Agency agreement according to Cyprus Contract Law
The general principles of the law of agency are included in sections 142-198 of Contract Law Cap.149 (the “Law)”. An agency contract describes the agreement by which the first party (the "Principal") appoints another party (the "Agent") to act on behalf of or to represent him in transactions with third parties. In accordance with section 145 of the Law, no consideration is required for the recommendation of the agency agreement.
Establishing Agency Relationship
The authority of the agent can be defined either (i) explicitly (Actual Express Authority). It can be achieved verbally or in writing (Section 146 & 147 of the Law) and what is necessary is the consensus and intention of the parties or (ii) implicitly (Actual Implied Authority). The relationship can be exacerbated by the incidents of the case. According to Section 147 of the Law, what has been said or written, or the usual course of the transactions, can be considered as such incidents.
Section 148 of the Law defines the extent of the Agent’s authority. In particular, it states that the agent’s authority shall also include the power of agent for the performance of any lawful act necessary for the commission of the original act (Incidental authority).
The creation of an agency agreement can also be achieved by the following:
(i) Apparent Authority (s.197 of the Law)
Apparent authority is what appears to third parties as a consequence of the representations of the principal. When the principal in his behavior or actions or in his words exudes others to believe that there is an agency agreement between him and another person.
Section 197 of the Law provides that “if the agent, without authority, has performed transactions or has entered into obligations against third parties on behalf of the principal, the principal is bound by those acts or obligations if, verbally or by his conduct, he extorts third parties to believe that those acts and obligations have taken place on behalf of him”. The estoppel that arises may also occur when the principal fails to notify the third party that the authority of the agent has been revoked (s.168).
(ii) In cases of emergency-necessity
The requirements are as follows:
a) There must already exist an agency agreement.
b) There must be an urgent need.
c) It must be impossible for the Agent to communicate with the Principal.
d) The Agent only acts to protect the interests of the Principal.
Pursuant to Section 145 of the Law, in the event of an emergency, the Agent is empowered to act in any way to protect the Principal from damage.
(iii) With subsequent approval-ratification of the agreement
In accordance with section 156 of the Law, where a person is acting on behalf of another person without his knowledge, that person may either approve the act or refuse to do so. Where the other person adopts such an act, the act adopted shall have the same consequences as an Agency contract. The Principal is bound by the third party and the Agent is no longer accountable either to the third party or to the Principal. Nevertheless, in order for the approval to be valid, certain conditions must be met:
- The Principal must have legal capacity during the time when the Agent has done the act so that he can approve it.
- The Principal must be aware of the facts he approves of.
- The contract to be approved by the Principal must not be void or unlawful.
- The Principal must approve the entire contract not only a part of it.
- Approval must take place within a reasonable time from the date of the act.
The Agent is not personally responsible for the consequences of the Agency contract except in the following cases:
- When the Agent has shown an intention to take personal responsibility (section 192, Cap.224).
- The Agency contract includes such a waiver.
- In contracts for the sale of goods when the seller resides abroad (section 190(2)(a) of the Law).
- When the Agent refuses to reveal the identity of the Principal. When the Principal is not disclosed, the third party can choose as a counterparty between the Agent or the Principal (sections 190(2)(b), 191 & 193 of the Law).
- When the Agent is acting for a non-existent Principal (section 195 & 196 of the Law).
- When it is not possible to bring legal action against the Principal (section 190(2) of the Law).
If the Agent violates the Agency agreement then:
- The Agent is obliged to indemnify the Principal for any damage.
- If the breach is serious, the Principal will be entitled to terminate the Agency agreement and not to pay the Agent.
- The Principal will be entitled to any benefit received by the Agent in breach of his duties.
- In the event that a third party participates in the violation, the Principal may also declare the contract with the third party and bring an action for damages.
Agency is an exception to the rule privity of contract.
The Agency agreement can be terminated either
- By the parties
- With subsequent agreement of the parties
- With the passing of a certain time
- By accomplishing the object of the Agency contract.
- With the termination of the agreement by one of the parties
- Withdrawal of Agent’s authority after a reasonable notice (sections 162-164 of the Law)
- By the Law
- Bankruptcy or liquidation