Agency Law Essay

The basic concept of an agency is concerned about the relationship between one person, the principal and another, the agent where a principal entrusts the business to an agent and allows the agent to act on behalf of the principal in dealing with third parties according to Section 135, Contracts Act 1950. For example, Sabrina instructs Ivan to purchase some goods on her behalf, Sabrina is the principal while Ivan is her agent. Therefore, the agent is granted the authority to fulfil his principal’s instruction to deal with third parties. The core of the agency relationship is built on trust. The principal must trust that the agent will work according to the terms of agency agreement and for the benefits of the principal. The principal could suffer loss off money, opportunity and reputation if the agent abuses his authority. Also, the agent must trust that the principal will pay for their work. The law of agency in Malaysia is governed by Part X of the Contracts Act 1950. Anyone can become a principal or an agent as long as the person is age of majority and of sound mind as stated in Section 136 and Section 137, Contracts Act 1950 respectively. Examples of agents including brokers, insurance agents, travel agents, and lawyers. Agents are important in business as they reduce cost to access to market conveniently and effective in sales distribution channel. Thus, an agency can takes effect in two types of contracts. The first contract is made between the principal and the agent who has his authority delegated by the principal to act for and on behalf of the principal. The second contract however is made between the principal and the third party. An agency can be formed in many different ways similar to creating a contract, contract of agency can either be express or implied depending on the circumstances. Express or implied agreement can form an agency contract where no consideration is needed. This also means that the authority of an agent can be expressed or implied. Express authority happens when the principal delivers an oral or written communication stating the nature of authority. The scope of an agent’s express authority is based on the appropriate construction of terms of the agreement. Therefore, instructions from the principal must not be ambiguous as the principal will bound to the terms when the agent had clearly interpreted the instructions in a manner not intended by the principal. For example, in Ireland v Livingston, the instructions from the principal was uncertain and can be interpreted into multiple possible manners. Implied authority however arises when it is inferred from the behaviour of the parties and the circumstances of the case. The case of Hely-Hutchinson v Brayhead Ltd clearly shown the creation of agency through implication. The Court of Appeal held that Mr Richards had authority to enter into the guarantee implied from the circumstances where he had entered various contracts on behalf of the company previously. For Sarah’s case, she has specifically appointed Ian as her assistant in helping her to manage the art gallery during her business trip. One can say that agency does not exist between Sarah and Ian as written agreement was absent. However, express appointment can be in written or oral form. In order to be effective in appointing an agent, a letter written or words spoken is adequate. In KGN Jaya Sdn Bhd v Pan Reliance Sdn Bhd, the court of Appeal held that the law does not require that an agency agreement must be in writing. Further, no formality is need to conduct express authority according to Heard vs Pilley 1869. The agreement of agency was created under express agreement and express authority has been delivered from Sarah to Ian when she instructed him to take care of the art gallery. Therefore, an agency is formed between Sarah and Ian when she arranged him to become her assistant. Ian as the assistant of Sarah acted as an agent which involve in negotiation for sales of goods on behalf of Sarah. Sarah also gave specific instructions to Ian that he is not allow to offer any discount on displayed items without consulting her and he is not to purchase any new item without verifying with her. In other words, Ian must seek the approval from Sarah before selling and buying items for the art gallery. Therefore, it is reasonable that no ambiguity shall arise as Sarah’s instructions are directed and interpreted clearly. There are a few duties toward the principal that an agent must follow. According to Section 164, Contracts Act 1950 an agent is bound to conduct the business of his principal according to the instructions given by the principal, or, in the absence of any such instructions, according to the custom which prevails in doing business. As an agent, Ian is bound to comply several duties towards his principal, Sarah. The first one is the duty of fiduciary. This is closely related to the law of trusts as the agent is expected to follow the principal’s instructions with honesty and integrity and to manage the business of the agency carefully with the skills he acquires to avoid making any mistakes in Section 165 of Contracts Act 1950. This can be used to protect the principal if the agent abuses his authority. In the case of Parker v McKenna, an agent is required to act for the best interest of the principal because fiduciary relation is referred as a principle “founded at the highest and truest morality”. If the agent’s action conflicts the interest of the principal’s, then the agent has violated the fiduciary duty. This is shown in the case of Armstrong v Jackson where the agent instead of purchasing shares for the company, he sold his own shares. It was conflicted with the principal’s interest as the principal wanted the lowest price possible. Therefore, Ian’s duty is to manage the art gallery carefully with good faith according to Sarah’s instructions and for the benefits of Sarah while not to make any unnecessary mistakes so that violation of fiduciary duty can be avoided. Next, every agent owes the principal the duty of reasonable care where the agent must take reasonable steps to protect the assets and interests of the principal. Failure to do so will lead to a breach of agent’s duty of reasonable care. For example in Keppel v Wheeler and Another, it was held that the agent was liable to pay the difference of the price of two offers as he ignored the second offer which proposed a higher price. Thus, in Sarah’s case, Ian has the responsibility to take care of Sarah’s assets including all the artwork in the art gallery while dealing with any third parties. In addition, agents also owe the principal the duty of obedience which requires agents to follow all lawful and appropriate instructions given by the principal in dealing with third party in the business. Agents will be liable for the damages as result from failing to obey principal’s instructions in accomplishing the purpose of the agency. Related cases including Turpin v Bilton where the agent was liable for the damages of failing to insure the ship while the ship was lost. In addition, in Bostock v Jardine, the agent was liable as he purchase more than what he was instructed. So, it is essential for Ian to follow exactly the instructions from Sarah in managing the art gallery which he must inform and obtain the approval from Sarah if he wants to make any business transactions of selling artwork or buying any items for the art gallery. It is also an important duty for agent to communicate with his principal in order to seek for suitable instructions by using all reasonable methods. Communicating with principal including submitting and informing all information that is relevant to the agency. Even in emergency situations, agents are required to obtain the instructions from the principal before making any decisions without the principal’s knowledge. In Springer v Great western Railway Company, the agent was liable for the damages as he fail to try to contact his principal and he sold the tomatoes. In Sarah’s case, it was straightforward that Ian must communicate with her before purchasing or selling any item for the art gallery according to her instructions. In duty of account, an agent must provide appropriate accounts when it is needed by the principal. Moreover, agents are not allowed to accept secret profits or take bribe in any kind of circumstances. In the case of Graham v Cummings 1904, the shareholder secretly negotiated in order to obtain a higher amount for his stock than other shareholders. The court held that an agent is not allowed to make secret profits without the consent from the principal in a business agency. Other than submitting relevant accounts when needed by the principal and not to create secret profit, an agent is also requires to pay sums received for the principal to the principal. Other duties of agent involved are not to disclose confidential information and not to delegate. When Sarah appointed Ian as her assistant to take care of the art gallery, he is not allowed to delegate the duty to others as the express authority was given to him only. Therefore, it is essential for Ian to perform his duty with diligence as a breach of duty will cause him to be liable for the damages. When an agent owes duties to the principal, in return the principal also owes a few duties to the agent. First of all, the principal must pay commissions as agreed to the agent. The agent has the right to receive it if he has done the job according to the terms in the agency agreement. For example in the case of Miller v Beale (1879), an auctioneer was employed to sell property and he has the right to receive his commissions. However, if the agent breach his duty to the principal, the principal may refuse to pay the agent. Marsh v Jelf (1862), a principal employed an auctioneer to sell property but the auctioneer sold it privately without the principal’s knowledge. It was held that the auctioneer has breached his duty to the principal and therefore commission was not entitled for him. Therefore it is the duty of Sarah to pay Ian if he has completed the job scope according to her instructions. Furthermore, the principal is not allowed to prevent the agent from obtaining his commission. Even if the transaction fallen through no fault of the agent, the agent still has the right to earn his commission. In the case of Alpha Trading v Dunnshaw Pattern (1981), an agent was in charge of making a contract for sale of cement between the seller and third party. However the seller failed to deliver and caused a breach to the contract of sale. Then, the commission was never received by the agent. It was held that the principal was liable to pay the agent his commissions. All costs incurred in carrying out the agency relationship, the agent is able to claim from the principal. This was shown in the case of Adams v Morgan (1924) where the agent incurred super tax in his process to following the principal’s instructions. Therefore, indemnity was claimed from the principal. However this is only applicable when the agent has completed authorized transactions within authority delegated from the principal and not available when the loss is due to agent’s own negligence or insolvency. So, Sarah owes the duty to indemnify Ian for performance done in carrying out his authority. An agency can be terminated in an identical steps or methods as in discharging a contract. Mutual agreement from both parties in an agency can terminate the relation of principal and agent. However, in Sarah’s case, she is able to terminate the agency or discharge the contract of agency by breach. Contract of agency is said to be terminated based on actions of agent. This can be explain based on Ian’s actions during Sarah’s absence. (i)Ian sold an art work which Sarah was unable to sell for nine years with a discount of 20% Ian’s action to sell this art work may be reasonable as it has been kept in the art gallery for nine years and Sarah has always wanted to sell it but fail to do so. If the customer is willing to purchase that piece of art work, Ian must inform Sarah. In this situation, Ian’s duty was only to negotiate the information regarding the art work with the customer even though he has acted in good faith to sell the art work. As the art work was sold to the customer without the consent from Sarah, Ian has breached the duty to communicate with Sarah which he should have inform Sarah about it. Ian not only sold the art work without communicating with Sarah, he also gave a discount of 20% to the customer. Ian could have been right as he has performed an act of good faith which he sold the art work for the benefit of Sarah as the art work was already kept in the gallery for nine years, but he has breached the duty as an agent when he gave out a 20% discount. It was understood that in Sarah’s instructions included not to give any discounts on displayed items in the gallery. When Ian gave out the 20% discount, he has breached his duty to follow proper instructions given by Sarah to conduct business with third parties. Therefore in this incident, Ian has breach the duty of obedience which is to obey instructions given by Sarah and the duty to communicate Sarah before making any business transactions. (ii)Ian bought a copy of famous art work and sold it as an original piece to Jake In the incident, Ian did not make any effort to communicate with Sarah to verify the buying and selling of that piece of copy art work. Both transaction were done without the consent from Sarah. As the transaction between Ian and Jake was done without the Sarah’s knowledge, Ian will be liable for the consequences and damages as he has breached his duty as an agent to follow Sarah’s instruction. According to Section 168 of Contracts Act 1950, it is the right of principal to repudiate such transactions made by the agent without the consent from the principal. Therefore, Sarah has the right to repudiate transactions made by Ian in buying and selling the copy of the artwork and terminate the agency as Ian has breached his duty. Furthermore, purchasing a fake art work and selling it as an original piece is considered against the law. The punishment shall be determined if Sarah bring the case to the court. (iii)Ian sold an art work which was reserved for another customer and he will obtain 15% of resale of the reserve painting Once again here, Ian has breached the duty of agent as he did not make any effort to communicate with Sarah. Ian should have contacted Sarah to obtain the permission to sell art work then he would not have sold that piece of art work which was reserved for another customer. This is considered as breach of duty to follow principal’s instructions. This time Ian did not give any discount to Amelia, but Sarah found out that he would obtain a profit of 15% of the re sale. Ian is considered as a disloyal agent as he used the agency to make secret profits. Moreover, he has breached the duty of agent which is not to make secret profit according to Section 168. The contract of agency can be terminated as he has committed the breach of duty as an agent. Therefore, in this incident Ian has breached the duty to perform according to Sarah’s instructions and he also committed a breach when he made secret profits for himself using the agency. In general, the conditions of the agency contract between Sarah and Ian are agent must follow instructions given by the principal and communicate and verify with the principal before buying and selling art work for the art gallery. It was concluded that the agent has breached condition of an agency contract and the principal has the right to revoke the authority of agent and thereby end the contract of agency. So, Sarah can terminate the agency agreement with Ian. Remedy is the way which the injured party enforces a right or correct a loss. The nature of the breach will determine remedies available to the injured party. The main purpose of remedy is to allow the innocent party to receive monetary compensation. The remedies to Sarah on Ian disobeying instructions are as following: (i)Claim for damages for breach of contract Other than terminating the agreement of agency with Ian, Sarah may also claim damages or losses due to acts of Ian who breached the contract as he failed to perform his job according to Sarah’s specific instructions. Sarah can claim the losses where Ian offered 20% discount to customer. (ii)Recovery of all profit which made by Ian Sarah also has the right to claim the benefits that obtained by Ian when he dealt with third parties without her consent. It is stated in Section 168 of Contracts Act 1950 that the principal may repudiate the business transaction made by the agent on his own account without the consent from the principal. Furthermore, it is the right of principal to receive the benefits obtained by agent when the agent deals on his own account in the business of agency in Section 169 Contracts Act 1950. Example of cases is Kribbs v Jackson 1957 Pennsylvania Supreme Court case, the agent who is in charge of collecting rent on property owned by the principal has secretly concealed amount of rent collected as his secret profit. It was held that all profits made by the agent belong to the principal. (iii)Refusal to pay the agent commission or other remuneration During Sarah’s absence, Ian has conducted a few business transactions without the consent of Sarah. Ian has breach his duty and therefore Sarah has the right to refuse to pay Ian commission. Ian must also bear all costs incurred in dealing with third party and he is not entitled to claim from the principal. According to Section 171 Contracts Act 1950, an agent is not entitled to collect any remuneration from the principal if the agent is guilty of misconduct in the business of the agency In conclusion, Ian as the agent appointed specifically by Sarah has violated the restriction of authority given by Sarah and caused breach to the agreement of agency. Therefore, Sarah can make decision to terminate the agency contract and can even refuse to pay commission to Ian. Furthermore, Sarah shall bring cases to court for relevant punishment.

The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the principal) to create legal relations with a third party.[1] Succinctly, it may be referred to as the equal relationship between a principal and an agent whereby the principal, expressly or implicitly, authorizes the agent to work under his or her control and on his or her behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him or her and third parties into contractual relationship. This branch of law separates and regulates the relationships between:

  • agents and principals (internal relationship), known as the principal-agent relationship;
  • agents and the third parties with whom they deal on their principals' behalf (external relationship); and
  • principals and the third parties when the agents deal.

In India, section 182 of the Contract Act 1872 defines Agent as “a person employed to do any act for another or to represent another in dealings with third persons”.[2]


The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A business owner often relies on an employee or another person to conduct a business. In the case of a corporation, since a corporation is a fictitious legal person, it can only act through human agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency.

A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. It is not always cost effective to check whether someone who is represented as having the authority to act for another actually has such authority. If it is subsequently found that the alleged agent was acting without necessary authority, the agent will generally be held liable.

Brief statement of legal principles[edit]

There are three broad classes of agent:[citation needed]

  1. Universal agents hold broad authority to act on behalf of the principal, e.g. they may hold a power of attorney (also known as a mandate in civil lawjurisdictions) or have a professional relationship, say, as lawyer and client.
  2. General agents hold a more limited authority to conduct a series of transactions over a continuous period of time; and
  3. Special agents are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time.


An agent who acts within the scope of authority conferred by his or her principal binds the principal in the obligations he or she creates against third parties. There are essentially three kinds of authority recognized in the law: actual authority (whether express or implied), apparent authority, and ratified authority (explained here).

Actual authority[edit]

Main article: Actual authority

Actual authority can be of two kinds. Either the principal may have expressly conferred authority on the agent, or authority may be implied. Authority arises by consensual agreement, and whether it exists is a question of fact. An agent, as a general rule, is only entitled to indemnity from the principal if he or she has acted within the scope of her actual authority, and may be in breach of contract, and liable to a third party for breach of the implied warranty of authority. In tort, a claimant may not recover from the principal unless the agent is acting within the scope of employment.

Express actual authority[edit]

Express actual authority means an agent has been expressly told he or she may act on behalf of a principal.

Implied actual authority[edit]

Implied actual authority, also called "usual authority", is authority an agent has by virtue of being reasonably necessary to carry out his express authority. As such, it can be inferred by virtue of a position held by an agent. For example, partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation. Other forms of implied actual authority include customary authority. This is where customs of a trade imply the agent to have certain powers. In wool buying industries it is customary for traders to purchase in their own names.[3] Also incidental authority, where an agent is supposed to have any authority to complete other tasks which are necessary and incidental to completing the express actual authority. This must be no more than necessary[4]

Apparent authority[edit]

Main articles: Apparent authority and Estoppel

Apparent authority (also called "ostensible authority") exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act, even if the principal and the purported agent had never discussed such a relationship. For example, where one person appoints a person to a position which carries with it agency-like powers, those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. If a principal creates the impression that an agent is authorized but there is no actual authority, third parties are protected so long as they have acted reasonably. This is sometimes termed "agency by estoppel" or the "doctrine of holding out", where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.[5]

  • Rama Corporation Ltd v Proved Tin and General Investments Ltd [1952] 2 QB 147, Slade J, "Ostensible or apparent authority... is merely a form of estoppel, indeed, it has been termed agency by estoppel and you cannot call in aid an estoppel unless you have three ingredients: (i) a representation, (ii) reliance on the representation, and (iii) an alteration of your position resulting from such reliance."

Watteau v Fenwick in the UK[edit]

In the case of Watteau v Fenwick,[6] Lord Coleridge CJ on the Queen's Bench concurred with an opinion by Wills J that a third party could hold personally liable a principal who he did not know about when he sold cigars to an agent that was acting outside of its authority. Wills J held that "the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put upon that authority." This decision is heavily criticised and doubted,[7] though not entirely overruled in the UK. It is sometimes referred to as "usual authority" (though not in the sense used by Lord Denning MR in Hely-Hutchinson, where it is synonymous with "implied actual authority"). It has been explained as a form of apparent authority, or "inherent agency power".

Authority by virtue of a position held to deter fraud and other harms that may befall individuals dealing with agents, there is a concept of Inherent Agency power, which is power derived solely by virtue of the agency relation.[8] For example, partners have apparent authority to bind the other partners in the firm, their liability being joint and several (see below), and in a corporation, all executives and senior employees with decision-making authority by virtue of their declared position have apparent authority to bind the corporation.

Even if the agent does act without authority, the principal may ratify the transaction and accept liability on the transactions as negotiated. This may be express or implied from the principal's behavior, e.g. if the agent has purported to act in a number of situations and the principal has knowingly acquiesced, the failure to notify all concerned of the agent's lack of authority is an implied ratification to those transactions and an implied grant of authority for future transactions of a similar nature.


Liability of agent to third party[edit]

If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, so long as the relationship of the agency and the identity of the principal have been disclosed. When the agency is undisclosed or partially disclosed, however, both the agent and the principal are liable. Where the principal is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party for breach of the implied warranty of.

Liability of agent to principal[edit]

If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage.

Liability of principal to agent[edit]

If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal's business.


An agent owes the principal a number of duties. These include:

  • a duty to undertake the task or tasks specified by the terms of the agency;
  • a duty to discharge his duties with care and due diligence;

An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party.

In return, the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate.


Mutual agreement also through the principal responding his authority. Through renouncing when agent hm self stop being an agent.when principal revoke.

The internal agency relationship may be dissolved by agreement. Under sections 201 to 210 of the Indian Contract Act 1872, an agency may come to an end in a variety of ways:

  1. Withdrawal by the agent – however, the principal cannot revoke an agency coupled with interest to the prejudice of such interest. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e.g., where the goods are consigned by an upcountry constituent to a commission agent for sale, with poor to recoup himself from the sale proceeds, the advances made by him to the principal against the security of the goods; in such a case, the principal cannot revoke the agent’s authority till the goods are actually sold and debts satisfied, nor is the agency terminated by death or insanity (illustrations to s. 201);
  2. By the agent renouncing the business of agency;
  3. By discharge of the contractual agency obligations.

Alternatively, agency may be terminated by operation of law:

  1. By the death of either party;
  2. By the insanity of either party;
  3. By the bankruptcy (insolvency) of either party;

The principal also cannot revoke the agent’s authority after it has been partly exercised, so as to bind the principal (s. 204), though he can always do so, before such authority has been so exercised (s. 203). Further, under s. 205, if the agency is for a fixed period, the principal cannot terminate the agency before the time expired, except for sufficient cause. If he does, he is liable to compensate the agent for the loss caused to him thereby. The same rules apply where the agent, renounces an agency for a fixed period. Notice in this connection that want of skill, continuous disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. Further, reasonable notice has to be given by one party to the other; otherwise, damage resulting from want of such notice, will have to be paid (s. 206). Under s. 207, the revocation or renunciation of an agency may be made expressly or implicitly by conduct. The termination does not take effect as regards the agent, till it becomes known to him and as regards third party, till the termination is known to them (s. 208).

When an agent’s authority is terminated, it operates as a termination of subagent also (s. 210).[9]

Partnerships and Companies[edit]

This has become a more difficult area as states are not consistent on the nature of a partnership. Some states opt for the partnership as no more than an aggregate of the natural persons who have joined the firm. Others treat the partnership as a business entity and, like a corporation, vest the partnership with a separate legal personality. Hence, for example, in English law, a partner is the agent of the other partners whereas, in Scots law where there is a separate personality, a partner is the agent of the partnership. This form of agency is inherent in the status of a partner and does not arise out of a contract of agency with a principal. The English Partnership Act 1890 provides that a partner who acts within the scope of his actual authority (express or implied) will bind the partnership when he does anything in the ordinary course of carrying on partnership business. Even if that implied authority has been revoked or limited, the partner will have apparent authority unless the third party knows that the authority has been compromised. Hence, if the partnership wishes to limit any partner's authority, it must give express notice of the limitation to the world. However, there would be little substantive difference if English law was amended:[10] partners will bind the partnership rather than their fellow partners individually. For these purposes, the knowledge of the partner acting will be imputed to the other partners or the firm if a separate personality. The other partners or the firm are the principal and third parties are entitled to assume that the principal has been informed of all relevant information. This causes problems when one partner acts fraudulently or negligently and causes loss to clients of the firm. In most states, a distinction is drawn between knowledge of the firm's general business activities and the confidential affairs as they affect one client. Thus, there is no imputation if the partner is acting against the interests of the firm as a fraud. There is more likely to be liability in tort if the partnership benefited by receiving fee income for the work negligently performed, even if only as an aspect of the standard provisions of vicarious liability. Whether the injured party wishes to sue the partnership or the individual partners is usually a matter for the plaintiff since, in most jurisdictions, their liability is joint and several.

Agency relationships[edit]

Agency relationships are common in many professional areas.

An agent in commercial law (also referred to as a manager) is a person who is authorized to act on behalf of another (called the principal or client) to create a legal relationship with a third party.

Agency relationship in a real estate transaction[edit]

Real estate transactions refer to real estate brokerage, and mortgage brokerage. In real estate brokerage, the buyers or sellers are the principals themselves and the broker or his salesperson who represents each principal is his agent.

Applications in jurisdictions[edit]

In English law[edit]

Main article: Agency in English law

Agency law in the United Kingdom is a component of UK commercial law, and forms a core set of rules necessary for the smooth functioning of business. Agency law is primarily governed by the Common law and to a lesser extent by statutory instruments.

In 1986, the European Communities enacted Directive 86/653/EEC on self-employed commercial agents. In the UK, this was implemented into national law in the Commercial Agents Regulations 1993.[11] Thus, agent and principals in a commercial agency relationship are subject both to the Common law and the Commercial Agents Regulations.

The Commercial Agents Regulations require agents to act “dutifully and in good faith” in performing their activities (Reg. 3); co-extensively, principals are required principals to act “dutifully and in good faith” in their “relations” with their commercial agents (Reg 4). Though there is no statutory definition of this obligation to act “dutifully and in good faith”, it has been suggested that it requires principals and agents to act "with honesty, openness and regard for the interests of the other party to the transaction". Two "normative precepts"[12] assist in concretising this standard of conduct:

"Firstly, expressing honesty and openness, commercial agents and principals must mutually co-operate in the performance of their agreement. Conduct in good faith requires that each party proactively take action to assist the other in the realisation of their bargain, as opposed to mere abstention from obstructive behaviour. However, whether a party has acted in good faith must not be determined by reference to a moral or metaphysical notion of co-operation; this assessment must be based on an objective appraisal of the actual commercial agency relationship. Accordingly, the intensity of the required co-operation will vary, depending on the terms of the contract and the pertinent commercial practices.

Secondly, commercial agents and principals must not exploit asymmetries in their agency relationship in such a manner that frustrates the legitimate expectations of the other party. In this respect, whether a conduct is in breach of the Obligation must be appraised holistically, considering all aspects of the relationship; material facts will include the contractual and commercial leverage of each party, their objective intentions as enshrined in the contract, and the business practices of the sector in question. Nevertheless, the starting axiom of this investigation must be that these are commercial relationships in which professionals are expected to be self-reliant and must be free to pursue their self-interest. Critically, this will not be an estimation aimed at achieving ontological fairness, a just bargain or equilibrium between the giving and receiving of commercial agents and principals".[13]

See also[edit]

Wikiversity has learning resources about School:Law


  1. ^"Document-Id: 911000",,  
  2. ^"Document-Id: 911000", 
  3. ^Cropper v Cook 1867
  4. ^Rosenbaum v Belson 1900
  5. ^"Document-Id: 911000",,  
  6. ^[1893] 1 QB 346
  7. ^e.g. GHL Fridman, 'The Demise of Watteau v Fenwick: Sign-O-Lite Ltd v Metropolitan Life Insurance Co' (1991) 70 Canadian Bar Review 329
  8. ^Restatement of Agency (Second) § 8A. Inherent Agency Power. "Inherent agency power is a term used in the restatement of this subject to indicate the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent."
  9. ^Pandia – Principles of Mercantile Law, 8th edition, by Ramkrishna R. Vyas.
  10. ^Law Commission Report 283 (Archived)
  11. ^Andrea Tosato (2010), An exploration of the European dimension of the Commercial Agents Regulations 
  12. ^Tosato, Andrea (2016-09-01). "Commercial Agency and the Duty to Act in Good Faith". Oxford Journal of Legal Studies. 36 (3): 661–695. doi:10.1093/ojls/gqv040. ISSN 0143-6503. 
  13. ^Tosato, Andrea (2016-09-01). "Commercial Agency and the Duty to Act in Good Faith". Oxford Journal of Legal Studies. 36 (3): 661–695. doi:10.1093/ojls/gqv040. ISSN 0143-6503. 


  • LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials (4th edn OUP 2009)

0 Thoughts to “Agency Law Essay

Leave a comment

L'indirizzo email non verrà pubblicato. I campi obbligatori sono contrassegnati *