Chapter 8Types of business contract1 A general agenthas the power to act for his principal
in relation to particular kinds of transaction, e.g. an
estate agent.
2 A special agentis limited to acting for the principal in
respect of one specific transaction.
3 A mercantile agentor factor is defined under s 1(1)
of the Factors Act 1889 as an ‘agent having in the custom-
ary course of his business as such agent authority either to
sell goods or to consign goods for the purpose of sale, or
to buy goods, or to raise money on the security of goods’.
4 A del credereagentis an agent who, in return for
extra commission, guarantees that if the third party he
has introduced fails to pay for goods received, the agent
will indemnify the principal.
The nature of a ‘sole agency’ arrangement between a
seller of property and an estate agent was considered in
the following recent case.
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Foxtons Ltdv Bicknell(2008)Foxtons, a firm of estate agents, claimed £20,000 com-
mission when a buyer they had introduced to the defend-
ant while appointed as ‘sole agents’, but who decided
not to buy the property at that time, subsequently
bought the house through another estate agent. The
Court of Appeal held that estate agents cannot claim their
commission under a ‘sole agency’ agreement unless
they can show that introduced the buyer to the purchase
and not just to the property.Formation of agency
An agency is usually created by agreement between the
principal and agent, but in some situations an agency
can be created without such an agreement. The main
ways in which an agency can be formed are as follows:
1 Express appointment.This is the main way in which
an agency is created. A principal will expressly appoint
an agent either to carry out a particular job or to under-
take a range of transactions. The relationship between
the principal and agent will usually be contractual.
2 By implication.This form of agency usually arises
where there is a pre-existing agency relationship and it is
assumed by a third party that the principal has given the
agent authority to act as an agent in matters not covered
by the express appointment. This implied or ostensible
authority may arise from the position held by the agent.
For example, a company secretary has implied authority
to enter into contracts on behalf of a company which are
related to the day-to-day operation of the business (see the
Panoramacase which was discussed in Chapter 6 ).
3 By ratification.This arises where a principal retro-
spectively adopts a contract made on his behalf by an
agent. Ratification will only be effective if strict condi-
tions are met:
■the agent must have disclosed that he was acting for a
principal;
■the principal must have been in existence when the
agent entered into the contract, e.g. if the principal is
a company, the certificate of incorporation must have
been issued;
■the principal must have had the capacity to enter into
the contract not only when the contract was made but
also at the time of ratification;
■the principal must ratify the whole contract;
■ratification must take place within a reasonable time.
4 By necessity.This type of agency arises where a per-
son takes urgent action on behalf of another in the event
of an emergency. There will normally be some kind of
pre-existing contractual relationship between the par-
ties, e.g. a contract to transport perishable goods. The
person who purports to act as an agent of necessity must
show that he acted in the best interests of the ‘principal’,
his actions were reasonably necessary in the circum-
stances, and that it was impossible to contact the ‘prin-
cipal’ to obtain instructions.
5 By estoppel.This arises where a principal represents
that a person is acting as his agent. The principal will be
prevented (estopped) from later denying that the person
had authority to act as his agent. In Freeman & Lockyer
v Buckhurst Park Properties Ltd(1964), a managing
director of a company without the express authority of
the board, but without its knowledge, employed on behalf
of the company a firm of architects and surveyors for the
submission of an application for planning permission
which involved preparing plans and defining boundar-
ies. It was held that the company was liable to pay their
fees. The managing director had bound the company
by his acts, which were within the usual authority of a
managing director.The rights of the parties
Even the most straightforward agency creates complicated
legal rights between three parties: the principal, the agent