1 What is agency relationship?
Any relationship between two legal persons in which one person (agent) makes an agreement to third party on the behalf of another person (principal)
Agent
Any person willing to do or authorized to act on behalf of another person (principle)
Principle
Any person who authorizes another person to act on his behalf is called principal.
Therefore an agent is the connecting link between the principal and the agent.
1.1 Elements of agency
- Principal must be competent to the contract
- Principal must have contractual legal capacity to enter in contract with third party
- Any person may become an agent
- No consideration is necessary for agency relationship
Types of agents
There are many types of agency relationships depending on the nature of agents.
General agents: these are the agents who act generally for many functions on the behalf of principals. For example:
- Directors working on the behalf of shareholders
- Employees working on the behalf of employer
- Partners working in partnership
Special agents: these are the agents who act on the behalf of principal for particular function. For example:
- Auctioneer: Working as agents to sell property on the behalf of property owner (principal)
- Brokers: They operate in trade on behalf of principals in return of commission.
- Estate agents: An estate agent is an intermediary who is responsible to find buyer for the principal’s property.
- Commercial agents: The agent who has continuing authority in relation with sale and purchase on the behalf of principal.
2 Formation or creation of agency relationship
Agency relationship is very simple to establish because it needs no formal process but only mutual consent of agent and principal.
Agency relationship may be formed through following ways:
- By express agreement
- By implied agreement
- By ratification
- By estoppels
- By necessity
2.1 Agency through express agreement
Agency relationship is created when principal appointed an agent to work on behalf of him through expressed word orally or in written.
In this relationship principal gave authority to agent and agent must have to work under the terms of agreement.
Example
Employer and employee relationship, in which employer gave authority to production manager to purchase raw material up to £ 1000 through formal agreement in written document.
Or
Auctioneer is appointed orally by the principal (owner of property) to organize auction and sell his property.
2.2 By implied agreement
Agency relationship is created sometimes due to nature of relationship or the duties of job between two persons.
Or we can say also when agent has implied authority then nature of relationship is implied agency relationship.
Example
Directors of the company, they are appointed by the shareholders (principals) ,they have implied authority to take all decisions in favor of shareholders and company also.
2.3 By ratification
What is ratification?
Ratification means when one party that is confirming party accepts the unauthorized acts of another person.
In agency relationship, when principal confirms the unauthorized acts of an agent called ratification.
Conditions for ratification
However there are some situations or conditions that must present to make ratification valid.
- The agent must have acted on behalf of the principal
- The principal must have legal capacity to enter in the contract
- The contract must be legal and valid
- The principal should ratify the whole or entire contract
- Ratification must be within reasonable time by the principal
- Principal should communicate his ratification to 3rd party.
2.4 Agency by estoppel
Agency relationship is formed when principal creates an impression by words or conduct to others that someone is his agent. Later on principal is estopped from denying his apparent authority.
However there are some important points to consider
- It must not be in the knowledge of third party that agent has no actual authority
- Agent must act within his apparent authority
- Agent himself cannot create an impression of apparent authority to create agency by estoppel ,only principal have right.
Case law
Freeman & Lockyer v Buckhurst Park Properties Ltd
2.5 Agency relationship by necessity
Agency relationship is formed when duty is imposed upon a person in emergency situation to act on behalf of another apart from the contract.
There are three points to consider before this agency relationship
- There must b a genuine reason or emergency
Case law: Great Northen Railway Co v Swaffield
- There must be no any source to contact with principal for further instructions
Case law: Springer v Great Western Railway Co
- The agent must act in the good faith of principal
Case law: Sachs v Miklos
2.6 Authority of an agent
An agent is authorized by principal in the following ways.
- Expressed authority
- Implied authority
- Apparent authority / ostensible authority
3 Revocation of an authority
Principal has right to revoke his authority given to agent at any time.
But revocation will be only effective when communicated to third party.
After effective revocation principal will not liable for any actions of agent.
4 Termination of agency
Agency relationship may comes to an end in the following ways
- Death of any party
- Principal or agent become insane
- Principal become bankrupt
- Termination of agency by the mutual agreement
- By frustration
- Perform business according to the direction of principal
- Duty to perform with skill and care
- Duty to perform actions within authority given by principal
- Duty to avoid conflicts of interest
- Duty to perform work honestly and not to make secret profits
- Duty to perform personally
5 Duties of agents
- Perform business according to the direction of principal
- Duty to perform with skill and care
- Duty to perform actions within authority given by principal
- Duty to avoid conflicts of interest
- Duty to perform work honestly and not to make secret profits
- Duty to perform personally