Practice questions 179The amount of the indemnity cannot be more than one year’s pay, calculated by reference
to the agent’s actual pay over the previous five years or, if the agent has not worked for five
years, by reference to such time as he has worked.
The grant of an indemnity does not prevent the agent from seeking common law
damages.
Loss of indemnity and compensation
There are three circumstances in which neither indemnity nor compensation is payable, as
follows:
(i) Where the principal has justifiably terminated the contract on account of the agent’s
breach of contract.
(ii) Where the agent has himself terminated the contract. (Unless this was justified by
circumstances attributable to the principal, or unless the agent had become so old, ill
or infirm that he could not reasonably be required to carry on with his activities.)
(iii) Where the commercial agent, with the agreement of the principal, has signed over his
rights to a third party.
Essential points
n An agent is a person who has the power to alter the legal position of another person,
known as the principal.
n An agent cannot act on behalf of a principal unless he has some authority to do so.
n Actual authority arises because the principal agrees with the agent that the agent
should have the authority.
n Apparent authority arises because the principal represents to a third party that the
agent has authority. The principal cannot deny this once the third party has acted
on it.
n If a principal ratifies an agent’s act, the agent is regarded as having backdated actual
authority to perform the act.
n Agents owe both contractual and fiduciary duties to their principals.
n Apart from some exceptional circumstances which make an agency irrevocable, the
principal can withdraw the agent’s authority at any time.
n An agent may still have apparent authority even after the principal has withdrawn
actual authority.
n Agency is terminated automatically by frustration; by the death of either party; by the
insanity of either party; by the bankruptcy of the principal; or by bankruptcy of the
agent if this would render him unfit to perform his duties.
Practice questions
1 Padraig runs and owns a shop which sells collectable books. When Padraig goes to book
fairs he arranges that his friend Arthur should run the shop while he is away. Arthur is told