Agency law: formula sheet

Key formulas

Basic agency triangle

Principal → authorises → Agent → contracts with → Third party; resulting contract is Principal ↔ Third party

The agent is normally not a party to the contract and is not liable on it.

General agent

General agent = authority over a range of matters or a continuing business

Example: a manager running a branch for the principal.

Special agent

Special agent = authority for one specific act or transaction

Authority is narrow, so third parties should check it.

Universal agent

Universal agent = authority to do all acts the principal may lawfully do

Very rare. Usually arises from a wide power of attorney.

Commercial agent

Commercial agent = continuing authority in business to negotiate sale or purchase of goods for the principal

Brokers, factors and similar intermediaries.

Del credere agent

Del credere agent = commercial agent + guarantee of the third party's performance, for extra commission

Liable to the principal if the third party fails to pay.

Express agency

Principal's agreement (oral or written) = agent appointed

Formalities are usually not needed. A power of attorney to execute deeds normally must be by deed.

Implied agency

Conduct of the parties or the relationship between them = agency inferred

Look for the principal allowing the person to act over time or giving a role that normally carries authority.

Ratification conditions

Agent claimed to act for the principal + principal existed, was identifiable and had capacity at the time of the act + principal has full knowledge of material facts + ratifies the whole act in time

If any condition fails, ratification is ineffective and the agent may be personally liable.

Effect of ratification

Valid ratification = treated as authorised from the start (retrospective)

Once validly ratified, the contract is treated as authorised from the start and binds both the principal and the third party.

Agency by necessity

Real emergency + impossible to get instructions + agent acts in good faith in the principal's interest + acts reasonably

Courts apply it narrowly. Often involves someone already in possession of the principal's property.

Agency by estoppel

Principal's representation that the agent has authority + third party relies on it + third party changes position

The representation (holding out) gives the agent apparent authority. The principal is prevented from denying that authority against a third party who relied on it. Holding out is the cause; apparent authority is the result.

Principal bound

Actual authority (express or implied) OR apparent authority → principal bound to third party

Only one type is needed. Check actual first, then apparent.

Express actual authority

Principal's words or writing to the agent → authority

Limited to what the instruction covers, read in a sensible way.

Implied actual authority

Necessary for the task / usual for the role / course of dealing → authority

Cannot override an express limit the principal gave the agent.

Apparent authority conditions

Representation by principal + reliance by third party + principal able to give that authority

The representation must come from the principal, not from the agent alone. The third party must not know the agent lacks authority.

Agent acting outside authority

No actual or apparent authority → principal not bound unless ratifies; agent may be liable for breach of warranty of authority

Ratification must be by a principal who existed and had capacity when the act was done, and must cover the whole act.

Duty of obedience

Agent must follow lawful, reasonable instructions

Breach makes the agent liable for loss. Unlawful instructions need not be followed.

Duty of care and skill

Standard = reasonable skill of the profession held out

A paid professional is held to a higher standard than a gratuitous agent.

Personal performance

Agent must not delegate without consent

Exceptions: principal agrees, purely ministerial acts, trade custom, or necessity.

Fiduciary duty: no conflict

No conflict of duty and interest without full disclosure and informed consent

Applies to dealing with the principal's property or acting for both sides.

Fiduciary duty: no secret profit

Any profit or bribe from the agency belongs to the principal

Disclosure to and consent from the principal removes the breach.

Duty to account

Keep principal's money separate, keep records, hand over what is due

Includes confidential information not being misused.

Principal's duty: remuneration

Pay agreed commission when the contract conditions are met

Lost if the agent is in fiduciary breach.

Principal's duty: indemnity

Reimburse expenses and liabilities properly incurred within authority

Not for the agent's own default, illegal acts or unauthorised acts.

Remedies for fiduciary breach

Recover profit or bribe, refuse commission, dismiss, rescind, claim damages

Principal may choose among them, but cannot double recover for the same loss.

Quick revision

• An agent acts for a principal and can change the principal's legal position with third parties.
• A properly authorised agent who discloses the principal usually drops out; the contract is between principal and third party.
• Agency can arise by express agreement, implication, ratification or necessity.
• Ratification needs the principal to have existed and to be identifiable when the act was done, and the principal must adopt the whole act.
• Actual authority can be express or implied; apparent authority arises from the principal's representation to the third party.
• Apparent authority binds the principal even if the agent had no actual authority, if the third party relied on the representation.
• An agent owes duties of care and skill, obedience to instructions, and good faith, including avoiding conflicts and secret profits.
• A principal usually owes the agent agreed commission or remuneration and indemnity for proper expenses.
• A breach of duty can lead to loss of commission, recovery of secret profits and damages.
• An agent who acts without authority may be liable to the third party for breach of warranty of authority.
• Agency ends by agreement, completion of the task, revocation or renunciation, and by events such as death or insolvency, subject to the rules.
• For an undisclosed principal, the third party may generally sue either the principal or the agent once the principal is discovered.

Common mistakes

• Saying the agent is a party to the contract with the third party. Fix: Remember the general rule: the contract is between principal and third party, and the agent usually drops out.
• Treating any helper or employee as an agent. Fix: Test for authority to create or change legal relations with third parties.
• Saying agency always needs a written contract. Fix: Remember express agency can be oral. Only a power of attorney to execute deeds normally needs a deed.
• Allowing ratification when the principal did not exist at the time of the act. Fix: The principal must have existed and had capacity when the act was done. A company cannot ratify a pre-incorporation contract.
• Saying the principal is not bound because the agent ignored instructions. Fix: Always test apparent authority next. A secret limit does not bind a third party who relied on a representation.
• Treating apparent authority as created by the agent's own claim. Fix: The representation must come from the principal, or someone the principal allows to speak for them. An agent cannot create their own apparent authority.
• Saying the agent may keep a secret profit if the principal suffered no loss. Fix: Fiduciary duty is about loyalty. The principal can claim the profit even without loss.
• Treating all agent duties as fiduciary. Fix: Separate care, obedience and personal performance from the fiduciary duties of loyalty and accounting.

Exam tips

• Always name the three parties first. Many objective questions are answered by this alone.
• Read for the scope of authority. Words like 'one transaction' or 'continuing basis' decide the type.
• For del credere, look for the words guarantee, extra commission or liable if the buyer defaults.
• In written answers, define the term, label the facts, then give the consequence. Three short sentences earn the marks.
• Distinguish the definition of agency here from creation and authority, which are tested in separate topics.
• Match the scenario to the creation route first. Most marks come from naming the right route and its conditions.
• For ratification, list the conditions in a short sequence and tick each against the facts.
• Watch for pre-incorporation traps: a company cannot ratify a contract made before it existed.