#13885 - Introduction To 'Commercial And Agency Law' - Commercial Law

Introduction to ‘commercial and agency law’

What is commercial law?

• Development comes from the lex mercatoria - law of the merchant

• It can be argued that the law of the merchant is the first form of international law

• In the past under the localised laws which may have been biased, merchants formed a law under themselves, the aforementioned law of the merchant

• Consisted of common trade practices – the typical trade practice.

• The custom of the merchant becomes the law of the merchant, and eventually became codified in the English common law in in 1893

• The first statute came about in 1893 regulating the sale of goods, The Sale of Goods Act 1893 – it is the starting point, and has since been further amended in 1979 and 2002

Consumerism

• Is the state of the law encouraging an environment of caveat emptor or caveat venditor?

• Caveat venditor meaning the buyer, let the buyer beware?

• Starting out in 1893, it was probably more caveat emptor, but now with more consumer legislation perhaps we live in a world of caveat venditor where the seller has to beware

What is the function of Commercial Law?

• The function of commercial law is to allow, so far as it can, commercial men to do business in the way they want to do it and not to require them to stick to forms that they may think to be outmoded. The common law is not bureaucratic (Lord Devlin, Kum v Wah Tat Bank)

• The edges of the law is fluid and that changes according to custom and what is accepted practice in the law of commerce

• The idea is that it is not prescriptive or to meddle in the affairs of commercial men

• Often the judges are simply giving their seal of approval to techniques developed by practicing lawyers who use the law as a ‘malleable resource which can be used instrumentally to achieve their clients’ ends’

• The judge’s work on the assumption that there is equality of bargaining power between commercial men.

Customs/usages of a trade/locality

• The Custom of the merchant had always been a fruitful source of law

• Customs would overrule, and delivers changes in the law. It is the biggest driver of change in commercial law

• A custom is a rule which has obtained the force of law in a particular locality and a usage is the settled practice of a particular trade profession

• A court may admit evidence of a trade custom or usage to imply a term into a commercial contract, for these purposes the custom or usage must be one the court will recognise

‘Agent’ and ‘Agency’

Possible definitions:

• ‘any person who happens to act on behalf of another (Lord Alverstone in The Queen v Kane)

• So if you have acted on behalf of another then you have been an agent, vice versa

• It is created in family, friend, and work situations

• If you are working for example GAP clothing company then you are in effect an agent of the company

• According to lecturer we live in a state of agency

• According to Sealy and Hooley a definition of agency is likely to be flawed and errors, must be treated with care

• According to the American Law of Institute it entails a fiduciary relationship, implying trust

Types of Agents

• General or special agent

• Mercantile agent

  • Effectively a mercantile agent is someone who typically has an authority to sell or to act, to buy, or to raise money on a security. Examples include an art dealer, a jewellery repairperson, or a jewellery salesperson.

  • In this situation, the agent has the power to act because the goods are in his possession, and he has done it and the item is gone. If they get a good offer they may sell it but what happens if the principal has not authorised them to sell it?

  • So we’ll look a lot at the power to act versus the right to act. Who gets the item the person who bought it in good faith? How should TP know it wasn’t his right to sell, versus the person who inherited the property – in his view that person has no right to sell

• Brokers

• Confirming Houses

  • Finance

• Forwarding Agents

  • Shipping

Principal Agent and Third Party

• It is a triangle, P is the principal, and is at the top, A is the agent, and T is the third party

• Question is, the contract that results from these three parties and the relationship between one another, enforceable between which party?

• In brief the agent brings the third party to the principle or introduces the third party to the principle, and then the agent takes his fee and walks away, and the resulting relationship is between principal and third party

• We can say that there is a contract of agency or agency agreement between principal and agent. A good example is a real estate agent, you will pay the agent that or perhaps the third party will pay, once you exchange the contracts the agent is gone

• Issue what happens if the agent does something he is not supposed to do? Does not meet your needs or finds you a property that does not meet your needs? Are you as principal still obligated to preform your contract?

• Roles: mutually exclusive? Can the principal also be the agent?

The Agent

• It is not always clear for whom the agent works

Some theories are used to define the and explain agency, there are three main schools of thought

Power liability theory

• The theory is simply this, where the principal grants legal powers to his agent to act on his behalf this creates liabilities and obligations between the principal and the third party

• In other words the agent possesses the power to affect the legal position and the principal is under a correlative liability to have his legal position altered by his agent

• So the power conferred by the law on the agent is a copy of the principal’s own power

• The natural conclusion is that the contract with the third party is that of the principal and not of the agent, which is why at common law the only person who may be sued is the principal and the only person who can be sued is the principal

• Focuses on the external side or side of the triangle

• One issue is that because it only focuses on the external – it does not look at the relationship between the principal and the agent, for instance what does the principal actually tell or allow the agent to do?

• Only looks at the liability on the basis that it only looks at the power or some power given to the agent

Consent theory

• Looks at the internal relationship and really says that the relationship between principal and agent is based on consent.

• The principal gives the agent some authority to act on his behalf, and the agent assents to having that authority, and the principal consents in giving the agent the authority to having that power

• Where the principal places trust and confidence in his agent, this gives rise to a fiduciary relationship

• Relates to the American Law of Institute, based on a fiduciary relationship – trust

• Shortcoming is that it only looks at the internal (largely ignores the external relationship between the principal and the third party)

Qualified consent theory

• Mcmeel advances this theory and looks at consent says that consent is qualified around or by the power and the liability that is created

• Tries to bridge together power liability and consent theory

• Note that no one theory seems to adequately define or explain the law of agency

• If the principal consents to the agent acting for him and the third party has relied on the objective appearance of consent, the law will protect the third party if his reliance was misplaced

The creation of agency

Express or Implied

• Express or by implied agreement. e.g. you hire an estate agent, you ask your friend to buy something for you

Representation

• Representation by the principal to the third party that the agent has authority, we call this agency by estoppel.

• The principal represents to the third party that the agent has authority to act, so it appears in the standpoint of the third party, that the agent is authorised to act, and the third party trusts this and then enters into the agreement with the principal.

• But then the principal says if we look at the agents contract, he is not allowed to do that.

• This is where the third party will enter and say hold on but you made a representation and now you are estopped from making that representation.

Principal ratifies the act

• The principal ratifies an act by someone who without authorisation purported to undertake that act as agent of the principal.

• So an agent may do some act and the principal always has, subject to a few requirements, the opportunity to ratify that act, so because the agent did not have authority to act at the time the principal if he so wishes can ratify the act, the effect being: the agreement is binding and allowed

Agency through necessity

• This is where an emergency situation breaks out, threatening the goods.

• Essentially agency created by law

Agency out of statute

• A regulated agent arising like, a commercial agent under EU regulations.

• Or where an unpaid seller exercises his right to resell goods under the Sales of Goods Act.

• If the seller act is unpaid then surely he can exercise his lien over the goods, and he can resell the goods, find a buyer who will pay.

Types of Authority

1. Actual Authority

• The actual authority of an agent is determined by the agreement between the principal and the agent, and is therefore a matter of contract construction: express or implied agreement.

• So if we have an agreement between principal and agent then this represents the actual authority of the agent

That actual authority is divided into express actual authority and implied actual authority.

Implied Actual authority

• Implied is trickier in the sense that it can be implied into the agreement by way what is customary and what is...