AGENCY LAW; FORMATION OF AN AGENCY RELATIONSHIP

AGENCY LAW

Agency is a relationship which exists between two legal persons in which the function of the agent is to form a contract between the principal and a third party

1.     WHO IS AN AGENT

An agent is a person who is empowered to represent another legal party, called the principal, and to bring the principal into a legal relationship with a third party. Any contract entered into is between the principal and the third party each of whom may enforce it. In the normal course of events the agent has no personal rights or liabilities in relation to the contract.

1.1.          Examples of agency relationship

There are many examples of agency relationships. Some of the types of agents include; company directors, partners, factors, brokers, auctioneers, commercial agents among others.

-          Company directors are agents of their company

-          Partners are agents of each other in the partnership

-          Factors – a factor is  person whose job is to sell or buy gods on behalf of another person

-          An auctioneer is an agent authorized to sell property at an auction on behalf of the seller.

-          A broker is an intermediary who arranges contracts in return for commission

2.     FORMATION OF AGENCY

The agency relationship can be created by the following ways;

• Express agreement;
• implied  agreement
• by ratification
• by necessity
• by estoppel

2.1.          Express agreement

This is where the principal expressly appoints the agent. This may be done orally or in writing.

2.2.          Implied agreement

An agency relationship between two people may be implied from their relationship or from their conduct.  For example an employee whose duty is to make contracts for the sale or purchase of goods for his employer may be deemed to be an agent for his employer.

2.3.          Agency by ratification

Ratification is the subsequent adoption of an activity. Ratification occurs whereby a “principal” confirms the prior acts of an agent who at the time of acting did not have the authority to act. The agency relationship is created  retrospectively by the ‘principal’ affirming/approving/ratifying the acts of the ‘agent’.

For ratification to be valid, the following conditions must be present:

1.  the person, who is going to give ratification, must be in existence at the time of the activity. For example, a company cannot validly give ratification to pre-incorporation contracts. Pre-incorporation contracts are made by promoters before a company is incorporated.[1] Kelner v Baxter – the promoters of a company entered into a contract on behalf of the company before it was incorporated to purchase some property.  The seller was not paid. Decision; The promoters were personally liable to the seller since the company did not exist at the time the contract was made. The company could  not therefore ratify the contract.at the time the act was done, the agent must have had a competent principal i.e. the person who ratifies the acts must have had capacity to contract at the time of the activity as well as at the time of ratification.
2. at the time the act was done, the agent must have had a competent principal i.e. the person who ratifies the acts must have had capacity to contract at the time of the activity as well as at the time of ratification.
3. ratification should be given within a reasonable period after the activity. What is reasonable depends upon the nature of the situation.
4. ratification must be absolute i.e the principal must ratify the contract in its entirety. Partial ratification carries no validity;
5.  the fact of ratification must be communicated to all parties in connection with the activity.

The effect of ratification is to back date agent’s authority to act for the principal.

2.4.          Agency by estoppel

Where P makes a representation to a third party, whether by words or by conduct, that A is his agent, and subsequently that third party (T) deals with A as P’s agent in reliance on such representation, P will not be permitted ( is estopped) to deny the existence of the agency if to do such will cause damage to third party.

However, an agency relationship is not formed if it is the ‘agent’ who creates the impression that he has an agency relationship with the ‘principal’

2.5.          Agency by necessity

An agent’s (A) power normally derives from some authority conferred by the principal (P), but this is not necessarily so. In extreme cases, as where P’s property is at imminent risk and A has to take urgent action to save it and is unable to communicate with P or to obtain an adequate response to his request for instructions, the law treats A as an agent of necessity to take the necessary remedial action. A good example is where a master of a ship enters into a salvage agreement with T on behalf of P to save P’s cargo, or where A is in possession of perishables belonging to P and sells them for P’s benefit before they become rotten.

Tus, this form of  agency only arises when;

•       P’s property is entrusted to A
•    an emergency arises making it necessary for A to Act
•  it ispractically impossible for the agent to communicate with the principal before the agent acts of behalf of the principal;
• A acts in the interest of P.

However, authority to act in emergencies cannot usually prevail over express instructions to the contrary given by the principal.

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[1] A company comes into existence after the date of incorporation. Therefore, a copany is npt in existence at the time of pre-incorporation contracts.