Essay: Agency theory

The agency theory is often connoted as he who acts through another, acts for himself…’.qui facit per alium, facit per se’. The expression can be described as a bilateral onerous, consensual contract whereby one party, the principal, authorizes another, the agent, to execute business on his behalf. There are essentially 3 parties involved in the agency theory. Firstly, the principal, who authorizes an agent to execute work on his behalf, secondly, the agent, who brings the principal into a binding relationship with a third party (Black, 2015, p. 338). For the present case in thought, Kallessi McTavish is the principal, who appoints Maya Stork as the agent to deal with suppliers, being the third party, for his hotel. However, agencies may be created by a set of ways, as discussed below. (Black, 2015, p. 346)
Express creation of authority, being a less formal manner, involves a conscious act on part of the principal to appoint an agent authorized to carry out his work. It may be agreed upon either verbally or in writing. Implied agency is created as a result of actions and circumstances the parties are involved in. Their actions project their intention to be in an agency relationship (Black, 2015, p. 343). Implied agreement is subdivided into constitution of agency either by conduct of the parties or via law.
Agency creation via ratification arises the principal allows an act which is being carried out in the name and behalf by another individual, the agent, who in fact, had no actual authority to act on his behalf when the act was done. The principal, who is the person ratifying an act of another person must have been in existence and have the necessary legal capacity to carry out that act himself both at the time when the act was done and at the time of ratification. Capacity can be seen as a factor in consideration on grounds of age, bankruptcy, infancy or mental incapacity. (Estate Agents Authority, 2011) Ratification must be timeous and should fulfil the clause of an agent acting as agent. The principal should be aware of all significant and material facts of the case.
The case in question involves Maya Stork acting as an agent to Kallessi McTavish who is the owner of the hotel. Maya is instructed by McTavish to take orders below 150 Pounds and consult her if it exceeded the permissible limit. Maya went beyond this limit only to make 5 orders for very expensive shampoos and shower gels, each exceeding the set boundary of allowance on orders.
Considering that McTavish has paid for two invoices and refuses to pay the pending ones, we can say that this is a case of ratification as it has fulfilled the requirements of an agency relationship to be held under ratification. There is an existence of a principal, Kallessi McTavish, who is the owner of the hotel and has appointed Maya to manage her hotel, implying a principal in existence. This is explained by the case law Kelner v Baxter 1866 where three purported directors bought goods on behalf of an unincorporated company and later got insolvent before payment of the goods. Here, no principal was in existence as the company was not yet incorporated. Another element of ratification is capacity and has restrictions on age, enemy aliens, and companies prior to incorporation. Under the case in hand, the principal, McTavish, has the necessary legal capacity to act.
The requirement of agent acting as agent is explained by the case Keighley Maxted & Co v Durant [1901] The case presents K& Co. authorizing Roberts to buy wheat giving a certain permissible limit he could buy at. Roberts failed to disclose himself to be acting as an agent and exceeded the limitation. Both the principal and agent refused to take the delivery. Here, K & Co could not be made liable as the seller had not known at the time the contract was made by Robert, acting for anyone other than himself.
In the case of Maya and McTavish, the agent was acting as an agent and got the order placed with the supplier. McTavish also accepted the payment for 2 orders.
Ratification also requires the principal to be aware of all material facts, as in this case, McTavish is later made aware of the 5 orders that have been placed beyond 150 Pounds each. The principal is hence aware of significant factors to the prevailing situation.
Agency creation is also possible through agency of necessity when there is genuine necessity and communication in the given circumstance is not possible providing that actions have been taken in the interest of the principal.
Emergency leads to creation of agency of necessity where the asset of a person faces danger of loss in any form hence making important to protect the asset by someone else who takes form of an agent. In this case, individual acting on behalf of the owner, acts as an agent of necessity. This form of agency arises when it is practically impossible for the agent to communicate with the principal before the agent acts on behalf of the principal. (This would be difficult to establish with today’s advanced communication systems and is the reason why agency of necessity does not often arise.) (Estate Agents Authority, 2011)
The case Great Northern Railway Co v Swaffield [1974] expresses genuine necessity where the case explains a railway was delivering a horse on behalf of Swaffield. Because of delays which were not the railways fault, the horse could not be delivered on time and the railway company, which did not know Swaffield’s name and address, put the horse in livery stables. Swaffield was liable to pay the livery costs as putting the horse in stables was acting out of necessity.
The last form of constitution of agency is holding out which requires representation by the principal, reliance by third party and the alteration of third party’s position.
Ostensible authority is given by the case law International Sponge Importers v Watt & Sons 1911 where the agent (the travelling salesman) was specified only to accept a certain means of payment which was later diluted and not objected by the principal. The agent turned out to be misusing the money for personal gain and when the company sued, it was held that the principal was responsible to bear the losses incurred in the transaction.
McTavish and Maya relationship of agency also depict ostensible authority where the behavior of the principal gives rise to an impression that the agent has been given the authority to act. These situations tend to arise when the principal has allowed a particular set of circumstances to continue, in the given case this would relate to the a payment of 2 orders that that were paid by McTavish. It created an impression to the seller that he has gained authority from the principal to act on his behalf. The condition of suffering a loss due to entering the transaction is evident from the compensation paid. (Black, 2015, p. 348)
To conclude, the principal, McTavish is responsible for bearing losses on the transaction as he has fulfilled all the elements of ratification. The case also depicts ostensible authority being depicted, implying that McTavish was aware of material facts, and has fulfilled all elements of ostensible authority, thereby making himself liable to pay for the losses. Maya Stork is hence protected from bearing compensations payable to the suppliers.
Scotland, being a part of the UK, follows its own distinct legal system. It follows many rules of law that are different from the ones followed in the rest of the UK. The Scottish legal system deals with both criminal and civil cases.
Scots law is classified into two categories ie. Civil law and criminal law. Civil law is, broadly speaking, about the rights and obligations of individuals and organisations. Criminal law, on the other hand, punishes people for things they’ve done to others. Serious crimes like murder and rape are dealt with by the criminal law as are some minor crimes like speeding or causing a disturbance in the street. (Scotland Shelter, n.d.)
The judiciary system of Scotland is distinct compared to rest of UK. Scotland has long had a unique court and criminal justice system which is very different to that within the rest of the UK. (BBC, 2014)
The Supreme Court is the final court of appeal in the UK for civil cases, and for criminal cases from England, Wales and Northern Ireland. It hears cases of the greatest public or constitutional importance affecting the whole population. (Supreme Court, 2015)
The Court of Session is Scotland’s highest civil court. It deals with all forms of civil cases, including delict (civil wrongs, referred to as “tort” in other jurisdictions), contract, commercial cases, judicial review, family law and intellectual property. The High Court of Justiciary is Scotland’s supreme criminal court. When sitting at first instance as a trial court, it hears the most serious criminal cases, such as murder and rape. A single judge hears cases with a jury of 15 people. The majority of cases are dealt with in the country’s Sheriff Courts unless they are of sufficient seriousness to go to the Supreme Courts at first instance. Criminal cases are heard by a sheriff and a jury (solemn procedure), but can be heard by a sheriff alone (summary procedure). Civil matters are also heard by a sheriff sitting alone. Less serious criminal matters are heard in Justice of the Peace Courts (in Glasgow, the Stipendiary Magistrate Court as well) at first instance (Judiciary of Scotland, 2015). The Court of the Lord Lyon is the heraldic authority for Scotland and deals with all matters relating to Scottish Heraldry and Coats of Arms and maintains the Scottish Public Registers of Arms and Genealogies (Lyon Court, n.d.). The Scottish Land Court is a Court of law. It has authority to resolve a range of disputes, including disputes between landlords and tenants, in agriculture and crofting. There is a close relationship between the Land Court and the Lands Tribunal for Scotland: they share the same offices, and the Chairman of the Land Court is also President of the Lands Tribunal (Scottish Land Court, 2015).
The scenario in the case study involves Kallessi McTavish who is the owner of the hotel. Maya Stork, who is the manager of the hotel is responsible for ordering supplies of various kinds as required but the individual order should not exceed by 150 pounds. Additional, terms and conditions are that no expensive shampoo and shower gels should be ordered. The regular suppliers are also familiar with the hotel restrictions. Despite, being aware of the restrictions, Maya made five order which cost more than 150 pounds and the final order included expensive shampoo and shower gels. The owner Kallessi paid for the first two orders, but is refusing to pay for the other three. Maya stork now fears that she might be liable for the cost of the expensive shampoo and shower gels.
It is explicit from the above description of the scenario that the offense committed by Maya Stork is of civil nature. Hence it should be dealt by the civil judiciary system. It is ideal to take the case to Sheriff Courts.
The Sheriff Court operates four procedures for cases of different value. These are small claims procedure for cases valued below £3,000 (excluding personal injury claims), summary cause procedure for cases valued between £3,000 and £5,000, ordinary cause procedure for cases valued over £5,000 and special procedure applies to all personal injury actions valued over £5,000 that have commenced after November 2009 (Brodies LLP, n.d.). Since this case does not involve monetary values above 3000 pounds, small claims procedure can be opted. A small claim is a type of court procedure. It is designed to be quick, cheap and easy to use. It is used where the value of the claim is up to (and including) £3000. There are three types of claim which can be raised under the small claims procedure. These are claim for payment of money, claim for delivery or recovery of moveable property and claim for implement of an obligation. Claims for payment of money can be used for the particular scenario. They are used to recover a debt. Examples include unpaid bills, expense incurred in repairing damage done to a car in a road accident, money owed from a loan, compensation for damage caused by faulty workmanship, goods ordered and paid for but not supplied.