An agency relationship exists where one person (or company) has authority to bind another person (or company) legally, either generally or in relation to certain matters. The agent is the person with authority to undertake legally binding acts on behalf of another. The person who is legally bound by the agent, and on whose behalf the agent acts is called the principal.
The agent’s power and authority will depend on the terms of his appointment. An agent may have the power to bind his principal in relation to contracts and other legal matters. He may have the authority to transfer property and undertake other legally significant acts.
There may be an infinite variety of terms of appointment. Most things which a principal may lawfully do himself may be done by an agent on his behalf.
A principal has the freedom to confer authority in any terms he sees fit, subject only to the constraint of the general law and legality. There are some limited constraints on a person’s ability to delegate, which arise from public policy, such as in the area of wills and family law.
Co-principals may appoint an agent jointly. The agent may account to any of them. He need not account to them separately. The principal may appoint co-agents, either jointly or severally. Authority may be given jointly, severally, or jointly and severally.
Agency is of key importance in relation to companies. Companies must act through agents. They have no separate physical existence. When considering whether an individual within the company has authority to enter transactions on its behalf, the law of agency is applied.
The board of directors will commonly delegate the power to manage the company to a managing director. The board of directors has the pre-eminent power to conduct the company’s affairs, subject to their responsibility to the shareholders collectively.
Individual company directors may have a certain level or authority to act for the company. Companies commonly appoint a managing director with the wide powers.
The indoor management rule allows third parties in their dealings with companies, to assume that all the requisite internal procedures for the conferral of authority have been followed.
Agency law is important in the context of partnerships. Partners are a collective. Individual partners may bind the partners collectively.
Each partner is deemed the agent of the firm under the Partnership Act. Each partner has authority to bind the partners collectively, in relation to matters within the scope of the partnership business.
Persons who are not partners may be held out as partners to a third-party. In accordance with general principles, the apparent partner, whom the partners hold out to be a partner, may bind them as if he was a partner/agent.
Employees will often be agents of their employer for matters within the scope of their employment. They may be expressly appointed to certain positions, They may have authority which arises by implication from their role.
The employee’s authority to bind his employer is likely to be limited to the relevant purposes.The scope of this agency will usually be apparent from a common-sense consideration of the nature of the employment concerned and the employee’s role in it.
An employee may have authority to enter contracts for services or to sell goods. He may bind his employer to the terms of the relevant contract. Common sense will usually point to the boundaries of his authority. Where the employer holds the employee as having a greater level authority, it may be bound to that greater extent.
A power of attorney is the grant of power by one person (the donor) to another (the donee) to undertake legally significant acts on behalf of the donor. A power of attorney must be in writing, signed by the donor and witnessed.
The Powers of Attorney Act removed the requirement that the grant of a power to dispose of property be under seal. In the case of a company or other corporation, it must comply its own constitutional requirements, for execution of a document as a deed.
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. A general power of attorney may be giving by using the short statutory format.Agents by Estoppel
Agents by Estoppel
Agency may arise under principles of estoppel. Where a person is held out as having a particular authority and a third party acts in reliance on the ostensible or apparent authority, the “principal” who has held him out is prevented or “estopped” from denying that he has authorised the ostensible agent.
Where a principal or another on his behalf, makes an express or implied representation that another person, the apparent agent, has authority on his behalf and a third party relies on this representation, the principal will be bound.
The principal or another authorised party must have led the third party to believe that the agent had authority. Where agency arises in this manner, the third-party may enforce the contract or transaction against the principal. However, the principal may not enforce against the third party, unless he ratifies the agent’s acts.
Agent of Necessity
An agency of necessity may arise where a duty is imposed on a person to act on behalf of another in the absence of a contract or appointment. A stranger will rarely become an agent due to circumstances alone. There will commonly be a pre-existing contractual relationship between the principal and agent, the scope of which is expanded by the agency of necessity.
Agency of necessity will typically arise in an emergency, where urgent action is required to prevent irreparable harm or damage. It may arise out of a legal or moral relationship between the parties. The principle is relatively limited and generally arises in urgent situations arising at sea, where prompt action is required to save goods, cargo or life.
The agent must be incapable of communicating with his principal. The course taken must be necessary and be the only reasonable and prudent course available. The agent must act bona fide in the interests of the principal and others concerned.
An agent may be a general agent, with authority in the ordinary course of its business or profession to act or do acts of a particular class on behalf of its principal. A general agent is a person who has authority on behalf of another in relation to a wide range of matters, such as the authority to conduct a particular business.
A special agent may only have authority in relation to one or a few matters. He may be authorised in respect of a particular type of business. In some cases, he may be authorised to do everything that the principal may do. A special agent is one whose authority applies on special occasions or particular purposes, which are not within the ordinary course of his business or profession
Commercial agents as defined, enjoy special protection under European Union legislation. They must be formally appointed. They are self-employed intermediaries with continuing authority to negotiate the sale and purchase of goods on behalf of another. They do not include persons who do so as directors, employees, and partners.
Commercial agents are representatives of another business, in a broad commercial sense. They typically represent a domestic manufacturer or distributor in foreign jurisdiction and market. The commercial agent deals in the other’s goods. Depending on the circumstances, they may be general agents or special agents, in the above common law sense.
In many situations, the word, “agent,” is used in relation to persons who are not in fact agents. Distributors, franchisors, et cetera, are commonly called agents or sole agents when they distribute goods. However, they are not in fact agents and are in business on their own account.
Distributors typically sell goods on behalf of a particular manufacturer. They generally have an obligation to purchase their requirements from that party exclusively, in return for certain rights and privileges.
A franchisee is similar to a distributor but is more commonly found in relation to the provision of services. The franchisee undertakes the style, trademark, get up, and intellectual property of the franchisor. He obtains the benefit of the existing goodwill, support, and common marketing.
The exact nature of the marketing relationship will determine legal rights and obligations. Where a “true” agent sells goods on behalf of its principal, the agent is not liable, and the principal is directly liable.
In contrast, distributors and franchisees are almost invariably, the persons who are legally liable on the contracts with their customers. If the distributor or franchisee becomes insolvent or cannot perform its obligations, the purchase cannot look to the manufacturer or franchisor for support.
Mercantile Agent and Factors
A mercantile agent is one who in the customary course of his business, has authority to sell goods, to consign goods for sale, to buy good or to raise money on the security of goods. Mercantile agents have special privileges under the Factors Act 1889. They may transfer the title to goods which they hold in the course of their business, notwithstanding the absence of title.
A factor is a mercantile agent who is given possession of goods or documents of title in the ordinary course of a business. A broker is a mercantile agent who in the ordinary course of his business, makes contracts for the purchase or sale of goods or property.
A factor is an agent who sells goods belonging to his principal, in return for a commission. He deals with his principal’s goods in order to find a buyer or seller. The description as a “factor” is found in some important older legislation but has largely dropped out of use.
Del Credere Agents
A del credere agent negotiates and enters contracts for the sale of the principal’s goods to third parties on credit. He guarantees due performance and payment by the third party, to his principal. An additional commission or fee is usually charged.
This facilitates sales to third-parties by principals with whom they do have an existing relationship or in whom they would not have sufficient trust and confidence. The del credere agent undertakes to indemnify his principal against loss arising the third party buyer’s default in payment.
A del credere arrangement may arise from express or implied contract. He need not be appointed in writing, notwithstanding the Statute of Frauds, which requires written signed evidence of a guarantee.
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