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CHAPTER 2

THE WEAPONS OF LAW

2.7THE EFFECT OF AGENCY
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When a principal endows an agent with actual authority to contract, the principal is bound, as regards third parties, by all acts of the agent which are done within the limits of that authority.22

Also, the principal may, by words or conduct, create an inference that an agent has authority to act on behalf of the principal even though no authority exists in fact. In such a case, if the agent contracts within the limits of the apparent authority, although without any actual authority, the principal will be bound to third parties by the agent’s acts.23



A principal who expressly authorizes an agent to make a statement which the principal knows to be false, or who knows that the agent has made or will make such a statement, yet deliberately does not intervene, will be liable in the tort of deceit.

So, for example, a landlord who knows of facts which would deter a prospective tenant from taking a lease of a house, and deliberately employs an agent in order that it might be innocently represented that the house is sound, will be liable to an action for damages for fraud. A principal is also responsible for fraudulent misrepresentations made by the agent in the course of its employment under the normal rules of vicarious liability.24



One of the most difficult problems, however, is to know how far the knowledge of the agent that the representation is false can be attributed to the principal. In general it is true to say that where the state of mind of a party to a contract is material, the law regards the principal and agent as one.

Thus in a contract Uberrimae Fidei (of the Utmost Good Faith), if there is a failure to disclose material facts which are known to the agent but not to the principal, or vice versa, the contract may be avoided. But this formula is correct only ‘where the employment of the agent is such that in respect of the particular matter in question, he really does represent the principal’ (Lord Halsbury).25 Such a situation will prevail where the agent is a tied agent of the principal.



For example, the First National Building Society, as a tied agent of Irish Life Assurance plc (the principal), represented Irish Life in all matters relating to the entirety of the information conveyed from Irish Life to my wife and I prior to entering into the Endowment Mortgage Contract. In such circumstances, it must reasonably be concluded that there is full transfer of a ‘special relationship duty of care and an incorporated duty of disclosure’ from the principal, Irish Life, to my wife and I through their tied agent, First National.

There will also be a duty of disclosure transfer by virtue of the Uberimma Fides nature of an Insurance contract.


22 Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 707.

23 Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 691 and 692.

24, 25 Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 710.

 

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