Lecture Fundamentals of business law (4th): Chapter 18 - Margaret L. Barron, Richard J.A. Fletcher

This is the prescribed textbook for your course.

Available NOW at your campus bookstore!
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

Copyright © 2000 McGraw-Hill Australia


Principal and agent

Chapter 18

Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.


Agency
• An agency is a relationship that exists
between one person, the principal,
and another person, the agent, where
the agent undertakes to do certain
acts on the principal’s behalf, the
purpose being to bring a third party
into a contractual relationship with the
principal.
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-3Australia
Copyright © 2000 McGraw-Hill


Creation of an agency
• Expressly created agency (written or
verbal)
• Impliedly created agency
- Agency of Necessity
- Cohabitation
- Agency by Estoppel
- Agency by Status
- Agency by Ratification
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-4Australia
Copyright © 2000 McGraw-Hill


Agency of Necessity
A person must be entrusted with the
property of another person.
An immediate expense is required to

preserve the property.
The owner of the property is virtually
impossible to contact.
The person entrusted with the property
(agent) must act in the best interests of the
owner (principal).
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-5Australia
Copyright © 2000 McGraw-Hill


Agency by Ratification
Required when:
No authority to act as agent
Agent exceeds authority
given by principal

Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-6Australia
Copyright © 2000 McGraw-Hill

Working relationships
• Agent - Fiduciary relationship
i.e. exercising rights and powers, in good
faith, for the benefit of another.
• Employee - Under control and supervision
of employer.
• Independent contractor - Decides how
their work is carried out.
• Trustee - Holds property on behalf of
another person.
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-7Australia
Copyright © 2000 McGraw-Hill


Categories of agents
• Special - i.e. appointed for a particular
task.
• General - i.e. appointed for all normal
matters.
Universal - i.e. appointed for all acts
principal can do, e.g.
Power of Attorney.
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e

by Barron & Fletcher. Slides prepared by Kay Fanning.

18-8Australia
Copyright © 2000 McGraw-Hill


Authority of an agent
• Actual Authority
- Express (written/spoken)
- Implied (by action)
• Apparent Authority (Ostensible
Authority)
- Authority agent has from the
viewpoint of the third party, with
whom the agent is dealing.
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-9Australia
Copyright © 2000 McGraw-Hill


Duties of an agent
• To follow the principal’s instructions
• To act personally
• To exercise reasonable skill and
diligence
• To act in principal’s best interest

• Not to make a secret profit
• Not to divulge confidential information
• To keep proper accounts
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-10
Copyright © 2000 McGraw-Hill
Australia


Rights of an agent
• To receive remuneration for work
performed
• To be indemnified against all losses and
expenses incurred while carrying out
principal’s lawful instructions
• To a lien (i.e. a right to retain possession
of principal’s property) until liabilities
satisfied
• To stoppage in transit (before received by
principal)
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-11

Copyright © 2000 McGraw-Hill
Australia


Liability of an agent to
principal
 If agent - fails to follow instructions
- acts in a negligent matter
 If a loss is incurred

Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-12
Copyright © 2000 McGraw-Hill
Australia


Liability of agent to third party
• Name & existence or existence of principal disclosed
- Act outside authority (i.e. breach of warranty)
 Acts on behalf of someone who has not
given authority (unless ratified), or
 Exceeds authority (unless ratified)
- Non existent /unascertainable principal
- Agent agrees to be liable
- Usage/custom make agent liable
• Existence of principal not disclosed

- Agent bound
• Torts committed while acting within actual or apparent
authority
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-13
Copyright © 2000 McGraw-Hill
Australia


Liability of agent to third
party
• Tort committed by an agent acting
within the actual or apparent authority.

Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-14
Copyright © 2000 McGraw-Hill
Australia


Doctrine of undisclosed
principal

• If the agent acts as if he/she is the owner
by not disclosing agency then the principal
can later reveal agency agreement and can
sue and enforce the contract.
• If third party discovers there was an agency
agreement, he can then sue the principal
(as well as the agent) for breaches of the
contract.
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-15
Copyright © 2000 McGraw-Hill
Australia


Termination of agency
• By the acts of the parties
- By performance of the agency
- With frustration of the agency agreement
- By mutual agreement
- By revoking the authority of the agent
(ineffective to third parties until advised)
• By the operation of Law
- By death of either party
- By bankruptcy of principal
- By bankruptcy of agent
- By insanity of either party

Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-16
Copyright © 2000 McGraw-Hill
Australia


Types of agents (Statute Law)
• Factors/mercantile agent - Goods in agent’s
possession to sell or use for borrowing
• Del Credere agent - Guarantees payment for
goods sold (therefore higher commission)
• Partners - Principals/agents for each other
• Broker - Buys/sells goods without possession
• Real estate agent - Sells/leases vendor’s land;
finds property for sale/lease
• Travel agent - Sells principal’s products; receives
commission based on sales; organises principal’s
travel arrangements
• Company director - Agent of company
Copyright

2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.

18-17
Copyright © 2000 McGraw-Hill

Australia