The Duties Owed by Agents to Their Principals - Essay Example

?The duties owed by agents to their principals may or may not be dictated by the express terms of the contracts between them. Table of Statutes Commercial Agents (Council Directive) Regulations 1993, Section 3 (1) The Bribery Act 2010 Unfair Contract Terms 1977 Table of Cases Allam & Co ltd v Eurpoa Poster Service Ltd (1968) 1 All ER 826 in Reddy, J., & Johnson, H. (2011). Q & A Commercial Law 2011-2012. Oxon: Taylor & Francis 6th ed. Boardman v Phipps (1966) UKHL 2 in Reddy, J., & Johnson, H. (2011). Q & A Commercial Law 2011-2012. Oxon: Taylor & Francis 6th ed. Chaudry v Prabhakar (1988) 3 All ER 718 in Reddy, J., & Johnson, H. (2011). Q & A Commercial Law 2011-2012. Oxon: Taylor & Francis 6th ed. De Busccche v Alt (1878) 8 ChD 286 in Reddy, J., & Johnson, H. (2011). Q & A Commercial Law 2011-2012. Oxon: Taylor & Francis 6th ed. Headley Byrne & Co ltd v Heller & Partners Ltd (1964) AC 465 in Reddy, J., & Johnson, H. (2011). Q & A Commercial Law 2011-2012. Oxon: Taylor & Francis 6th ed. Robinson v Mollett (1875) LR 7 HL 802 in Reddy, J., & Johnson, H. (2011). Q & A Commercial Law 2011-2012. Oxon: Taylor & Francis 6th ed. Solley v Wood (1852) in Reddy, J., & Johnson, H. (2011). Q & A Commercial Law 2011-2012. Oxon: Taylor & Francis 6th ed. Turnbull v Garden (1869) 20 LT 218 145 in Reddy, J., & Johnson, H. (2011). Q & A Commercial Law 2011-2012. Oxon: Taylor & Francis 6th ed. Turpin v Bilton (1843) 5 Man & G 455 in The Law of Agency, The Law of International Trade and Carriage of Goods. Accessed < http://www.nadr.co.uk/articles/published/shipping/002CHAPTER TWO TRADE5.pdf> 2 Nov 2011 Watteau v Fenwick [1893] 1 QB 346 in University of London External Programme Accessed < http://www.londoninternational.ac.uk/current_students/programme_resources/laws/subject_guides/commercial/commercial_ch2.pdf> 2 Nov 2011 Weigall& Co v Runciman & Co (1916) 85 LJKB 1187 in Munday Roderick and Munday R.J.C. LJKB 1187 Agency; Law and Principles (2009) Oxford, Oxford University Press The duties owed by agents to their principals may or may not be dictated by the express terms of the contracts between them Agency is an exception to the doctrine of privity in a contract in that a principal is bound by all acts of his agent by virtue of an agreement between him and the agent. Both law and specific terms of contract between them govern the duties owed by agents to their principals. Although a contract of agency is subject to the same rules as in any other contracts, there are certain terms implied such as fiduciary relationship between the principal and the agent which gives rise duties owed to the principal by the agent and rights he can exercise against the principal. In addition, a type known as ‘commercial agent’ also is subject the Commercial Agents (Council Directive) Regulations 1993 pursuant to European Union Law dealing with termination of agreement in respect of self-employed agents who arrange contracts for the sale or purchase of goods. As per these regulations, a duty is cast on the agents to act ‘dutifully and with good faith’ which term cannot be contracted out by a separate contract between them. Even in the case of gratuitous acts of an agent where there can be no contractual obligations, the agent has fiduciary duties which cannot be avoided merely because of lack of consideration. He will also be liable under torts. In Watteau v Fenwick (1893), hotel owner was held liable for the price of cigar bought by the manger who had been instructed not to buy other than mineral water and beer. This decision is still controversial since the agent acted against the instructions though the supplier assumed that the manager was the owner (Reddy & Johnson, 2011) (Sealy, Hooley, & Hooley, 2008). An agent’s duties regardless of the contractual terms between him and the principal are as follows. Duty to obey All lawful instructions of the principal must be obeyed by his agent. He should not also exceed his authority. This is applicable to both paid and gratuitous agent categories. However, if the instructions are not clear or ambiguous, he will not be liable for any omission or commission if he acts according to the reasonable interpretation of the terms as held in Weigall v Runciman (1916). If a paid agent does not act according to the instructions of the principal, he will be liable for loss caused due to his inaction or exceeding the authority. In Turpin v Bilton (1843), the agent did not insure the ship despite his principal’s instructions and hence was held liable in damages to the principal, as the ship was lost. It can also be proper on the part of the principal to end the contract with the agent for the omission even though there was no loss due to omission as a precautionary measure to avoid future loss due to his further possible omissions or simply as a matter of contractual right. A gratuitous agent who has no duty to act, is not liable for the complete failure to act and he has no liability in tort for negligent omissions. However, there are views that the agent ought to warn the principal that he has no intention to act as an agent. On this premise, a gratuitous agent in Turpin’s case would be liable if he has not warned the principal (Reddy & Johnson, 2011). In Headley Byrne & Co ltd v Heller & Partners Ltd (1964), it was held that the agent was liable for failure to warn the principal even though he had voluntarily taken the responsibility, though this principle is still not settled in English law. Duty of care and skill An agent is expected to exercise reasonable care and skill while acting on the authority of his principal. While a paid agent has a duty to act according to the customary type of practice in the type of business or work he has been engaged, an unpaid agent will be liable in tort commensurate with his actual skill. It is a question of fact as to failure or otherwise to comply with his duty. Unfair Contract Terms 1977 will be applicable in case of any attempt by an agent to exclude or limit his liability for not complying with his duty to exercise care and skill. The standard of care and skill depends upon each case. Thus, where the agent claims to belong to a profession, then his care and skill shown is verifiable against the standard expected of a competent member of that profession regardless of the degree of skill he may personally possess. The court will look into the fact whether the agent is a paid one or not in applying the standard of care and skill. In Chaudry v Prabhakar (1988), P asked her friend A to buy a car which had not involved in accidents. Though A was not a mechanic, he acted gratuitously and bought a car which later turned out to have been in involved in accidents as discovered by P. The court of appeal found A liable to P who sued him since he failed to exercise reasonable care and skill although his was a gratuitous act (Reddy & Johnson, 2011). Duty of personal performance This duty calls for personal involvement of the agent in that he should personally perform the task entrusted with him by the principal as he places principal trust in him. In De Busccche v Alt (1878), it was held that confidence reposed in the agent was the root of the contract of agency consistent with the principle delegatus non protest delegare. There are however, exceptions to this rule. The agent can however, delegate his duties if he is so authorised. Otherwise, he is liable for breach of duty. It follows that the principal is not bound by the acts of the sub-agent. The principal is estopped from claiming this right when the agent has the express authority to delegate. Thus, in De Busccche v Alt (1878), the agent who could not sell his principal’s ship at the places specified by the principal, took specific instructions from his principal to appoint a sub-agent which was held to be a permissible delegation of authority by the agent. Where the agent has an implied authority by virtue of customs in the trade or profession, delegation is valid. Thus, a solicitor based outside London was justified in appointing a London based solicitor to conduct litigation in London courts on his behalf for his clients as established in Solley v Wood (1852). Further, if the principal is aware of his agent’s sub-agents and does not object, at the time entering into contract of agency to his intention to delegate and where circumstances necessitate delegation in the case of Companies who are expected to act only through humans, the agent is justified in delegating his authority. Moreover, when the task delegated does not involve discretion such as signing documents or sending notes, agent is not considered to have breached his duty not to delegate. Thus, in Allam v Eurpoa Poster Service (1968), it was held that an agent, who was asked to revoke certain licences, was justified in engaging a solicitor to do the task of sending notices of revocation. However, in cases of real estate transactions, selling the principal’s property should not be delegated to sub-agents without the express authority of the principal since such an act is not pure ministerial act but it requires care and skill involving use of discretion. Failure to do so will entail forfeiture of commission (Reddy & Johnson, 2011). Duty to avoid conflict of interest This is a fiduciary duty on the part of the agent which enjoins upon him the duty of good faith regardless of his being paid or not. The duty is so strict that even if there is no actual conflict of interest, a possibility of a conflict would suffice. In Boardman v Phipps (1966), this duty was strictly applied in the case of a solicitor as the agent of his client acquired information regarding the value of certain shares held by him. He used the information for his own benefit in spite of his principal declining to do so. Though he acted in good faith, the House of Lords held that the agent must account for the profit he made as the information belonged to his principal (Reddy & Johnson, 2011). This rule stems from the principle that an agent should not purchase his principal’s property nor should act as agent for both the parties. In case of the agent being instructed to buy a property, the agent cannot sell his own property to his principal despite a custom in a market. For example in London tallow market, agents could do so as held in Robinson v Mollett (1875). Since the principal’s expectation is to get the best (lowest) price possible and agent’s intention is to sell at the maximum price possible, conflict of interest is unavoidable. As such, even if the agent has not sold at a higher price, there must be a complete disclosure on his part and the principal must have agreed to it. Duty not to make secret profit The agent is prohibited from making a secret profit in excess of the agreed commission. This is a strict rule even if the agent acts in good faith or caused no loss to the principal as held in Boardman v Phipps. Secret profit made, if any, can therefore be appropriated by the principal. This duty is applicable to unpaid agents also in held in Turnbull v Garden (1869). The Bribery Act 2010 The new enactment makes principals including employers liable for bribes accepted by their agents including employees whether within the U.K. or outside the U.K. Facilitation money accepted by employees/agents for speeding up the work is also a bribery for which employers/principals are responsible (Clarke, 2011).This is a new feature which prevents inclusion of terms in an agency contract repugnant to the Bribery Act 2010 Conclusion The above brief review of case law would show that contract of agency is both governed by express as well as implied terms of contract. It is not necessary that the implied terms should be expressly mentioned in a contract of agency. References Munday Roderick and Munday R.J.C. LJKB 1187 Agency; Law and Principles (2009) Oxford, Oxford University Press Reddy, J., & Johnson, H. (2011). Q & A Commercial Law 2011-2012. Oxon: Taylor & Francis 6th ed. Sealy, L., Hooley, R., & Hooley, R. (2008). Commercial Law; Text, Cases,and Materials . Oxford: Oxford University Press 4th ed. The Law of Agency, The Law of International Trade and Carriage of Goods. Accessed < http://www.nadr.co.uk/articles/published/shipping/002CHAPTER TWO TRADE5.pdf> 2 Nov 2011 University of London External Programme Accessed < http://www.londoninternational.ac.uk/current_students/programme_resources/laws/subject_guides/commercial/commercial_ch2.pdf> 2 Nov 2011 Read More