Agency Law

Agency law

Definition of an agent

An agent is a person who is authorised to act for another (the principal) in the making of legal relations with third parties. The resulting contracts are made between the principal and the third party, and not directly with the agent.


An agency relationship exists in lots of situations:

  • A director acts as an agent for his company.
  • A partner acts as an agent for his partnership.
  • An estate agent is appointed by a seller of a house to find a buyer.
  • A travel agent is appointed by a holiday company to make bookings with customers.

The agency relationship

An agency relationship can be established in one of five ways:

  • express agreement
  • implied agreement
  • by necessity
  • by ratification
  • by estoppel.
Express agreement

This is where the principle (P) actually appoints the agent (A) as his agent. The agreement can be made orally or in writing.

Implied agreement

This is where P has not expressly agreed that A should be his agent. However, the agreement can be implied from the parties' conduct or relationship.

By necessity

This requires four conditions to be satisfied:

  • P's property is entrusted to A
  • an emergency arises making it necessary for A to act
  • it is not possible to communicate with P
  • A acts in the interest of P.
By ratification

If a properly appointed agent exceeds his authority, or a person having no authority purports to act as an agent, the principal has no liability on that contract unless the principal 'ratifies' the contract.

The effect of ratification is to backdate A's authority to act as agent. This requires P to:

  • have the contractual capacity to make the contract
  • have been in existence both when the contract was made and at the date of ratification
  • be identified when the contract is made
  • be aware of all the material facts
  • clearly signify his intention to ratify the whole contract within a reasonable time.

Note that a void or illegal contract cannot be ratified.

By estoppel

This arises where P implies that A is his agent even though he is not. He is then prevented or 'stopped' from denying A's authority.


The authority of an agent is a central issue in the concept of agency. It determines:

  • the powers that the agent has on behalf of the principal, and
  • for which acts the principal is liable.

If the agent exceeds his powers the principal may still be liable to the third party, but he may have rights against the agent for breach of contract.

There are three ways in which authority may be given:

 Express This is authority that P has explicitly given to A.

 An agent has implied authority to do things which:

  • are reasonably incidental to the performance of an expressly authorised act
  • an agent occupying that position would usually have authority to do
  • have not been expressly prohibited by P.

Such authority arises where A is held out by P as having authority.
The representation by P may arise from:

  • the appointment of A to an office or position (in which case A has authority to do those things which are usually done by a person occupying that position)
  • previous dealings (allowing A to make contracts in the past is a representation that A has authority to continue to do so in the future).

However, a third party cannot rely on apparent authority when he knows of the lack of actual authority.


Where the agent acts for a disclosed principal.

A principal is disclosed where the existence of the principal has been made known to the third party. It is not necessary for the principal to be identified to the third party.

As a general rule, the contract is between the principal and the third party. The agent is neither liable nor entitled under the contract. However, the agent will be personally liable in the following exceptional circumstances:

  • where the agent showed an intention to undertake personal liability, e.g. by signing a written contract in his own name
  • trade usage or custom
  • where the agent refuses to identify the principal
  • where the agent is acting on behalf of a fictitious principal.
Where the agent acts for an undisclosed principal

An undisclosed principal is where the principal's existence has not been made known to the third party. When the third party discovers the existence of P, he can elect to treat P or A as bound by the transaction.

Agent's fiduciary duty

An agent has a fiduciary relationship with his principal. This is a position similar to that of a trustee. It has the following consequences:

  • A must not allow his personal interests to conflict with those of P.
  • A must always act in the best interests of P.
  • A must not make a secret profit.
  • A has a duty to account to P for all money and property received.

Where an agent is in breach of his fiduciary duty, the following remedies are available:

  • P can repudiate the contract with the third party.
  • A can be dismissed without notice.
  • P can refuse to pay any money owed to A or recover any money already paid.
  • P can recover any secret profit made or any bribe.

Principal's liability to the agent

The agent has the right:

  • To claim remuneration or commission for services performed.

    Usually the amount of remuneration or commission to be paid is stated in the agency agreement. Where it is not specified and it is a commercial agreement, the court will imply a term into the agreement requiring a reasonable amount to be paid.

  • To claim an indemnity against P for all expenses reasonably incurred in carrying out his obligations.
  • To exercise a lien over P's property. The lien allows the agent to retain possession of P's property that is lawfully in A's possession until any debts due to A, e.g. arrears of remuneration, have been paid by P.
Created at 8/21/2012 9:52 AM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London
Last modified at 11/14/2012 3:06 PM  by System Account  (GMT) Greenwich Mean Time : Dublin, Edinburgh, Lisbon, London

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express agreement;implied agreement;ratification;estoppel;fiduciary duty

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