COMMERCIAL LAW

Law of Agency (Continue…)

Junaideen fathima,
LLB(Hons)(Col.)
Attorney-at-law
Notary Public,
Commissioner for oaths and
Company secretary
Termination of Agency
❖ Agency may be terminated by;
I. Operation of law
II. Agreement between the principal and agent
❑ Termination by operation of law

a) The death, mental incapacity or bankruptcy of the

principal or the agent terminates the
agency.
b) If the subject matter of the contract for which the
agent is appointed becomes illegal or is
frustrated, the agency is terminated.
❑ Termination of agency by agreement between the
principal and agent
Normally the way in which to terminate the agency is
contained in the document establishing it.
In the absence of any express provisions in the agency
agreement, the agency may be terminated in the
following ways;
a) By mutual agreement between the principal and
agent to bring the agency to an end.
b) By the agent completely performing the contract of
agency.
c) By revocation of the agent’s authority by the
principal
d) By dismissal of the agent by the principal on
discovering that the agent had breached his duties.
❑ Rights & duties of principal & agent.
➢ Duties of an agent to his principal.
01. The Agent must follow the Principal’s instructions
• It is well established that an agent must perform the
contract or transaction he has undertaken.
• In Turpin v Billton (1843) 5 Man & G 455, the agent failed
to insure the principal’s goods which he had undertaken to
safeguard. The agent was held liable for the loss.
• In Bertram Armstrong & Co v Godfrey (1830) 12 English
Rep 364 a broker was instructed to his principal to sell
some shares when the market price reached a certain
figure. The broker failed to do so. The market price then fell
and he was forced to sell for less. The court held that the
broker, as agent, was liable to the principal for the loss he
suffered, that is the difference in price.
2. Agent’s duty to exercise reasonable diligence, care
and skill.
• In Keppel v Wheeler (1927) 1 KB 577, an agent was
employed by a principal to find buyers for a property.
The agent found a buyer and the buyer’s offer was
accepted by the principal (the seller of the property)
subject to a sales contract to be drawn up.
Subsequently, the agent received a higher offer for the
property but neglected to inform the seller of the
higher offer because the agent thought he had
completed his job in getting the earlier offer. The court
however, held that the agent should have informed his
principal of the higher offer and because he had failed
to do, he was liable to the principal (the seller) for the
difference in the price of the higher offer. The agent
had failed to exercise due diligence and care to get the
maximum price possible for his principal.
03. The agent must act in person and not delegate his duties
• it is a well established rule of agency that an agent cannot
delegate his duties to others.
• The Latin maxim is delegatus non potest delegare which
means that a person to whom authority has been delegated
may not delegate it to another.

• In John McCann & Co v Pow (1975) 1 All ER 129, a

principal appointed a firm of real estate agents to sell his
flat. Without the principal’s approval, the real estate agents
gave details of the flat to a sub agent who found a buyer.
Then the agents asked for their commission for the sale of
the flat. The court held that since they had delegated the
sale to a sub-agent without the principal’s permission, the
principal was not liable to pay the commission to the agent
although the flat had been sold for the price requested.
 There are three main exceptions to this rule that an agent
must not delegate his duties to another.
➢ These are;
I. The agent may delegate his duties where there is an
express or implied authority to delegate such as by
professional or trade usage.
II. The Agent may delegate purely ministerial acts such as
the signing of a letter or the giving of a notice where such
act requires no personal skill or confidence. See Allam
&Co Ltd v Europa Poster Services [1968] All ER 826
III. If the delegation is ratified or approved by the principal,
then obviously it will be valid. In De Bussche v Alt (1878)
8 Ch. D, 286, the agent took the precaution of obtaining
the approval of the principal for the appointment of a
sub-agent. It was held that the delegation was valid and
binding on the principal.
04. Agents duty to act in the Principal’s interest.
• In McPherson v Watt (1877) 3 App Cas 254 the
principals wanted to sell a property and were about to
advertise its sale. Their solicitor told them that he
would find a purchaser. The solicitor then got his
brother to bid for the property and after the property
was sold to him he got his brother to convey the
property to the solicitor. When the principals
discovered that the true purchaser was the solicitor –
their agent – they applied to court and got the sale set
aside. The agent had acted improperly. He had put his
interests above those of his principal.
 The fiduciary or confidential obligation that is imposed on
an agent requires that hi should not make a secret profit or
commission in the performance of his duties.
• In Reiger v Campbell Stuart (1939) 3 All ER 235 a principal
wanted to buy a property and asked her agent to find a
suitable property. The agent found a suitable property for
£2000. Instead of informing the principal about this
property for £2000, the agent got his brother to buy the
property for £2000 and then pretended to buy the same
property from the brother for £4500. He then offered the
property to his principal for £5000 when its real value was
£2000. Not knowing the truth, the principal bought the
property for £5000 but subsequently when the principal
learnt the improper actions of the agent, she claimed a
refund of the profit the agent had made and the court held
in her favour and ordered the agent to pay the difference to
the principal.
05. Agent’s duty not to divulge confidential information
• To act in the principal’s interest, necessarily implies that
the agent is also under a duty of confidentiality. Not only
must the agent not tell others about the principal’s business
and affairs but he must not make use of such information
for his personal benefit or interests. This duty of
confidentiality (also called a duty of secrecy) is a well-
known rule between the banker and his customer. A bank is
the agent for its customer’s account to others.

06. Agent’s duty to maintain accounts

• A fundamental rule of the law of agency is that the agent
must maintain proper accounts relating to his work as an
agent. He must also not improperly mix his principal’s
funds with his personal fund and if he doesn’t the law will
presume that the entire sum belongs to the principal.
❑ Duties of the Principal towards the Agent.
01. Agent’s right to remuneration
• The amount of remuneration that an agent can claim
will depend on the agreement appointing the agent. In
may established commercial situations like solicitors,
stockbrokers and real estate agents, the remuneration
will depend on the fees and commissions charged in
that particular profession or business. However, it is
advisable that the agent should clarify the amount and
terms of remuneration when accepting the agency.
02. Agent’s right to indemnity
• While acting for the principal, the agent may incur certain
liabilities or make payments on behalf of the principal. In
such circumstances the agent will be entitled by common
law principles to be indemnified against such liabilities or
to recover any amounts so paid.

03. Agent’s right to a Lien

• A lien is a legal right that a creditor has to retain the goods
of a debtor as security for the performance of an obligation.
A good example is a landlord of a rented property who has
not been fully paid the rent by the tenant. The law
recognizes the landlord’s (creditor’s) right to hold on to any
furniture or other goods of the tenant (debtor) until the
unpaid rent is paid. An agent can exercise a lien over the
principal’s goods which are in the agent’s possession until
the amount due to the agent is settled.
❑ Legal liabilities in Agency law
• Whenever a contract has been formed by employing an
agent, issues arise as to the liability of the three parties.
Since the agent is only a conduit or means to bring about
the contract, the agent does not normally fact legal liability
to the third party. The legal liability is between the third
party and principal. Accordingly, when the agent discloses
to the third party that hi is contracting as agent for a
named principal, only the principal and not the agent, may
sue and be sued on the contract.
• In Wakefield v Duckworth [1915] 1 KB 218, a lawyer who
had been retained to defend a man charged with murder
employed a photographer to obtain some photographs to be
used at the trial in the case. The photographer sued the
lawyer for the cost of the photographs. But the court held
that the solicitor was only acting as the agent of the
accused person and the photographer knew of this
situation. Thus, the solicitor was personally not liable to
pay the photographer.
❖ The agent can be personally liable on a contract in the following
special circumstances
01. Where the agent has contract personally
• When entering into the contract, the agent has failed to make it clear
that he is contracting as an agent. The status of the agency has not
been mentioned to the third party who has been led to believe that
the agent was contracting with him on his own behalf and not as an
agent.
02. Personal liability of agent when he contracts on behalf of a non-
existent principal.
• A good example of such a situation is where persons who are in the
process of incorporating a company enter into contract in connection
with the company’s establishment. Such persons are called
‘promoters’ of the company and they can incur personal liability
because the company (the principal) is not in existence at the time of
the contract. See Kelner v Baxter [1861-73] All ER 2009
03. Agent signing bill of exchange or cheque
• Where an agent’s name appears on any bill of exchange, promissory
note or cheque, the agent will be personally liable unless he makes it
clear that he is acting in a representative capacity. Several sections
of the Sri Lanka Bills of Exchange Ordinance contain statutory
provisions to this effect.
o Doctrine of the Undisclosed Principal
• Where the agent contracts with a third party on behalf of a
principal but does not inform the third party that he is an
agent, it may be possible for the principal to subsequently
reveal his existence as the principal and enforce the
contract. This rule is known as the doctrine of the
undisclosed principal. Such a person is obviously not a
party to the contract but he can yet sue and be sued in his
own name (as principal) on a contract entered into on his
behalf by his agent so long as the
o agent had acted within authority.
• Agent liable for breach of warranty of authority If the agent
claims that he is acting as an agent but in fact has no
authority to enter into the contract in question, the agent
can be sued by the third party for the untrue representation
of authority he made. See Collen v Wright (1857) 8 E & B
647