F4-chapter 9

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ACCAInstructor: GabrielleChapter 9Agency law•Define the role of the agent and give examples of such relationships paying particular regard to partners and company directors .•Explain the formation of the agency relationship .•Define the authority of the agent .•Explain the potential liability of both principal and agent .Chapter 11 Agency lawChapter GuideFormation of agency Authority ofagentsLiability Agency LawDefinitions Formation methods Partners anddirectors ExpressImpliedRights anddutiesLiabilityChapter 9 Agency law OverviewChapter 9 Agency law1.Define the role of the agent and give examples of such relationships paying particular regard to partners and company directorsPrincipalAgentThird Party•The Principal is the person who has legally empowered the Agent to enter into contractual relations with a Third Party . The contract itself though is between the Principal and the third party . Two specific examples of agency relationships noted on the F 4 syllabus are :•(a ) Partners – per the Partnership Act 1890 all partners are deemed to be agents of the firm and are hence able to bind all co -partners and make them jointly andseverally liable for business transactions•(b ) Company Directors – the board of directors aredeemed to be the agent of the company (though not theshareholders ) and can therefore bind the company without Chapter 9 Agency law1.Define the role of the agent and give examples of such relationships paying particular regard to partners and company directorsAgencyAgency LiabilityLiability Authority Authority Formation of agencyFormation of agency • Express • Ratification • Implication • Necessity • Estoppel • Express • Ratification • Implication • Necessity • Estoppel Chapter 9 Agency law2.Formation of agencyAgency relationships can be formed in the following ways:(a) Express agreement – between the agent and Principal(b) Ratification – where although the purported agent acted without authority the Principal retrospectively ratifies the contract(c) Implication – the position that someone holds may imply they have the power to bind, such as partners in a partnership(d) Necessity – in instances of genuine emergency , where it is not possible to contact the Principal, an agent may appoint themselves where they have acted bona fide in the interest of the Principal(e) Estoppel – where a person ‘holds themselves out ’ they acquire apparent authority, which the purported Principal may be estopped from denying due to their ‘acquiescence ’ per Freeman and Lockyer v Chapter 9 Agency law2.Formation of agency2.Formation of agencyThe agency arrangement may be terminated in the following ways:(a)Expiry of agreement(b) Mutual agreement(c)Death, insanity, or bankruptcy of either partyAgencyAgency Formation of agencyFormation of agency Liability Liability Authority Authority ActualActual Apparent Apparent ExpressExpress ImpliedImplied 3.Authority of agents3.1Where an agent ’s authority has been agreed with the Principal, verbally or in writing then their authority is said to be actual express authority .Chapter 9 Agency law3.Authority of agents3.Authority of agents3.2 In the absence of express authority the agent’s power to bind may be implied in the following ways:(a) Actual implied authority – as implied by the positionheld. For example the Managing Director and Company Secretary are assumed to have the power to bind thecompany in all commercial and administrative contracts respectively(b) Apparent authority – created either through the rulesof estoppel, or where a Principal has previously informed a third party that the agent has the power to bindAgencyAgency Formation of agency Formation of agency Authority Authority None: exceptNone: except Usual practiceUsual practice IntendedIntended LiabilityLiability 4. Duties and liability4.1The rights of any agent are:a)To claim remuneration for services performedb)To be indemnified by the Principal for expenses incurredc)To exercise lien over property owned by the PrincipalChapter 9 Agency law4.Duties and liability4.2Additionally where an agent is acting in a commercial capacity the regulations state that:a)The Principal must provide the agent with all the necessary documentation required to perform their dutiesb)The agent is entitled to notice of termination of the agreement, and compensation may be payablec)Agreements in restraint of trade are only Chapter 9 Agency law4.Duties and liability4.3In return agents owe their Principals the following duties :a) To perform their duties in line with the instructions of the principalb) To exercise due care and skillc) To act in persond) To be accountable for all transactionse) To avoid a conflict of interestsf) Not to make a secret profitg) Not to accept bribesChapter 9 Agency law4.Duties and liability4.4(a )The principal ’s existence is disclosed under the following circumstances:• at the insistence of the third party where the agent has admitted liability• by implication where the agent has signed the contract in their own name without reference to their role as an agent • in relation with bills of exchange• when a deed is executed• where no principal actually existsChapter 9 Agency law4.Duties and liability4.4(b)Where the principal ’s existence is not disclosed:• action can be taken against the agent, though they in turn may recover against the principal (principal would usually intervene)• where the agent acts outside their authorityChapter 9 Agency law4.Duties and liability4.5An agent acting with no authority, actual or apparent, is liable for breach of warrant of authority, and in these circumstances the agent has personal responsibility for contractual relations entered into.Chapter 9 Agency law4.Duties and liabilityChapter 9 Agency lawLecture example 1•In the context of the law of agency, an agent will NOT be liable for a contract in which of the following instances?•A Where the agent fails to disclose that they are acting as such•B Where the agent intends to take the benefit of the contract and does not disclose they are acting as an agent •C Where the agent acts on their own behalf although claiming to be an agentChapter 9 Agency lawLecture example 2•Which of the following statements relating to formation of agency is untrue?•A Express agreement between the agent and the principal is required to form an agency relationship •B Agency relationships can be formedretrospectively with the consent of the principal•C In cases of genuine emergency agency can be created by necessity•D Agency can sometimes be implied due to the positions held by the purported agent and principalSection Topic Summary1Formation ofagency An agent is the empowered representative of the principal, able to enter into contractual relations with athird party. Agency relations can be created expressly, or through ratification, implication, by necessity, or by estoppel.2Authority ofagents Authority of an agent may be actual or apparent. Actual authority may be express or implied. Agents acting with no authority are in breach of warrant of authority.Section Topic Summary3Duties andliability Agents have a right to be paid, indemnified, or to retain property, there are further rights attaching tocommercial agents. The duties of an agent are to beobedient, exercise skill and care, act in person, beaccountable, avoid conflicts of interest, secretprofits, and bribes. An agent is usually free of allliability for contracts entered into , there are howeverexceptions to this general rule in cases where theprincipal has or has not been disclosed .Case Summary1Freeman and Lockyer v Buckhurst Park PropertiesThe defendant company allowed one of its directors to act as the managing director and to give instructions to the claimant to do work on its behalf. It was held that the fact that he had never been formally appointed as managing director was of no consequence. The other directors knew the facts, the company had effectively held out that individual as having the powers of the managing director, and theYou should now be able to attempt the following key question from the Golden Global Learning Media Practice and Revision Kit.You should now be able to attempt the following key question from the Golden Global Learning Media Practice and Revision Kit.Question practice – end of ChapterQuick Quiz :Name 3 general rights of agentsQuick Quiz Answers :Claim remuneration , be indemnified , exercise lien over property if not paid。