ACCA Applied Skills · Corporate and Business Law (Global)
Agency Law for ACCA Applied Skills Corporate and Business Law
Agency law covers the relationship where an agent has power to change the legal position of a principal with third parties. To solve questions, identify the parties, decide how the agency arose, test the type of authority, then state who is bound and who is liable.
What this chapter covers
Agency is the law of acting for someone else. A principal appoints an agent, and the agent makes contracts or deals with a third party on the principal's behalf. If the agent had authority, the contract is between the principal and the third party. The agent usually drops out.
The chapter follows the life of an agency. You start with what an agent is and the main types. Then you learn how agency is created, how far the agent's authority goes, what each side owes the other, and finally who is liable to third parties and how the agency ends.
Agency links to several other parts of the LW paper. It builds on contract law, because the agent's deals create contracts. It links to company law, because directors and other officers act as agents of the company. It also links to partnership law, where partners act as agents of the firm. Understanding agency makes those chapters easier.
Agency questions suit the objective format because each one tests a clear rule on a short scenario, such as whether a principal is bound by an unauthorised deal or whether an agent is in breach of a duty. The rules are limited in number and repeat across scenarios, so a focused effort gives reliable marks. Agency also supports your answers in contract, company and partnership topics, so the time you spend here pays back elsewhere in the paper.
Agency law: topics in the order to study them
- 1Agency Relationship and Types of AgentStart here to learn the parties and the vocabulary, such as general and special agents, which every later topic uses.
- 2Creation of AgencyNext, learn how an agency arises, whether by agreement, ratification, implication or necessity, before you test what the agent can do.
- 3Authority of an AgentAuthority is the core of the chapter and the most tested area, so study it once you know how agency is created.
- 4Rights and Duties of Principal and AgentThis covers what each party owes the other, and it makes more sense once you understand the relationship and authority.
- 5Liability to Third Parties and Termination of AgencyFinish with the outcomes: who is bound, who is liable, and how the agency ends, which pulls the earlier topics together.
How to prepare Agency law
Agency is rule-based, so you learn it best by applying each rule to short scenarios. Use this sequence.
- Read each topic once and write a one-line definition for each term, such as principal, agent, third party and ratification.
- Build a table of the types of authority (actual express, actual implied, apparent) and note how each arises and what it needs.
- Learn the ways agency is created and the conditions for each, especially ratification, where the principal must have existed and the act must be adopted as a whole.
- List the duties of the agent and the duties of the principal as short headings, and link each to the remedy for breach.
- Work through scenario questions and, for each, ask in order: was there an agency, what authority existed, who is bound, and who is liable.
- Practise the liability cases for disclosed, partly disclosed and undisclosed principals until you can state the result without notes.
- Before the exam, review the termination rules and the effect of the principal's death or insolvency on the agent's authority.
Common mistakes in Agency law
Mixing up actual authority and apparent authority.
Fix: Remember that actual authority comes from the principal to the agent, while apparent authority comes from what the principal represented to the third party.
Saying ratification works in every case.
Fix: Check that the agent claimed to act for an identifiable principal, the principal existed at the time, and the principal adopts the whole act.
Assuming the agent is always personally liable on the contract.
Fix: Ask first whether the principal was disclosed, partly disclosed or undisclosed, then decide who can sue and be sued.
Ignoring the agent's duty to avoid conflicts and secret profits.
Fix: Learn the fiduciary duties as a list and link each to its remedy, because scenarios often hide a secret profit or undisclosed interest.
Missing the warranty of authority when an agent has no authority.
Fix: When the principal is not bound, ask whether the agent represented that they had authority and so may be liable to the third party.
Last-day revision: Agency law
- 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.
Agency law practice questions
- Delta Ltd appoints Kiran as its sole sales agent in a foreign region and gives him a written power to sign sales contracts for any value. Th…
- Nadia appoints Omar as her agent to sell her vintage car for her. Omar is paid a fixed fee for the sale. Which of the following is a duty th…
- Marta appoints Joel as her agent to sell her antique furniture. Joel agrees to act without any payment. Which statement about Joel's duties …
- Delta Ltd appoints Karim as its sales manager and tells its customers he may agree orders up to 10,000 dollars. Delta privately limits him t…
- Dana, without any authority, contracts with Corvin Ltd in the name of Pellam Ltd, a company that already existed. Pellam Ltd learns of the c…
- Nadia owns a boutique in Nairobi. She tells Omar, 'Please buy 20 dresses from Zuri Ltd for my shop, and I will pay you a fee of 5% of the pr…
- Priya owns a boutique and tells her friend Omar, in a signed document, that he may negotiate and sign contracts to buy stock for the boutiqu…
- Wen appoints Basil as agent to sell her paintings in a gallery. Basil spends 600 of his own money on lawful transport costs that were necess…
Agency law in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Agency law: frequently asked questions
How much of the LW exam is on agency law?
Agency is one chapter of a paper whose questions all draw on the syllabus areas, so expect some questions rather than a fixed number. Because all questions are compulsory, treat agency as a topic you must know. Its rules also support your answers in contract, company and partnership topics.
What is the difference between actual and apparent authority?
Actual authority is what the principal has given the agent, either expressly or by implication. Apparent authority arises when the principal represents to a third party that the agent has authority, and the third party relies on it. In that case the principal can be bound even where the agent had no actual authority.
Can a principal be bound by an unauthorised contract?
Yes, in two main ways. The principal may ratify the act, adopting it after the event, if the conditions for ratification are met. Or the agent may have had apparent authority, so the third party can hold the principal to the contract.
What is a secret profit?
A secret profit is a benefit an agent makes from the agency without the principal's informed consent, such as an undisclosed commission from the third party. It breaches the agent's duty of good faith. The principal can generally recover the profit and may also end the agency and refuse commission.