and a third party. The rights of the third party depend
largely on whether the third party is aware that he is
dealing with an agent. If the agent discloses that he is an
agent, he will drop out of the picture and the third party
can only sue and be sued by the principal. As we have
already seen in Chapter 7 , the common law rules
relating to privity of contract do not apply in agency situ-
ations. If the agent does not reveal that he is an agent,
either the agent or the principal can sue on the contract.
When the third party discovers the agency, he can
choose whether to sue the agent or the now-revealed
principal. Once he has made his choice of whom to sue,
the election is binding and he cannot change his mind if,
for example, the person he has chosen to sue cannot or
will not pay.
Sometimes an agent will act without authority or he
may exceed his actual or implied authority. The prin-
cipal will only be bound by the agent’s actions if the agent
is acting within the scope of his apparent (ostensible)
authority or through necessity or the principal ratifies
the contract. If none of the situations apply, the agent
will be liable to the third party for breach of warranty of
authority.
The duties of the principal and agent
The agent owes a number of duties to his or her prin-
cipal. These include:
■to carry out the wishes of the principal in accordance
with the agency agreement;
■to exercise reasonable care and skill;
■to carry out his duties personally unless there is ex-
press or implied authority for him to delegate his
duties;
■to account for all money and property received on
behalf of the principal and to keep proper accounts;
■not to take bribes or make a secret profit;
■to avoid a conflict of interest.
The agent has the following rights against the
principal:
■to be paid the agreed amount or, if no fee is agreed, a
reasonable amount;
■to be indemnified for any expenses incurred in per-
forming his duties;
■to exercise a lien over the principal’s goods and to
stop them in transit where payment is outstanding.
Termination of agency
The agency may come to an end either by the actions of
the parties or by operation of the law.
1 Termination by the parties.The principal and agent
may terminate their relationship by mutual agreement
or the agency contract may allow either party to termin-
ate by giving notice. Even if the contract does not pro-
vide for termination by notice, either party can end the
contract unilaterally by giving reasonable notice.
2 Termination by operation of the law.The relation-
ship will come to an end automatically with the death or
insanity of either party or by the bankruptcy of the prin-
cipal. The agency can also come to an end because of
frustration or illegality.Contracts concerning land
Every businessman must consider where he will locate
his operations. A sole trader, such as a painter and
decorator, may find that he can work successfully from
home. In many cases, however, the nature of the busi-
ness or the size of the operation will mean that separate
premises have to be found. One of the decisions that
must be taken is whether to buy or rent.
Transactions relating to land are governed primarily
by the Law of Property Act 1925. This subject will be
examined in detail in Chapter 15.Mortgages
A mortgage is a method of borrowing money on the
security of some property. The borrower (mortgagor)
transfers an interest in the property to the lender (mort-
gagee): the lender may realise this interest if the loan is
not repaid. Any kind of property (land, goods, insurance
policies) may be the subject of a mortgage but, in prac-
tice, most mortgage advances are secured on land.Contracts for financial services
Banking contracts
Banks provide a wide range of financial services to the
commercial customer from current accounts, loan andPart 3Business transactions