Agency relationship and cases

A quick summary is here.

AGENT ACTING IN FRAUD OF PRINCIPAL;

The fact that the agent acted in his own interests and in fraud of his principal will not relieve the principal of liability if in fact the agents act was within the scope of his actual or apparent authority. In Hambro v. Burnard [98] an underwriter who was authorised by four other underwriters to act for them fraudulently underwrote on their behalf policies guaranteeing the payment of bills by a company of which he was a director and which was insolvent. The principals were liable on the policies. This rule is not confined to the case of a contract made by an agent.

A principal is bound by every act done by an agent in the scope of his authority, whether in contract or tort or otherwise, [99] “ A third party, dealing in good faith with an agent acting within his ostensible authority, is not prejudiced by the fact that as between the principal and his agent is using his authority in such a way that the principal can rightly complain that the agent is using his authority for his own benefit and not for that of his principal. “ But where the third party has noticed from the nature of the transaction that he is dealing with an agent who is exceeding his authority; the principal is not bound [2] and the fact that the agents acts are manifestly for his own benefit may amount to such notice .

[98] [1904] 2 K.B. 10, See also; Powis & Bryant Ltd. v. Quebec Bank [1893] A.C. 170 180.

[99] Lloyd v. Grace, Smith & C0. [1912] A.C.716. Polkinghorne v. Holland (1934) 51 C.L.R. 143. Morris v. C.W. Martin & Sons Ltd. [1966] 1 Q.B. 716.
United Bank Of Kuwait v. Hammond [1988] 1 W.L.R. 1051

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Agent or Employee receiving a Bribe or Secret Commission;

Where an agent receives from a third party a bribe, secret profit or commission in connection with his principals affairs his principal is entitled to claim it ; the same principle holds in regard to the relationship of employer and employee. [21] Thus the Crown can recover secret bribes received by a police officer, [22] or secret payments received by a soldier for using his uniform illicitly to smuggle goods past civilian police [23]; the employers right of recovery is not affected by the fact that the money was earned through a criminal act of the employee, nor by the fact that the employer has suffered no loss. In equity, a person in a fiduciary position is held to be a constructive trustee of a profit resulting from that position for the benefit of the person to whom he is accountable [25].

Where an agent, as the result of a bribe, induces his principal to enter into a contract with the person who paid the bribe, the principal may elect either to recover the bribe or damages for fraud (in respect of any loss sustained through the contract) from the agent. [26] The person who paid the bribe is similarly liable but double recovery is not permitted and the principal can only recover the amount of the bribe and any additional loss he can prove however he chooses to frame his action and even if he sues both the agent and the briber. [27] Where, however, the principal rescinds the transaction tainted by the bribe he does not have to give credit for the amount of the bribe as part of his duty to make restitution of benefits received under the contract even where he has already recovered the bribe from the agent. [28] A bribe is the payment of a Secret Commission ; proof of corruptness or corrupt motive is not necessary in a civil action. [29]

[21] Boston Deep Sea Fishing and Ice Co. Ltd. v. Ansell (1888) 39 Ch.D. 339; Lister v. Stubbs (1890) 45 Ch. D. 1.
Meadow Schama & Co. v. C. Mitchel & C0. (1973) 228 E.G. 1511.

[22] Att.-Gen. V. Goddard (1929) 98 L.J.K. K.B. 743.

[23] Reading v. Att.-Gen. [1951[ A.C. 507.

[25] Regal (Hastings) Ltd. v. Gulliver [1942] 1 All E.R. 378 ; [1967] 2 A.C. 134n.;
Phipps v. Boardman [1967] 2 A.C. 46.

[26] Mahesan v. Malaysia Government Officers Co-Operative Housing Society Ltd. [1979] A.C. 374

[27] Arab Monetary Fund v. Hashim (No.9) [1993] 1 Lloyds Rep. 543.

[28] Logicrose Ltd. v. Southend United F.C. Ltd. [1988] 1 W.L.R. 1256

[29] Industries and General Mortgage Co. Ltd. v. Lewis [1949] 2 All E.R. 573.

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Estate Agents;

The majority of cases on commission concern that payable to estate agents. [79] The principles are however of general application. The decisions turn on the words used in the particular agreement. The difficulties have arisen because estate agents have frequently considered that their task is completed and that they should therefore be entitled to commission when they introduce to their principal (the potential vendor in this case) a person who shows a real interest in buying. This stage is normally reached when the potential purchaser makes an offer “Subject to Contract” or “Subject to Survey” or subject to some other condition. But in law such an offer, even if accepted, does not create a contract between the potential purchaser and the potential vendor [81]. The contract is not made until the parties exchange contracts. [82] There is a third stage to the transaction, completion, at which the vendor hands the title deeds to the purchaser in exchange for the purchase price.

The agent is engaged to bring about a sale, but he generally wants his commission before the sale, i.e. at the “subject to contract” stage . He is free to stipulate whatever event he wishes in his agency contract, but it is the common understanding of men that the agent’s commission is payable out of the purchase price on the sale of the property” [83] and it requires fairly clear words to entitle the agent to commission if no sale is made. [84]

[79] Murdoch, Law of Estate Agency and Auctions (3rd ed., 1994) Murdoch (1975) 91 L.Q.R. 357; Ash , Willing to Purchase (1963)
[81] Chillingworth v. Esche [1924] 1 Ch. 97 The position is further affected by s.2 of the Law of Property (Miscellaneous Provisions ) Act 1989.
[82] Eccles v. Bryant [1948} CH 93.
[83] Dennis Reed Ltd. v. Cooper [1941] A.C. 108, 129; Midgley Estates Ltd. v. Hand [1952] 2 Q.B. 432, 435-436. H.W. Liebig & Co. Ltd. v. Leading Investments Ltd (1986) 25 D.L.R. (4th) 161.

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Exercise of care and skill.

An agent acting under a bilateral contract must exhibit such a degree of skill and diligence as is appropriate to the performance of the duties that he has accepted [60]. In particular, a professional agent must show the degree of care to be expected of those in his profession [61]. But he is not responsible to his principal for a mere mistake or error of judgment, not amounting to a failure to exercise proper care or skill [62] and the mere fact that by a different course of action he might have averted a loss sustained by his principal is no evidence of such a failure [63]. Where the agent has a discretion to exercise, he must exercise it with due care and in his principal’s interests [64]. An agent must, in general, keep his principal fully informed [65] and must act with the necessary amount of speed and diligence [65]. If the agent cannot carry out his instructions he must inform the principal without delay [67]. Where an agent is employed to sell property, his duty does not cease when he has procured an offer of purchase which is accepted Subject to Contract; until final contracts have been signed he remains under a duty to inform the Vendor of any better offer which he may receive [68]. He must also inform the vendor of anything coming to his knowledge which is likely to influence his principal in the making of the contract.

[60] Harmer v. Cornelius (1853) 5. C.B. (n.s..) 236; Commonwealth Portland Cement Co. Ltd v. Weber [1905] A.C. ;
Weld Blundell v. Stephens [1920] A.C. 956; Lage v. Stemmens Bros. & Co. Ltd. (1932)42 Ll.L.Rep 252;

[61] Lamphier v. Phipos (1838) 8 C.& P. 475; Lee v. Walker (1872) L.R. 7 C.P. 121; Simmons v. Pennington & Son [1955] 1. W.L.R. 183; Lister v. Romford Ice and Cold StorageCo. Ltd. [1957] A.C. 555. 572-573;

[62] Comber v. Anderson (1808) 1 Camp. 523; Nitrate Producers Co. v. Wills (1905) 21 T.L.R 699; Whitehouse v. Jordon [1981) 1 W.L.R. 246:

[63] Commonwealth Portland Cement Co. Ltd. v. Weber [1905] A.C. 66

[64] Gokal Chand-Jagan Nath v. Nand Ram Das-Atma Ram [1939] A.C. 106; Morten v. Hilton [1937] 2. K.B. 176n.

[65] Sill v. Thomas (1839) 8 C & P 762; Johnson v. Kearly [1908] 2 K.B. 514; Duncan Properties Ltd v. Coles Knapp & Kennedy [1959] E.G.D. 221

[66 Callander v. Oclrichs (1838) 5 Bing. N.C. 58; Barber v. Taylor (1839) 5 M.& W. 527; Porter v. Equitable Bank (1921) 8 Ll.L Rep.291, 32;

[67] Salvesen & Co. v. Rederi A/B Nordstjernan [1905] A.C. 302; Hood v. West End Moter Car Packing Co Ltd. [1917] 2 K.B. 38,47;

[68] Keppel v. Wheeler [1929] 1 K.B. 577:

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Gratuitous Agents;

It used to be said that a gratuitous agent (whose liability, lies only in tort, as stated above) owes duties of a different type; he is only liable for the care which he exercises in his own affair.[70] But such categorisation, even if the test is interpreted objectively [71] has long seemed obsolete; and it has recently been said that the standard appropriate is that which might reasonably be expected in the circumstances [72]. On this basis the difference between such an agent, and one who is paid, becomes one of degree only.

[70] Wilson v. Brett (18430 11 M.&.W. 113 ; Beal v. S.Devon Ry. (1864) 3 H.& C. 337; Grill v. General Iron Screw Collier Co. (1866) L.R. 1 C.P. 600 612.; Giblin v. McMullen(1868) L.R. 2.P.C. 317, 336; Moffat v. Bateman (1869) L.R. 3. P.C. 115.

[71] Gomer v. Pitt & Scott (1922) 12 Ll.L Rep. 115:

[72] Chaudhry v. Prabhakar [1989] 1W.L.R. 29 following dicta in Houghland v. R.R.Low (Luxury Coaches Ltd) [1962] 1 Q.B. 694 which were also followed in Avery v. Salie (1972) 25 D.L.R. (3d) 495)

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Honesty…..Bribes;

An agent is normally a fiduciary and as such owes special duties to prefer his principal’s interests to his own. Although there are dicta that the agents duties are based entirely on the contract between principal and agent the fiduciary duties are well established and to some extent counterbalance the strict rules on implication of terms at common law. In any case, not all agents act under a contract. It results from this that the taking of bribes or secret discounts or commission, or the entering into agreements on the understanding that such payments will be forthcoming from the party negotiated with, is a breach of these duties which will justify dismissal of the agent and negative any right to remuneration or indemnity, [80] whether or not the principal has suffered loss as a consequence . If normal commission has been retained by the agent, the principal may recover it, and if it has not been paid he is not bound to pay it. The agent is liable to the principal in a proprietary action for the full amount of the bribe ; and is also liable in damages for deceit, subject to election between these remedies which becomes final on judgment. The briber is similarly liable. The principal is not, however, entitled to double recovery, but can only recover the amount of the bribe and any additional loss he can prove; satisfaction of judgment against one will bar an action against the other even for any excess. Practices permitting undisclosed commissions will not be upheld.

If the principal knows, however, that the agent is receiving a payment from the other party, or leaves it to the agent to look to the other party for remuneration, and makes no objection, he cannot afterwards claim a breach of duty. Thus an assured was held not entitled to recover brokers the commission allowed them by underwriters for prompt payment, because he knew that some payment might be made.