to particular transactions and matters. The agent’s authority is the source of his powers to bind the principal. This will generally arise by an express contract or another act of the principal which authorises the agent.
In certain circumstances, the principal will be bound, notwithstanding that he has not granted or consented to the “agent” having the authority to bind him. Agency may arise by holding out or by implication. The principles overlap. In each case, hidden limitations on the agent’s powers will not bind the third party. ‘
The scope of apparent and implied authority to bind the principal will be determined by the circumstances. A cashier in a shop may have the authority to complete the sale of goods, but generally, would not have authority to purchase stocks. The law will generally accord with common sense and common expectations in this context.
Where the principal “holds out” an apparent agent as having authority on his behalf, he may be bound by the latter’s acts. Holding out arises where the principal expressly or by implication represents to a third party that the apparent agent has authority on his behalf,
In the case of apparent authority, there is an implication that the ostensible agent has the authority to bind the principal. The implied representation comes (at least in some sense) from the principal and is relied on by the third party.
Apparent authority, by which the principal holds out another (the agent) or makes it appear that the latter has authority to act on its behalf, arises very commonly in practice. It is irrelevant whether or not that other (the agent) has actual authority.
Because the principal leads third parties to believe that that the apparent agent has authority, then the principal will be bound by the agent’s acts with the scope of the apparent authority. This follows from general principles of justice and estoppel.
A person in a particular position will commonly have the authority which is usual and customary in that position. Custom and practice may determine the position in particular sectors. Although the authority may not be implied, it may be customary in the business concerned and may apply on that basis in the circumstance,
Usual authority is the authority that a person who holds a particular position customarily exercises. For example, a managing director may have the power to undertake particular managerial functions. An employed shopkeeper may typically sell goods in the ordinary course of business.
In the case of usual authority, a third party such as a customer is entitled to assume from the circumstances, that the “agent” has the authority usual to his position or to his circumstance. Unlike the case with apparent or “ostensible” authority, it does not require a representation from the principal as to the agent’s authority. The principle is not based on estoppel as such.
There is support for the view that a person may have implied authority where he is placed in a particular managerial role or position where he appears to act as a principal. Under this case law, which has been criticised, the “real” principal is bound even where the third party is unaware of his existence.
In most cases, the appointment of a person as an agent may be undertaken formally or informally, verbally or in writing. It is usually desirable that the appointment should be made in writing from the perspective of certainty and ease of proof.
Common law and statute require some agents to be formally appointed. Agents under the EU Commercial Agents Directive must be appointed formally. An enduring power of attorney requires significant formality and a court order on its ultimate activation.
An agreement for the purchase or sale of land, which is required to be in writing, may be signed by an agent, notwithstanding that he is authorised verbally only. The principle applies generally to contracts which are required to be executed or evidenced in writing. In contrast, a deed disposing of an interest in land may be executed only by an attorney.
Powers of Attorney
Certain legal acts must be done by deed. A deed is a document executed, witnessed and delivered as a deed. Conveyances of property, leases for more than one year, transfers of ships, bills of sale and agreements or instruments without consideration must be made by deed.
A power of attorney is a formal instrument, by which an attorney, who is a type of agent, is appointed. The power of attorney involves the grant of a power by one person (the donor), who makes and executes the instrument, to another (the attorney/ donee) to undertake legally significant acts on the donor’s behalf. It must be in writing and must be witnessed.
A power of attorney typically gives authority to execute formal and significant transactions, such as those which require a deed.A power can, however, be granted for any purpose.
The Powers of Attorney Act, 1996 provides for a statutory general power of attorney. This is in a simple, short form of power of attorney which gives the donor the power to do everything which the donor could himself have done.
The person granted power under a power of attorney, the donee, may if given authority, do any act and execute and deliver any instrument as a deed in his own name, which the donor could himself have done, within the scope of the authority. Every such instrument is valid as if done by the donor himself.
The Powers of Attorney Act modified the rules on the execution of powers. The requirements are more formal than those required for the ordinary appointment of an agent, which may be verbal. A witness is required to the signature of the grantor (the donor of the power), who enters and makes the instrument.
Prior to the Act, a power of attorney was required to be signed, sealed, and delivered by the donor. The Powers of Attorney Act removed the requirement that the grant of the power be under seal. It introduced the requirement for a witness. Formerly, a power of attorney did not need to be witnessed, although a witness was desirable from an evidential perspective.
Since the 2009 Land and Conveyancing reforms, deeds need not be sealed but must be witnessed and delivered. Where the attorney is not executed by the donor but at his direction, it must be signed in another person’s presence.
It is possible to lodge a power of authority with the Central Office of the High Court, verifying its execution by affidavit, statutory declaration or other evidence. The advantage of this procedure, which is little used in practice, is that it provides cogent evidence of the instrument. The Powers of Attorney Act now provides that a certified copy, certified by a solicitor or by certain other parties to be a true copy of the original, is sufficient evidence thereof.
In the case of a company, a power of attorney must be executed using the company seal. The seal shall be used only by the authority of its directors, or of a committee of its directors authorised by its directors in that behalf.
A company or other corporation must also comply its own internal and constitutional requirements for execution of a document as a deed. The default Companies Act position is that an instrument to which a company’s seal is affixed, must be signed by a director of it or by some other person appointed for the purpose by its directors or a committee of them; and be countersigned by the secretary or by a second (if any) director of it or by some other person so appointed.
The Powers of Attorney Act makes provision for powers of attorney granted by companies to convey property. They may be signed and executed by the attorney/donee in his own name as such or may be executed by him as acting in the name of and on behalf of the company in the presence of one witness.
A power of attorney, as with any other agency, is revoked by the death, insanity, and bankruptcy of the donor. It may be irrevocable if it is coupled with an interest on the part of the donee.
There are protections for third parties who act in reliance on a power of attorney, where they have no knowledge of it being revoked. The donee of a power who does not know of the revocation is not liable by reason of it. If he knows of an event which legally causes revocation (e.g. death of the donor), he is deemed to be aware of it, irrespective of whether he knows the legal consequence of the event.
Where a power of attorney is stated to be irrevocable and is granted to secure a proprietary interest of the donee or protect the performance of an obligation owed to the donee, then it is irrevocable as long as the interest or obligation remains undischarged. It is not automatically revoked on death, incapacity, or bankruptcy or winding up.
It is presumed in favour of a purchaser that the third-party did not know of the revocation, provided that the transaction between the donee and third-party was completed within a year of the date of the power or if it is outside of that period, that the third party makes a statutory declaration within three months of the transaction, that he did not know of revocation.
References and Sources
Commercial Law, Fidelma White 2nd Ed. Thomson Round Hall, Dublin, 2015.
Commercial Law Michael Forde, 3rd Ed Tottel, Haywards Heath, 2005
Principles of the Law of Agency Howard Bennett 2013,
Agency 3e: Law & Principles (3rd Revised Ed) Munday, Roderick;
Bowstead & Reynolds on Agency, 20th Ed. Professor Peter G. Watts
The Law of Agency Friedman