INTRODUCTION TO AGENCY LAW
Introduction to Agency Law
Agency Law General
1.
Introduction
2.
Agency
3.
Intermediary
4.
What Is An Agent?
5.
Restated
6.
Authority of Agent and Protecting Third Party Expectations and Reliance Interest
7.
Creation of Agency and Authority
8.
Documenting Transactions and Hidden or Apparent Principals
9.
Authority by Virtue of a Position
10.
Actual Authority
11.
Scope of Authority – Actual and Expressed
12.
Apparent Authority
13.
Implied Authority
14.
Apparent or Ostensible Authority
Classes, Types and Forms of Agency
15.
Classes of Agent
16.
Types of Agency (Commission, Retainer, Retainer and Commission)
17.
Forms of Agency (Factor, Del Credere Agent, Confirming House)
18.
Export Agents
Three Relationships of Agency
19.
Liability of Principal
20.
Liability of Agent to Third Party
21.
Liability of Agent to Principal
22.
Liability of Principal to Agent
23.
Agents’ Duties
24.
International Considerations of Agency (Conflicts)
25.
Compensation Right of Agents
26.
Agency and Taxation
27.
Termination of Agency
28.
Agent’s Rights and Duties
29.
Obligations Arising from Agency Relationship
30.
Fiduciary Relationship
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AGENCY LAW GENERAL
1.
Introduction
1.1.
The agency relationship has been defined as ‘the fiduciary relationship which exists between two persons, one
of whom expressly or impliedly consents that the other should so act as to affect his relations with third
parties, and the other of whom similarly consents so to act or so acts on his behalf.
Arrangements with agents and distributors or other resellers and referring parties are a form of outsourcing.
Agency relationships can arise within partnerships, employment or non-employment relationships and often
they should be avoided because of the potential liability that can be involved.
The reasons for entering these relationships are often the same as those existing for collaboration or
outsourcing e.g. the need for special expertise or contacts or the need to avoid, manage or dilute risk.
In a distribution relationship, an exporter appoints a distributor in the foreign territory and gives him
distribution rights in the territory for specific products. The distributor purchases the products from the
exporter wholesale level and resells the products to retailers (or directly to customers) on its own account.
With distribution agreements the exporter is not in direct contractual relations with the customer abroad.
Unlike agency agreements where the principal bears the credit risk of the ultimate buyer (for non-payment
etc.), the distributor bears the credit risk of the customer and the responsibility for government approvals and
in most cases the care, delivery and after-sale service of the products to the customer. The distributor's
compensation is the profit on the resale.
An agent is a form of intermediary as is a distributor. The nature of the relationship is the key and not the
name. With new domestic or international markets, a business may use foreign or new jurisdiction
intermediaries to arrange export or domestic sales where the seller or exporter cannot easily penetrate the
1.2.
1.3.
1.4.
1.5.
market directly. These parties have local knowledge, contacts and skills and allow the seller or exporter to
deal with only one party in the country rather than a whole range of individual customers.
1.6. Parties are commonly referred to as agents when they are in fact not agents in law. For example, an
intermediary may receive a commission for introducing customers to the exporter, but not have the authority
to conclude or enter into a contract for the exporter. The same would be true where the intermediary signs
contracts with third parties on behalf of the principal, but the contracts are subject to the ratification of the
principal.
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1.7. With a principal and agent relationship the agent is employed to act on behalf of (and often in the name of)
the principal. The agent’s actions, done within the scope of the authority given by the principal, bind the
principal as if the principal had acted on their own. The authorized acts of the agent are treated as being
those of the principal. The law will treat a sale or other contract made between a supplier's agent and a
customer as being directly between the supplier (principal) and the customer.
1.8. The general rule of law is “what one person may do may be done through another”. The main difference
between an agent and a servant (employee) is that a servant can’t enter into contracts in the master’s name
and bind the master, but an agent can sign contracts in the principal’s name and bind the principal. The
principal can give the agent operating guidelines, but the principal does not closely direct the work of the
agent closely.
1.9. Agency issues arise when one person deals or purports to deal on behalf of another with a third person.
Agency involves three relationships i.e. principal/agent, principal/third party and agent/third party.
1.10. Agents are generally considered to be involved in the sales process, but they may also provide other services.
2.
Agency
2.1.
2.2.
2.3.
A different type of relationship from that of employer and employee is that of principal and agent.
Agent is a person employed to act on the behalf of another (Principal).
Agent’s actions, done within the scope of the authority given by the principal, bind the principal as if the
principal had acted themselves.
Servant (employee) can’t enter into contracts in the master’s name, but an agent can sign contracts in the
principal’s name.
Agent can be given definite guidelines under which to operate, but the principal does not direct the work of
the agent closely.
Generally three classes of agents:
Universal - appointed to act for the principal in all matters.
General - appointed to act in a transaction of a class e.g. employment agent.
Special - appointed for one purpose only.
Creation and Termination of Agency
Express appointment i.e. principal directs the agent to act on his or her behalf and gives the agent authority
and instructions.
Estoppel – Anyone who allows another person to act as his or her agent even though never appointing that
person for this purpose is estopped i.e. prevented from later denying the agency.
Necessity (Emergency e.g. if call for ambulance principle may have to pay).
Ratification – If a person enters a contract on behalf of someone else, without any authority, the principal
cannot remain silent or accept any part of the agreement. If the principal gives approval to the contract after
the fact, the principal ratifies the agreement and must live up to its terms and pay the agent.
Agent can’t create sub agency without permission of the principal.
Contract to create agency may have a set date after which it is void. This contract can also be ended by either
party giving reasonable notice to the other.
Principals should notify third parties that an agent is no longer employed.
If principal or agent dies, is disabled, goes bankrupt, or is declared mentally unfit the agency ends. Principal
can’t contract so agent can’t contract for principal.
A principal is liable for torts committed by the agent if they are committed in the course of employment. This
might include fraud or misrepresentation.
An agent should sign all documents to clearly indicate that it is the principal who is being committed. The
agent should sign the principal’s name first, then sign his or her own name and the capacity in which the
agent signs.
If the principal wants to remain secret then the agent may enter the agreement in his or her own name or
indicate that the agreement is being undertaken for an unnamed principal.
2.4.
2.5.
2.6.
2.7.
2.8.
2.9.
2.10.
2.11.
2.12.
2.13.
2.14.
2.15.
2.16.
2.17.
2.18.
2.19.
2.20.
2.21.
3.
Intermediary
3.1.
An agent is a form of intermediary as is a distributor (See separate notes). The nature of the relationship is
the key and not the name. With new domestic or international markets, a business may use foreign or new
jurisdiction intermediaries to arrange export or domestic sales where the seller or exporter cannot easily
penetrate the market directly. These parties have local knowledge, contacts and skills and allow the seller or
exporter to deal with only one party in the country rather than a whole range of individual customers.
3.2.
Parties are commonly referred to as agents when they are in fact not agents in law. For example, an
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intermediary may receive a commission for introducing customers to the exporter, but not have the authority
to conclude or enter into a contract for the exporter. Here, the intermediary is just the “mandatary” of the
seller or exporter and not an agent because an agent can normally enter contracts for their principal. The
same would be true where the intermediary signs contracts with third parties on behalf of the principal, but
the contracts are subject to the ratification of the principal.
4.
What Is An Agent?
4.1.
With a principal and agent relationship the agent is employed to act on behalf of (and often in the name of)
the principal. The agent’s actions, done within the scope of the authority given by the principal, bind the
principal in the same as if the principal had acted on their own. The authorized acts of the agent are treated
as being those of the principal. The law will treat a sale or other contract made between a supplier's agent
and a customer as being directly between the supplier (principal) and the customer.
The general rule of law is “what one person may do may be done through another”. The main difference
between an agent and a servant (in an employer-employee relationship) is that a servant can’t enter into
contracts in the master’s name and bind the master, but an agent can sign contracts in the principal’s name
and bind the principal. The principal can give the agent guidelines under which to operate, but the principal
does not direct the work of the agent closely.
Agency issues therefore arise when one person deals or purports to deal on behalf of another with a third
person. Agency involves three relationships i.e. principal/agent, principal/third party and agent/third party
(See liabilities).
Agents are generally considered to be involved in the sales process, but they may also sell and offer market
intelligence or provide financing and transport advice, assistance with clearing shipments through customers.
They may identify prospects and collect accounts payable. They may give advice regarding: market positions;
prospects and tailoring promotions; client guarantees; strategies to keep clients; trade shows, planning
logistics; client expectations, education, service, improvements, legal compliance.
4.2.
4.3.
4.4.
5.
Restated
5.1.
5.2.
A principal-agent relationship is a different type of relationship from that of employer and employee. Legal
partnerships also involve agency. An agent is a person employed or otherwise hired and retained in some way
to act on the behalf of another (Principal). The agent’s actions, done within the scope of the authority given
by the principal, bind the principal as if the principal had acted themselves.
The servant (employee) can’t enter into contracts in the master’s name, but an agent can sign contracts in the
principal’s name. An employee can be given that authority. An agent can be given definite guidelines under
which to operate, but the principal does not direct the work of the agent closely. There are generally three
classes of agents: Universal (appointed to act for the principal in all matters); General (appointed to act in a
transaction of a class e.g. employment agent); Special (appointed for one purpose only).
6.
Authority of Agent and Protecting Third Party Expectations and Reliance Interest
6.1.
An agreement with the agent must be made very clear. If an exporter authorizes an agent in ambiguous
language, the authority of the agent extends to whatever may be fairly taken to be the meaning of the
authority both to authorize the agent and to bind the exporter to third parties (see below)
Agency law treats a contract signed by an agent as a contract between the principal and the third party. The
agent acts on behalf of (and those actions generally bind) the principal provided the agent has acted within
the scope of their authority. The scope of an agent's authority can be found in the agency agreement and in
any implications that can be drawn from the usual practices within the trade or industry. Generally, the
exporter is not liable to the customer for those acts of the agent that are done outside his authority, unless
the exporter later ratifies those acts. If the agent acts without authority and the principal does not ratify the
act, the customer will generally be restricted to suing the agent for a breach of a representation, implicitly
given by the agent, that he did in fact have the principal's authority.
As noted above, the principal/agent relationship (and its reciprocal rights and duties) is formed by a contract
between them. The principal/third party relationship is relevant to issues of contract enforceability and of
6.2.
6.3.
6.4.
6.5.
6.6.
6.7.
practical importance in a time when most contracts of commercial significance are made with corporations. If
an agent is expressly or impliedly authorized to contract with a third party and the third person knows it and
deals with the agent on that basis there is no difficulty in concluding that a contract is formed between the
principal and the third party. It is as though the principal were dealing directly with the third party via the
agent that serves as a link and communications instrument.
Contract law is often more focused on protecting the reasonable expectations of promisees (or third party in
this case) than giving effect to the will of the promisor. As a result, if an agent has its authority restricted by
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the principal’s express instructions and then deals with a third party the latter may reasonably assume that the
agent is acting within the authority he purports to have. The principal’s secret instructions to the agent do not
alter the reasonableness of the third party’s expectations. The principal is generally liable if the agent acts
within his apparent or ostensible authority. The third party’s expectation is preferred to the principal’s
express wish not to contract.
The agent can’t disregard the principal’s instructions (the principal can sue him for breach of contract), but
he has the power to bind the principal vis-à-vis the third party. The reasoning is that if one of the innocent
parties (principal or third party) has to suffer for the agent’s default then it should be the principal. This is
probably because they have a better opportunity to investigate the agent’s trustworthiness. It could also be
rationalized on the grounds that the principal can absorb the loss as a cost of business. With either set of
reasoning, the principal is effectively “estopped” or blocked from avoiding liability.
The test of whether the principal’s conduct amounts to a holding out of the agent as having his authority
depends on the reasonableness of the third party’s expectation taking account of all the circumstances of the
case.
In other words, calling someone an agent won’t necessary make then an agent and conversely not calling
them an agent won’t necessarily mean that they law won’t ultimately find that they were an agent and able to
bind the principal and trigger other consequences associated with the principal-agent relationship.
7.
Creation of Agency and Authority
7.1.
There are five major ways in which to create an agency relationship.
7.2.
Express appointment - Principal directs the agent to act on his or her behalf and gives the agent authority
and instructions. This is often done in writing either by an employment contract or by a document known as
a power of attorney. The agreement should spell out precisely what the agent may do and give the agent
signing authority to contract for the principal. The signature of the agent is final and the principal cannot
escape the contract because he or she does not like the terms.
Estoppel – One form of “imposed” (no actual or implied agency agreement) agency involves a person
(normally the supplier) that allows another person to act as their agent without ever appointing that person as
an agent. This person (supplier) is treated as a principal because he knowingly allows third parties to believe
that another person is the supplier’s agent. This principal is said to be “estopped” (prevented) from later
denying the agency. When a person learns that someone is acting on their behalf without authority, the
person should immediately deny the existence of any agency and advise anyone that might be affected that
the contracts in question will not be honored.
Necessity – Another form of “imposed” agency involves cases where agency is created by the “necessity” of
circumstance. Any person who must act out of necessity to benefit another person is said to be doing so as
an agent by necessity e.g. if someone witnesses an auto accident and calls an ambulance for an injured
motorist the injured person must pay for the ambulance i.e. witness acted as an agent by necessity for the
injured person. The person who seeks to bind the supplier must prove that the action taken was reasonably
necessary in the circumstances and that it was practically impossible to communicate with the exporter.
Ratification – If a person enters a contract on behalf of someone else, without any authority, the principal
cannot remain silent or accept any part of the agreement. If the principal gives approval to the contract after
the fact, the principal ratifies the agreement and must live up to its terms and pay the agent. A person may
bind the principal even if that person has no power to do so if they act within their apparent authority.
Ratification arises where the agent has exceeded his authority to enter into a contract on the principal’s behalf
and the principal subsequently confirms the contract. The effect of the principal’s action is to render the
contract enforceable as if the agent was properly appointed and authorised. In most instances, this scenario
would rarely arise with recruitment agents in this context. If it did most institutions would normally distance
themselves from the actions of such agents.
If a principal puts a person into a position that carries certain powers, it is reasonable for third parties to
believe that the person is an agent. The principal will be bound by any contract that falls within that apparent
authority even if the agent exceeded their true authority. For example, to most parties a company sales
manager has the authority to make sale agreements. The company can’t escape a contract by arguing that the
7.3.
7.4.
7.5.
7.6.
7.7.
7.8.
8.
sales manager was required to have all sales approved by the president. A principal may be bound to a
contract that exceeded the agent’s actual and apparent authority if the principal ratified such agreements in
the past.
Words or Conduct - A principal-agent relationship may arise from the words or conduct of a person
(potentially the principal) that lead others to believe that a person (principal) has authorized a person to act as
his true agent. Such words or conduct may convey to another person that they want that person to act as an
agent in specific matters. The agreements may start out as informal and progress to become more formal.
Documenting Transactions and Hidden or Apparent Principals
8.1.
An agent should sign all documents to clearly indicate that it is the principal who is being committed. The
agent should generally sign the principal’s name first, then sign his or her own name and the capacity in
which the agent signs.
8.2. If the principal wants to remain secret then the agent may enter the agreement on their own with their own
name or indicate that the agreement is being undertaken for an unnamed principal. An agent may represent a
secret principal e.g. with the purchase of expensive art at auction. Wealthy collectors often do not want the
public to know where rare works of art are located so they use purchasing agents to enter their bids with
limits on how much they are willing to pay.
8.3. The danger (for the agent) in representing a hidden principal is that if the agent does not disclose the
existence of a principal the agent could be personally liable to the third party for breach of warranty of
authority.
8.4. Usually the customer is aware that the agency relationship exists. However, under the common law, this need
not be the case. A common law agent may disclose the principal's name to a potential customer, state that he
is acting for a principal but decline to name that principal (that is, an 'agent for an unnamed principal'), or not
disclose that he is acting for a principal at all, (that is, an 'agent for an undisclosed principal'). The last option
(common law) allows the third party to take action against the agent who entered into the contract in his own
name, but if before taking action the third party discovers that the agent was acting for a principal, the third
party can sue either (generally not both) the agent or principal.
8.5. If the agent did not have actual or apparent authority when he dealt with the third party, the principal may
still be liable if he later ratified the transaction (see above). If the agent does not disclose that he acts for
another person then other problems arise. If the agent is authorized to act as he does, the third party can
then likely elect to sue either the agent personally (even though there is no contract between the agent and
the third party) or the principal (even though the third party was unaware of the principal). The principal may
disclose their identity and enforce the contract against the third party. The third party can act against the
agent who has purported to contract on his own behalf.
8.6. The principal is not really being treated harshly because he is only being held to a transaction he authorized in
most cases. Plus they have control over the agent and should assume liability for their enterprise.
8.7. If the agent is not authorized to act as he does there may be less reason to hold the undisclosed principal
liable because there is no third party reliance and no willingness of the third party to be bound aside the
principal. Nevertheless, the principal is often held liable in these cases if the agent acts within the scope of the
“usual” authority of such an agent (even if the specific instructions are not followed by the agent). There are
other cases that did not rule in this way. If a mercantile agent has possession of goods a thirty party purchaser
is protected even if they had no knowledge of the agency.
8.8. Conversely, the undisclosed principal can enforce the contract against the third party. The obligation owed by
the third party (thought to be to the agent alone because of the lack of disclosure about the principal) is
transferred without third party consent to the principal. This appears to be a violation of the rules of
assignment and privity and it is likely purely based on commercial convenience.
8.9. If an agent does not purport to act for another person and is not authorized to do so then the principal’s
power to ratify is likely to be denied. Why should they benefit from ratifying acts they did not authorize? The
case law is unclear on this point, however.
8.10. Note: Given the judicial tendency to protect these parties and circumstances where an agency relationship is
not held to exist even though there is a relationship between a known or hidden party that the “agent-like”
party is acting on behalf of then it would seem likely that the rights and obligations of the “principal or
principal-like party”, the “agent or agent-like party” and the third party will be similar to those described
above with regard to the comparable agency relationships.
9.
Authority by Virtue of a Position
9.1.
To deter fraud and other harms that may befall individuals dealing with agents, there is a concept of Inherent
Agency power, which is power derived solely by virtue of the agency relation.
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9.2.
9.3.
10.
For example, partners have apparent authority to bind the other partners in the firm, their liability being joint
and several (see below), and in a corporation, all executives and senior employees with decision-making
authority by virtue of their declared position have apparent authority to bind the corporation.
Even if the agent does act without authority, the principal may ratify the transaction and accept liability on
the transactions as negotiated. This may be express or implied from the principal's behavior, e.g. if the agent
has purported to act in a number of situations and the principal has knowingly acquiesced, the failure to
notify all concerned of the agent's lack of authority is an implied ratification to those transactions and an
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implied grant of authority for future transactions of a similar nature.
Actual Authority
10.1. Actual authority arises where the principal's words or conduct reasonably cause the agent to believe that he
or she has been authorized to act.
10.2. This may be expressed in the form of a contract or implied because what is said or done make it reasonably
necessary for the person to assume the powers of an agent.
10.3. If it is clear that the principal gave actual authority to agent, all the agent's actions falling within the scope of
the authority given will bind the principal.
10.4. This will be the result even if, having actual authority, the agent in fact acts fraudulently for his own benefit,
unless the third party with whom the agent is dealing was aware of the agent's personal agenda.
10.5. If there is no contract but the principal's words or conduct reasonably led the third party to believe that the
agent was authorized to act, or if what the agent proposes to do is incidental and reasonably necessary to
accomplish an actually authorized transaction or a transaction that usually accompanies it, then the principal
will be bound.
11.
Scope of Authority – Actual and Expressed
11.1. The scope of the agent’s authority is derived from the authority that the principal vests in the agent or by
operation of law. There are different aspects of the agent’s authority. These are as follows:
11.2. Actual Authority (Above)
11.3. Express Authority
11.3.1. Usually derived from the contract between principal and agent;
11.3.2. Can be in writing or orally (unless agent authorised to execute deed on behalf of principal (which
must be granted by deed) and no particular form is required. Important point to note is that the
agency agreement can arise orally hence institutions should exercise caution when negotiating with
potential agents to ensure that an agreement has not been reached if one is not at that stage intended.
11.4. The extent of the agent’s express authority will depend on the interpretation of the agreement between the
parties and in the case of an oral agreement, evidence of the existence of the agreement, its terms, and the
interpretation of what was said. Where there is an ambiguity the court will apply various rules of construction
including construing the deed/agreement against the maker of the deed/agreement, which in most cases
would be the principal, in favour of the agent.
12.
Apparent Authority
12.1. Apparent or ostensible authority exists where the principal's words or conduct would lead a reasonable
person in the third party's position to believe that the agent was authorized to act, even if the principal and
the purported agent had never discussed such a relationship.
12.2. For example, where one person appoints a person to a position which carries with it agency-like powers,
those who know of the appointment are entitled to assume that there is apparent authority to do the things
ordinarily entrusted to one occupying such a position.
12.3. If a principal creates the impression that an agent is authorized but there is no actual authority, third parties
are protected so long as they have acted reasonably.
12.4. This is sometimes termed "agency by estoppel" or the "doctrine of holding out", where the principal will be
estopped from denying the grant of authority if third parties have changed their positions to their detriment
in reliance on the representations made.[2]
13.
Implied Authority
13.1. This authorises the agent to do all collateral and incidental acts in order to carry out his duties under the
agency agreement. Usual authority – this refers to such authority as is normal for the particular type of
agents. Customary authority – this is authority which is derived from business usage or local market.
13.2. Example: Agent has only been authorised to assist buyer applying for admission at an institution, the agent
would have implied authority to assist the student with the application for accommodation etc.
13.3. Implied authority considered held by the agent by virtue of being reasonably necessary to carry out his
express authority. As such, it can be inferred by virtue of a position held by an agent. For example, partners
have authority to bind the other partners in the firm, their liability being joint and several, and in a
corporation, all executives and senior employees with decision-making authority by virtue of their position
have authority to bind the corporation.
14.
Apparent or Ostensible Authority
14.1. Apparent authority arises where the principal by his actions or words have given a third party the impression
that the agent is authorised to do certain acts, then the principal is bound by those actions even though the
principal has not authorised or has expressly prohibited the agent from so acting.
14.2. This type of authority arises where the agent is acting outside his authority as well as in cases where there isn’t
any agency agreement between the principal and the agent. The principle that operates here is intended to
protect the innocent third party. In order for such an authority to arise, the following must be satisfied:
14.2.1. Some representation, either expressly or by conduct, that the agent has authority to act on the
principal’s behalf;
14.2.2. Representation is made by the principal to the third party;
14.2.3. Third party has relied on the representation – this is often evidenced by the fact that the third party
has entered into the agreement with the principal.
14.3. For example, it is the practice in some markets for agents to send applications from students to institutions
with which they have no agreement. If the institution accepts the application and makes an offer to the
student that is accepted, this could give rise to the ‘agent’ having apparent authority to act on behalf of the
institution. There is an exposure to liability in this instance, as the ‘agent’ may not have adequate knowledge
about the institution, its policy and procedures etc and by accepting the application, the institution may be
bound by representations made by the ‘agents’ which the student has relied on.
CLASSES, TYPES AND FORMS OF AGENCY
15.
Classes of Agent
15.1. There are generally three classes of agents:
15.1.1. Universal i.e. appointed to broadly act for the principal in all matters e.g. power of attorney (mandate
in civil law jurisdictions), professional relationship e.g. with lawyer.
15.1.2. General i.e. more limited authority to conduct a series of transactions over a continuous period of
time i.e. appointed to act in a transaction of a class e.g. an employment agent.
15.1.3. Special i.e. appointed for one purpose (or perhaps even a single sale or transaction over a limited
time) only.
15.1.4. Any person capable of contracting may be a principal. Since an agent acts for the principal the agent
need not be someone capable of contracting i.e. minor can be an agent. Spouses are not automatically
agents entitled to represent each other in personal or business matters. If one spouse is dependent on
the other that spouse may pledge the other spouse’s credit to obtain the necessaries of life.
16.
Types of Agency (Commission, Retainer, Retainer and Commission)
16.1. 1. Commission agent i.e. contract says he represents you in that territory and you pay commission i.e. only
pay if he sells percentage generally of sale. Varied by area and by product e.g. 3% to 25% (higher may be
mean he pays bribes)… add commission to selling price?
16.2. 2. Retainer agents - Fixed amount and fixed time and paid even if no sales. Hard to monitor and no incentive
to do more - Money still good because want contract renewed.
16.3. 3. Retainer and Commission Agent (Mix) – Used especially if agent’s costs up i.e. agent marketing can be
more than commission initially. Or can use independent contractor is sub-contractor and traditional agent we
have out of subordinate contractor for and our product is part of their product. Can be in the foreign country
or based in Canada. Suited to product? Experience in sector? Contacts?
17.
Forms of Agency (Factor, Del Credere Agent, Confirming House)
17.1. A factor is an agent entrusted with the possession and control of goods that he is to sell for his principal. A
factor can sell the goods in his own name and receive payment. The term 'factor" has been largely superseded
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by the term "mercantile agent". Mercantile agents are themselves not as common these days as they once
were and have been largely replaced by brokers. The broker does not usually have possession and control of
the principal's goods, but will negotiate contracts for the principal.
17.2. A del credere agent is an agent that is often entrusted with the goods, documents and securities and is given
broad authority to collect from the buyer/consumer. This agent accepts responsibility to pay the principal
any money owing to the principal that cannot be recovered because the customer has become insolvent or
because of some similar cause affecting the ability of the customer to pay. In other words, the agent
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guarantees the financial obligations of the third party.
17.3. The confirming house acts in a variety of ways. It may fulfill the function of a del credere agent or simply that
of a true agent. It frequently acts as a principal in relation to a supplier - buying goods from the supplier in its
own name - and at the same time and in relation to the same goods as agent for the customer who has
commissioned it to purchase the goods. If the confirming house is an agent and discloses its agency, the
supplier will usually require it to undertake personal responsibility for the price.
18.
Export Agents
18.1. An agent involved with export transactions will normally seek out customers in the foreign territory and
solicit orders for the sale of the exporter's products.
18.2. The transaction may be subject to the exporter's acceptance and in that case it can be argued that it is not
really an agency relationship (see below).
18.3. The agent may also - depending on its instructions - negotiate legally binding purchase orders (contracts) on
behalf of the exporter and this would be like a real agency relationship. The agent will pass on the purchase
order to the exporter and will ordinarily be paid a commission on each sale. Once the sale is finalized, the
exporter ships directly to the customer and payment is made directly back to the exporter.
18.4. The term "agent" in international transactions can often be misleading. A true agent has authority to bind its
principal. The proper term at law to describe many standard "agent" relationships in international
transactions could be "sales representative".
THREE RELATIONSHIPS OF AGENCY
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19.
Principal/agent
Principal/third party
Agent/third party
Liability of Principal
As noted earlier, the principal can be held to be liable to perform under and bound by a contract negotiated by an
agent with a third party if the agent was acting within their expressed or implicit authority (see above). Similarly,
even if the supplier (principal) has no direct dealings with the ultimate customer, the exporter (principal) bears the
credit risk of the customer (in the event of non-payment), but may have to rely on the agent for credit information.
A principal is liable for torts committed by the agent if they are committed in the course of the agency agreement
and relationship (e.g. employment or another similar type of transaction). This might include fraud or
misrepresentation.
20.
Liability of Agent to Third Party
If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such
authority, so long as the relationship of the agency and the identity of the principal have been disclosed. When the
agency is undisclosed or partially disclosed, however, both the agent and the principal are liable. Where the principal
is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party
for breach of the implied warranty of authority.
21.
Liability of Agent to Principal
If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had
apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage.
22.
Liability of Principal to Agent
If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for
payments made during the course of the relationship whether the expenditure was expressly authorized or merely
necessary in promoting the principal’s business.
23.
Agents’ Duties
23.1. Unless the agency agreement modifies or excludes them, the following residual law duties of the agent will
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apply.
23.2. Agents must comply with the principal/agent contract and carry out instructions of principal diligently and
with reasonable skill, care and diligence as is usual or necessary in the ordinary conduct of activities for which
appointed.
23.3. If agent obtained a position by saying that they had special talents the agent must demonstrate those talents
and be loyal to their principals i.e. almost a fiduciary role and duty. Agent owes a fiduciary duty to be loyal to
the principal.
23.4. Agents can’t accept secret commissions from others or work against the interest of their principals. For
example, they can’t hide actually being engaged in the same business and secretly doing business with the
principal under the guise of a company name. They must act in good faith.
23.5. If agents are given money by (or collect money for) their principals they must account for the money. In
general, they must keep the principal's money and property separate from their own and account to the
principal.
23.6. The agent must look after the property of his principal.
23.7. Agents must carry out instructions carefully and keep confidential information confidential when given by
principal.
23.8. Agents must advise the principal of important developments. For example, if an agent is negotiating with a
third party and notice is given to the agent then it is generally deemed that notice was also served on the
principal.
23.9. An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. An
agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after
full disclosure and consent of the principal.
23.10. An agent also must not engage in self-dealing, or otherwise unduly enrich himself from the agency. An agent
must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party.
23.11. Principal must make a full disclosure of all information relevant to the transactions that the agent is
authorized to negotiate and pay the agent either a prearranged commission, or a reasonable fee established
after the fact.
24.
International Considerations of Agency (Conflicts)
24.1. Many common law countries - including South Africa, Australia, UK, USA, Canada and New Zealand - have
non-statutory residual (common) law principles applying to agency that may differ significantly from the law
of civil law countries. This should be taken into account if one creates legal arrangements with proposed
intermediaries in non-common law countries.
24.2. Some continental European laws provide legal protection for certain types of commercial agents because
agents are often not in a strong bargaining position and protection was considered necessary if the agent
had built up goodwill for their principals in their territory (e.g. Germany, France, Switzerland, Italy and
Austria). In member states of the European Union, the provisions of the European Community Council
Directive on the Co-ordination of the Laws of the Member States relating to Self Employed Commercial
Agents (86/653) now apply in protecting some of the interests of the agent.
24.3. If an agent can negotiate binding contracts on behalf of the seller, the seller may be considered to have a
"permanent establishment" in the agent's country (country of import) thereby possibly exposing the seller to
tax liability in that country. Some countries prohibit the appointment of an agent so as to ensure that the
activity will be taxed.
24.4. Can be more directly involved with exporting via agent in target mkt. Agency agts differ from the above.
Producer retains title to goods until delivered to buyer or even end user. Agent rep of producer but never
takes oship of goods. Agents gen work on commission taking a previously agreed on percentage of every
transaction as their compensation so incentive to max sales. Generally exporter’s resp to pack and ship and
clear customs and deliver to purchaser so exporter assumes direct responsibility for most of the steps in the
distribution chain although a good agent helps in dealing with these procedures.
24.5. When shipping overseas customs clearance generally handled by the buyer even if the terms of sale specify
delivered to buyer’s warehouse.
24.6. Foreign purchaser better placed to pay duties or taxes owing on shipment.
24.7. In rare cases exporter may deal directly with a foreign customs broker e.g. if goods must be stored for future
distribution.
24.8. Exporter gets specialized marketing assistance and no loss of control over transaction.
24.9. Agent out of picture after sale so company can have relationship with buyers and users.
25.
Compensation Right of Agents
25.1. Under the common law (aside from the contract), agents have the right to be paid for their services if they
carry out their duties properly and the right to be paid for reasonable expenses incurred. Principals can’t fire
agents just to avoid paying fees or commissions. Agreements should specify exactly what the agent must do
to earn the commission (e.g. a final sale or contact with a certain type of buyer could be the key factor). The
agent will ordinarily become entitled to his commission when he has done what is required of him.
25.2. In Europe, legislation states that the agent has a right to remuneration according to the customary practice
in the place where he carries on business. If no such practice exists then he is entitled to a reasonable
remuneration if the parties have not already agreed on a rate of payment. Member states can pass laws
setting compulsory levels of compensation. The agent's right to a commission can perhaps only be taken
away if the contract between the principal and the customer cannot proceed for reasons outside the
principal's control.
25.3. How agents are paid varies. Generally commission as percent of what sold.
25.4. Can take as much time for small deal as a large one so agent may expect more on smaller transaction and
reduce rate on large deals. If long relationship sales can be viewed cumulatively and rate adjusted
accordingly.
25.5. Agents in unstable areas may want more because of uncertainty.
26.
Agency and Taxation
26.1. An agency arrangement can have undesirable tax implications in some countries.
 The exporter may be treated as having a permanent establishment' in the overseas country where the agent
operates.
 This may result in the exporter being liable to pay tax in that country on income derived there.
27.
Termination of Agency
27.1. An agent’s authority can be terminated at any time with reasonable notice. The employment contract may not
be able to extend the agency element of the contract.
27.2. If a Power of Attorney says agency continues despite incompetence of the principal then agency not ended.
27.3. It trust has broken down you can’t allow the principal to remain at risk.
27.4. The principal cannot revoke agent authority after it has been partly exercised, but he can before it is
exercised.
27.5. If the agency is for a fixed period the principal cannot terminate the agency before the time expires unless
cause exists.
27.6. When agency authority is terminated that terminates any sub-agency that exists also.
27.7. Death or disability, bankruptcy or capacity may terminate agency.
28.
Agent’s Rights and Duties
28.1. Agents must carry out principal’s instructions diligently and with reasonable skill.
28.2. If an agent obtained a position by saying that they had special talents the agent must demonstrate those
talents and be loyal to the principal.
28.3. Agent can’t accept secret commissions from others or work against interest of principal.
28.4. If agents are given money by their principals they must account for the money.
28.5. They must carry out instructions carefully.
28.6. Agent must keep confidential information of principal confidential.
28.7. Agents must advise principal of important developments e.g. agent is negotiating with third party - notice
given to agent is deemed served on principal.
28.8. Agent may represent more than one principal. Talent agencies may have dozens of clients and it could be a
breach of the agent’s duty not to tell the principal that the agent is acting for other principals at the same
time. If agent disloyal principal may take action even if principal did not suffer a loss because of agent’s
actions
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28.9. Agents have right to be paid for their services if they carry out their duties properly and to be paid for
reasonable expenses incurred.
28.10. Principals can’t fire agents just to avoid paying fees or commissions.
29.
Obligations Arising from Agency Relationship
29.1. Compliance with Contractual terms:
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29.1.1. The agent is under an obligation to ensure that the contractual obligations are complied with. For
example, if there is a clause ensuring that the agent keeps certain information confidential, any
disclosure would be a breach of contract apart from a possible breach of its fiduciary duties (see
below).
29.1.2. This duty would also encompass a duty to follow the lawful instructions of the principal even though
they may be foolish unless they are illegal or unlawful. If the instructions are ambiguous then the
agent has the option of choosing one interpretation over another – the principal will have to live with
the consequences of his imprecision.
29.2. Duty of care: A duty of care is imposed on agents to ensure that they undertake their duties and obligations
with due diligence. Even if this is not expressly stipulated, such a term will be implied by the courts into the
agreement. The duty of care in this type of situation is an objective one, namely that the agent is under a duty
to take such care and exercise such skill as may be reasonably expected under the circumstances of the case.
29.3. An example of the duty of care in the recruitment agency area would include the duty to ensure that proper
references are supplied by the student in support of their application to study and would require the agent to
inform the principal if the former had knowledge that the reference was fraudulent. Similarly, if the agent is
aware that the applicant for a place at an institution is not genuine then, in the circumstances, such
information should be disclosed to the principal.
29.4. The duty of care is to take ‘such care as may be reasonably expected of it’. The issue would be whether the
agent is under a duty to inform the principal if the agent merely has a suspicion that the references are
fraudulent or the applicant is not a genuine applicant. The answer would be dependent on whether the agent
has any evidence to support his suspicions. If all that the agent has are merely suspicions, then the argument
is that the agent will not be under a duty to disclose this to the principal. If he does so and it turns out to be
false, arguably the agent may be liable for defamation. If the agent has the appropriate evidence then the duty
of care requires him to disclose the relevant information to the principal.
30.
Fiduciary Relationship
30.1. The agent is regarded as being in fiduciary relationship with the principal and as such fiduciary duties are
imposed on the agent, beyond that which are imposed as a result of the terms of the agreement between the
agent and the principal. These are usually duties that may or may not be stipulated in the agreement but are
regarded as a normal part of the agency relationship.
30.2. The fiduciary duties include:
30.2.1. Duty to act in good faith; (relates to duty of care – e.g. disclose to principal information relevant in
influencing principal in deciding whether to sell a product - agent should ensure that it does not
advise the buyer to accept all the offers it receives but only to accept one.
30.2.2. Example: Students should be aware of consequences of accepting multiple offers– namely breach of
contract if he or she does not subsequently take up the other offers. agent who encourages the
applicant to accept multiple offers could be liable in tort for inducing a breach of contract apart for
also being in breach of the duty of good faith it owes to the other institutions.
30.2.3. Another aspect of the duty of good faith is not to disclose confidential information or documents
that the principal may have entrusted to the agent. Agent must not act to the detriment of the
principal’s interest. Example - duty on agent not to disclose to a third party, the plans or negotiations
of another of its principals nor to use this information for his own benefit and interest (see below).
30.2.4. Duty not to be in a position where the agent’s duties conflict with his own personal interest.
30.2.5. Duty not to be subject to bribes - Principal can in such circumstances instantly terminate the agency
agreement and sue to recover the moneys as well as any commissions paid to the agent arising out of
the transaction that was the subject of the bribe. There will also be criminal liability on the part of the
agent, the person offering bribe and institution itself for failing to prevent such bribes.
30.2.6. Duty not to make secret profits from his position. Duty to account to the principal for any benefits
received. Agent duty not to make any profit beyond what it receives from the commission or other
remuneration paid by the principal. If the agent makes a secret profit, the principal can recover the
secret profit from the agent or refuse to pay the agent its commission or other remuneration. He can
also dismiss the agent without notice and repudiate the contract. Where the secret profit amounts to a
bribe, the principal, in addition to remedies mentioned, can also recover the bribe or sue for damages
for fraud.
30.2.7. Duty not to delegate: The agent is under a fiduciary duty not to delegate its office to another party.
The reason for this is that the agency relationship is essentially built upon the trust that the principal
has in the agent and hence in principle the agent cannot delegate his duties to another party nor to
appoint subagents. Agent cannot, without authority from his principal, devolve upon others
obligations to the principal which he has undertaken personally. Delegation may be allowed where
delegation is ministerial and does not include delegation of discretion or confidence.
30.2.8. Delegation is allowed where the appointment of a subagent is a usual practice in the trade in which
the agent is engaged provided that this is not contrary to the terms of the agreement.
30.2.9. Delegation to a subagent is also permitted where at the time of the agreement, the principal was
aware that the agent intended to delegate his office and the principal does not object. Agent can
delegate to a subagent if it can be presumed that the agent was to delegate his office.
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