MODULE CUZL331 COMMERCIAL LAW 1: AGENCY AND SALES Maureen Banda-Mwanza LLB (UNZA), ACIArb ACKNOWLEDGEMENTS In the formulation of this module, tailored for the exclusive use of Cavendish University, the Author referred to various renown Commercial law books, quotations of which shall be minimized as much as is practicable. The good authors of the renowned works aforementioned are fully acknowledged for the relevance of their various pieces of work in the study of Commercial Law. CONTENTS PAGE TOPIC 1 TOPIC 1 AGENCY AT the end of this unit, students should be able to understand: 1. The requirements in forming an agency contract, formalities and capacity, 2. Authority of an agent 3. The duties of an agent 4. The Agent’s right against the Principal 5. The Principal’s relation with third parties 6. Various types of agency 7. How to terminate an Agency agreement Introduction Agency is one of the essential features of Commercial law. Commercial law is the law governing business contracts, bankruptcy, patents, trade-marks, designs, companies, partnership, export and import of merchandise, affreightment, insurance, banking, mercantile agency and usages. Agency can therefore be defined in the relationship which arises when one person (an agent) acts on behalf of another person (the principal) in a manner that the agent has power to affect the principal’s legal position with regard to a third-party. Common law explains the basic rule of an agency relationship in the Latin maxim “Qui facit per alium, facit per se” the literal English translation of which is he who acts by another acts by himself. This rule goes to highlight just to what extent a principal is bound by an act of his agent done in the principal’s name. The agency relationship forms a triangular set of relationships that are considered pertinent at law, viz; i. The relationship between the principal and the agent ii. The relationship between the principal and a third-party iii. The relationship between the agent and a third-party, which may be created in certain situations. UNIT 1: Formation of Agency; formalities and capacity An agency relationship between an agent and a principal can be created in any one of the following three ways: a. By consent b. By operation of the law c. By the doctrine of apparent authority or agency by estoppels a. Agency by Consent This arises in instances where the principal authorizes the agent to do an act on his behalf and the agent does it. This is called actual authority and it is a consensual legal relationship between the principal and the agent. Such kind of authority can be: Express or implied as was the case in Garnac Co.Inc. V. H.M.E. Faure and Fairdough Limited (1968) A.C. 1130, 1137; 2All E.R. 353, 358 where Lord Pearson stated that express authority is given by express words such as is evidenced in a power of attorney. Implied authority can be inferred from the conduct of the parties and the circumstances of the case. Precedent or subsequent. It is precedent if the principal consents to it prior to the carrying out of the Act and it is subsequent if the principal ratifies the Act after it has been carried out. The doctrine of the apparent authority. A third party is not expected to concern himself with the precise limit of authority of the agent. The third party is only concerned with the apparent authority, which as far as the third party is concerned is the real authority. In other words apparent authority is the authority of an agent as it appears to others. - See per Scutton L.J. in Reckitt vs Barnett Pembroke and Slater, Ltd (1928)2.K.B.244,257. Under this doctrine therefore the principal may be bound to third parties because the agent appeared to have authority when actually there was no such authority between the principal and the agent. ACTIVITY1: Questions for Discussion. 1. What is the definition of Agency? 2. How is an agent by Consent created? 3. Discuss the act of ratification by a Principal. 4. What is understood by apparent authority? Formalities. Robert Lowe in Commercial Law states that no formalities are required for the appointment of an agent. However, there is an exception to the general rule in that in conveyancing matters such as the sale of Land , an agent has to be appointed by a Deed known as the Power of Attorney to execute a Deed that can be held to be valid. Capacity The general rule is that a person has the capacity to appoint an agent or ratify the acts one purporting to be an agent. Minor A minor cannot in certain instances appoint an agent such as in the case of disposal of property. A minor cannot give a valid Power of Attorney, unless such minor is a married woman. Mental Disorder Robert Lowe states that the general rule is that where a party to a contract is of unsound mind, the contract is binding upon him unless he can prove that he was so insane that he did not know what he was doing and this was known to the other party. See Imperial Loan Company v Stone (1892) 1Q.B 599, However, in Young v Toynbee, the agency Contract was held to terminate the agents authority automatically even though the agent was not aware of the principal’s insanity. The general rule therefore appears not to apply to agency contracts, which becomes void if the principal is of unsound mind. See Young v Toynbee (1910) 1K.B. 215 An agent can act for both parties as long as there will be no conflict of interest or breach of duties to the first principal. An agent need not have full contractual capacity, as he is a mere link between two contracting parties, as long as he understands what he is doing-See Co. Litt 54aForeman v. W.Ry (1878) 38LT. 851, (the principal of an illiterate is in the same as he and not the agent had signed a document: Re D. Argibau (1880) 15 Ch.D.228,246 but the agent’s liability to his principal would depend on his contractual capacity. In Zambia the Companies Act 388 of the Laws provides that if a person is an infant, or is under legal disability that person is not eligible to be appointed as a company Director. The partnership Act of England of 1890, which is applicable to Zambia states that a person can only be a partner if he has capacity to contract, thus agents such as Company Directors and partners have to have the contractual capacity, which in Zambia is the age of 1 8. ACTIVITY2: Questions for discussions 1. For what purpose is the Power of Attorney created? 2. Can a minor be an agent? Discuss 3. Principal P. is insane. Is his agent’s action binding on him? Agent’s relationship with third parties Generally when an agent makes a contact on behalf of the principal, the contract is between the principal and the third party. The agent acquires no rights or obligations under the contract. Agents of the state can never be personally liable over the state’s failure to perform a contractual obligation. In the case Stickrose (Pty) Ltd v The Permanent Secretary Ministry of Finance (1999) ZR 155 the appellant obtained judgment against the respondent for the payment of a specified sum in United States Dollars plus interest. The state was prepared to liquidate the debt in monthly installments but the payment was not being paid monthly. The appellant commenced committal proceedings against the respondent. The trail judge refused to grant an order for committal. The Appellant appealed. It was held amongst others that the public officers need protection of the Law; they are not to be harassed by way of civil action as a means of enforcing Judgments against the state. Sakala C.J. noted that a Permanent Secretary is only an agent who executed his duties within the budgetary allocation and if the government had no money, the Permanent Secretary cannot be expected to mint the money. The learned trial judge refused to grant the Order of Committal. The court stated that, under the State proceeding Act, the court was not competent to issue a Committal Order against Mr. James Mtonga ( the permanent secretary) as an individual. The Court then went ahead and dismissed the appeal. Disclosed and Undisclosed Agency Disclosed Agency Where the agent reviews that he is acting as an agent that is disclosed. The agent’s liability to third parties may depend on whether the agency was disclosed or not. Where the principal disclosed, he and not the agent is liable on the contract and may be sued. In Sui yin Kwan v Eastern insurance (1994) 2A.C 199 the ship Osprey was owned by Axelson. Their agent Rishstone was asked to insure the ship which they did in Richstone’s own name. The ship was destroyed by a typhoon and lost many crew. The relatives of two of the crew sued Axelson and were successful, but when it subsequently went into liquidation, they sued the insurance company who claimed they only knew Richstone and not Axelson. It was held that the doctrine of undisclosed Principal appears. The Principal acted within its agent’s actual authority and the undisclosed principal may acquire the rights/ liability of the agent. Thus the relatives could recover from the insurance company. Undisclosed Agency The third party has an elective right to sue either the agent or the principal, where the agent does not disclose the principal.