Contract Law in Scotland - Assignment Example

? COMMERCIAL LAW I (SCOTTISH LAW) A) Explain the ways in which the contract of agency may be constituted An agency contract is when a person acts on behalf of another person or to represent them in dealing with a third party through a mutual agreement and will be bound by the acts of such another person with the third party. The law of agency is based on the general terms that an individual ( the principal) can get to have whatever he can do by himself done by another person (an Agent) on their behalf and be bound by such acts. The principal therefore authorises the agent who works under their control to perform certain duties on their behalf for example, do a negotiation to bring him and the third party to a contractual agreement (Wylie & Crossan, 2004: p 23). The principal can expressly or implicitly permits the agent to perform certain tasks on his behalf which will lead to a binding contractual accord between the principal and the third party but the contract is signed by the agent. In this case, the principal will be legally bound by the actions the agency relationship which exists between agents-principals, agents-third and Principals-third parties and all the parties in the cycle are bound to the agreement, the agency cycle comprises of: Agent: this is the person who enters and performs duties and activities on behalf of the other person (the principal) with the third party and has authority to create a binding relationship or agreement between the principal and the third party. The agent negotiates, performs and enters into binding engagements on behalf of another person with the third party. Principal: This is the person who hires an agent to act on his/her capacity with the third party and is bound by the actions of the said agent in engagements with the third party. Third party: this is the party to which the agent will enter into a contractual agreement with on behalf of the principal, and agent acts as an intermediary between the person he/she is acting on behalf and the third party. Any individual who has a contractual capacity can be able to appoint an agent to act or transact on his or her behalf. This must be persons who have attained the age of majority and must be of sound mind. An agency agreement can be express or implied by which the principal entrusts the agent to transact in his name or on his behalf. An agent must therefore operate within the instructions and capacity given by the principal and this will bind the principal in the contractual agreements he or she creates with the third parties which means that the law of agency is based on both implied and express terms. An agent has several duties he/she owes to the principal and must not act outside the scope or mandate provided by the principal. These duties can be summarized as below; The agent must ensure that he/she operates within the specified terms of agency agreement. If the agent ignores the directives of the principal in entering into an agreement with the third party then he/she will be held liable. The agent must therefore follow instructions given by the principal. The agent must carry out his/her duties with due diligence, skill and high level of professionalism to protect both parties from unnecessary breach of contract and subsequent compensation for the same, and this must be followed whether the agency agreement is written or oral. The agent must not act out of his own benefit at the expense of the principal and all dealings must protect the interest of the principal. The agency relationships to occur, all the parties must understand the terms of engagement and the roles each of the is required to play within the framework of the agreement and the agent must have intension to work for the principal, though no consideration is necessary, there must be an agreement between the principal and the agent, oral or written. This relationship can be described as below: Therefore, before the contract of agency is constituted, several essentials are mandatory: The agency agreement must be based on a contract, whether written or oral and the contract can either be express or implied. The appointment of the agent must take place as that is the person who is going to enter into a contractual agreement with the third party, and the principal must have legal capacity to enter into such a contract and give the agent the directives and the limits within which to work on his/her behalf. The agency agreement can be constituted between the three parties in the following ways; Agency by express agreement; in this kind of agency agreement, express actual authority is given to the agent by the principal that he or she may act on behalf of a principal and this authority arises by consensual agreement by all the parties. An agent is only entitled to protection from the principal and the third party if he or she has acted within the scope and limit of the actual agreement, and may be in breach of contract, and liable to a third party for breach of the said contract, the agent must therefore act within the scope of his/her mandate as provided for in the agreement. Agency by implied agreement; the implied agreement can be of several types namely; agency by estoppels, agency by holding out and agency by necessity In the implied agreement, the agent has the authority to act on behalf of the agent by virtue of being reasonably necessary to do so, and this can be by nature of the position held by the agent or from the conduct of the parties which means that the scope of the agent`s activities can be determined by the facts and circumstances of the situation at the time. By estoppels; this situation is implied from the conduct of the parties when a person knowingly led another to believe on circumstances or facts and the other party acts on that belief, he/she is barred or estopped from denying the truth or the agency relationship. If the principal does not contradict the statement of the agent and the third party then the principal will be bound by this contract, and the rule of evidence must be applied as it must be proved beyond doubt. (Mcfadzean et al, 2006: p 5). By holding out; where a person permits another by a long course of conduct to pledge his credit for certain purposes, he/she is bound by the act of such person in pledging his credit for similar purposes. The person will be held liable as it is the principal and is bound by the acts of the agent. By necessity; this is a case where extraordinary or very urgent circumstances require that a person who is not really an agent to act as an agent of another and in this situation there must be an actual necessity or a real emergency to act on behalf of the principal. There can be an impossibility to either communicate or get instructions from the principal (White & Wilock 1999: p 54). This forces the agent to act without the principal`s consent. All these must be done in the interest of the principal. In this case the principal and the third party will be bound by the activities of the agent. Agency by ratification; this is a kind of confirmation or approval of a previous unauthorised deed relating to a contract. When a person misrepresents himself or herself as another`s agent without the knowledge of the person, when in fact he/she is not, and the purported principal ratifies (accepts) expressly or impliedly the unauthorised activities, both the principal and the thirty will be bound by the same, and this also includes acts of agents committed outside the scope of their authority and clear instructions given and the principal accepts the acts, the principal and the third party are not bound to the contract unless the principal ratifies the contract. (Macqueen & Thomson, 2000: p 14).. By operation of the law; this arises where the law treats one person as an agent of the other and this depends on the specific laws in different jurisdictions. (B) Advise to ‘Crumbly Caravans Ltd.’is The following is my advice to the Client (Crumbly Caravans Ltd), based on reference to the Scottish Law: In this case, Yvonne is the principal; Dave is the agent and Crumbly Caravans Ltd the third party. Dave as the agent had the responsibility to perform his duties following Yvonne`s clear instructions, under Scottish law. Yvonne had expressly stipulated that Dave was not to pay more than ?5,000. Yvonne`s instructions are very clear and therefore Dave cannot complain of any ambiguity in her statement of instructions. Dave acted in such a way that he breached Yvonne`s express instructions. Though he could not get the kind of caravan that Yvonne wanted for ?5,000, he went outside his scope and clear instructions given by Yvonne to enter into a contract with Crumbly Caravan Ltd for purposes of buying a caravan at ?7,000, ? 2000 above the Principal’s express will. As an agent, Dave should have acted in good faith and not to accept any new obligations that are inconsistent with the duties and instructions given by Yvonne. An agent is only entitled to indemnity from the principal if he or she has acted within the scope of the actual agreement, and may be in breach of contract, and liable to a third party for breach of the implied contract. Also, as an agent Dave ought to have disclosed to Crumbly Caravans Ltd that he was buying the Caravan on behalf of someone else. Dave did not identify himself as an agent, and never identified the principal, he is, therefore, held personally liable. If an agent identifies himself as one but declines to identify the principal, they will incur personal liability. If the agent does not disclose that he/she is acting as an agent, they will be held personally liable. Dave therefore concealed crucial information that could help Crumbly Caravan Ltd not to enter into a contract that is beyond his scope. Apart from the need to comply with all reasonable instructions given by Yvonne, Dave has the duty to communicate to Yvonne all the necessary information available to him in the course of the contractual agreement. He went ahead and entered into a contract with Crumbly Caravans Ltd without informing Yvonne of the available Caravan`s price change and only informed her after he had sealed the deal which was beyond his scope. Dave will therefore be liable to both Yvonne and Crumbly Caravans Ltd for any loss caused because it is evident that Yvonne, by giving instructions to Dave cannot thereby expand her obligations beyond those she has expressly given. From the case under review, it is evident that an agent in as contractually bound as the principal and can in the event of any loss or damages incurred beyond the scope or instruction given by the principal can shoulder immense liability. The law of agency under Scottish legal framework, therefore, limits the degree of involvement an agent should accept in handling responsibilities for the principal. As such, any crucial information that significantly alters the original scope and provided by the principal must be promptly communicated and accepted or declined by the same principal before a contract is entered into. For Dave to have proceeded with the contact without the principal’s involvement legally implies he chose to shoulder the additional liability beyond ?5000. He should therefore pay for the extra price to avoid possible litigation from both the principal for damages suffered due this convenience and the third party, Crumbly Caravans Ltd for financial damages that arose as a result of declined delivery. Bibliography WYLIE, A. B., & CROSSAN, S. J. (2004). Introductory Scots law: theory & practice. London, Hodder Gibson. MCFADZEAN ET AL. (2006) “Introduction to Law and Legal Obligations, Dundee University Press MACQUEEN H. AND THOMSON J.(2000) “Contract Law in Scotland”,Butterworth’s. WHITE R. AND WILOCK I.D.(1999) "The Scottish Legal System 2nd Ed., Butterworth’s Read More