Wednesday, October 21, 2009

COMMERCIAL LAW

Distributorship and franchise The distributor or franchisee is a principal who sells a particular brand of product (e.g. Volkswagen cars) or runs a business developed by the franchiser. The consumer, who buys goods from either type of business, enters into a contract with the immediate seller and not with the original supplier or franchiser. Whether someone is an agent or a principal will depend on the particular circumstances: for example, was it the intention of the parties that goods supplied would be resold by the recipient acting as principal, or that the goods would be sold on behalf of the principal. See WT Lamb & Sons v Goring Brick Co [1932] 1 KB

The key characteristics of an agency are:

a) The agent acts on behalf of another (the principal) so
that the principal is bound and can sue or be sued by
the third party on the contract made by the agent

b) the agent is not liable on the contract between the
principal and the third party

TYPES OF AGENTS

General agent and special agent

A general agent acts for a principal in the ordinary course of that agent’s business; a special agent has authority only for a particular purpose that is not part of the ordinary course of
business for such an agent. A solicitor would be a general agent if authorised to undertake a range of legal work for a client, but a special agent if only authorised by the client to sell a house.

Factor and mercantile agent

A factor is an agent who is entrusted with the possession of goods or documents of title to goods and who is allowed to sell them in the factor’s own name as a principal (Baring v Corrie [1818] 2 B & Ald 137) or in the principal’s name (Stevens v Biller [1883] 25 Ch D 31). The factor has generally been superseded by the mercantile agent.

A mercantile agent is an agent who, in the customary course of business, has authority to sell or to consign goods for sale, or to buy goods, or to raise money on the security of goods (Factors Act 1889, s.1(1)). The general rule is that handing over goods or documents of title to another does not give that person authority to sell, so that anyone buying the goods will not acquire good title: handing over a car to a mechanic for repair does not constitute an authority to sell the car. A disposition by a mercantile agent is an important exception to this general rule.

Factors Act 1889, s.1 (1), 2(1), (2); Weiner v Harris [1910] 1 KB 285;Official Assignee of Madras v Mercantile Bank of India Ltd [1935] AC 53; Jerome v Bentley & Co [1952] 2 All ER 114). Of course, while the Factors Act provides the third party with rights in the goods so disposed, it does not exempt the mercantile agent from liability to the owner of goods for any breach of authority.

A mercantile agent must conduct a business of dealing in goods: a shop assistant sells goods in the course of the business of another (the shop owner) and, therefore, is not a mercantile agent (Lowther v Harris [1927] 1 KB 393; Sealy and Hooley, pp.343–5). The Factors Act does not expressly exclude the possibility of someone acting as a mercantile agent in a one-off sale, although it does refer to a mercantile agent as someone ‘having in the customary course of his business as such agent’ authority to dispose of goods, which might suggest past – or the prospect of future – such business.

Other agents

Broker: A broker negotiates contracts between a buyer and a seller without having possession of the goods or the documents of title (Baring v Corrie (1818) 2 B & Ald 137).

Produce brokers are key players in the commodity markets and exchanges. Some act for both buyers and sellers by virtue of the custom of particular markets.

Commission agent: A commission agent (or commission merchant) buys or sells goods on
behalf of the owner, but does not establish a contractual relationship between the owner and the third party. The commission agent acts as principal in the contract with the third party. Nevertheless, this agent owes to the owner all the duties of an agent to a principal.

In a sale the agent is liable to the third party (the buyer) for breach of the implied terms as to quality. In a purchase of goods, the agent is liable to the third party (the seller) for the price, but is not liable to the principal for the quality of the goods. Such agents are familiar in civil law jurisdictions. But there has only been a limited acceptance of the idea in English law (Ireland v Livingston (1872) LR 5 HL 395; Robinson v Mollett (1875) LR 7 HL 802) and, in spite of the attractions of this type of agency, it cannot be regarded as part of English law (but
see Aluminium Industrie Vaassen bv v Romalpa Aluminium Ltd [1976] 1 WLR 676, section

The concept of someone who is simultaneously principal and agent does not fit
easily into English agency law because it does not conform to the idea of an agent as one who is able to alter the legal relations between the principal and a third party. English law has, instead, opted for the much less satisfactory idea of the undisclosed principal (see section 3.2).

Confirming houses Confirming houses act for overseas buyers wishing to obtain goods
in English markets. The confirming house can operate in a number of different ways, according to the wishes of the buyer. A confirming house may simply buy and sell without any suggestion of agency, or it may act as an agent for the buyer, or it may act as agent for the buyer and separately undertake to the seller that the buyer will perform (known as confirmation) (see Sobell Industries Ltd v Cory Brothers & Co [1955] 2 Lloyd’s Rep 82).

Forwarding agent A forwarding agent undertakes the transmission of goods for the
principal and is personally liable for the freight charges, which are recoverable from the principal. Such an agent must also exercise reasonable care in relation to the goods.

Del credere agent A del credere agent indemnifies the principal against loss incurred by the third party’s breach of contract in respect of payment, although not in respect of any other breach (Gabriel & Sons v Churchill & Sim [1914] 3 KB 1272). An exporter, who is uncertain about the financial status of a foreign buyer, might find such a guarantee attractive, although the modern tendency is to obtain a confirmation from a confirming house or to rely either on a documentary credit, under which a bank pays the seller on the presentation of certain documents (see Chapter 8), or on credit guarantees, which provide that in the event of the
buyer failing to pay the guarantor will be liable.

CREATION OF AGENCY:

An agency may be created by express agreement between the principal and the agent, where there is a representation by the principal to a third party that the agent has authority (agency by estoppel), where the principal ratifies an act without prior authorisation, where there is an agency of necessity and where agency arises under statute (Sale of Goods Act 1979, s.48(3), RV Ward Ltd v Bignall (1967)

Consent

An Agency is created by the consent of both parties. Where an agency is created by agreement no formalities are normally required. Acting out of friendship or without payment does not preclude agency (Chaudhry v Prabhakar [1989] 1 WLR 29). The appointment may be made orally or inferred from the conduct of the principal. The agent may accept expressly of inferred. For agency to exist,the agent must have some autonomy and not merely perform ministerial function. However, lack of total control does not preclude agency (stockbrokers,etc). If the parties put their agreement into a contractual document, then the court will interprete this as their true intention AMB Imballaggi Plastici SRL v Pacflex Ltd [1999] 2 All ER (Comm) 249; Mercantile International Group plc v Chuan Soon Huat Industrial Group plc [2002] EWCA Civ 288).

Power of attorney

It is commonplace to appoint an agent by executing a power of attorney under the Power of Attorney Act 1971 to overcome the practical difficulties the agent might have in establishing their authority to the satisfaction of third parties. The Enduring Powers of Attorney Act 1985 permits a power of attorney that will continue in spite of the subsequent mental incapacity of the donor, although in that situation the attorney (that is, the agent) must not act (subject to certain xceptions) until the power of attorney has been registered by the court. Under the Act the attorney and third parties are entitled to protections in certain situations where the power of attorney proves to be invalid or is revoked (s.9, Enduring Powers of Attorney Act 1985).

Normally, an agency will be established by consent of both parties. The parties can create the agency by a written agreement (for example, power of attorney), but it is also possible to imply the existence of the agency from the spoken words or the conduct of the parties.