HOW AGENCY RELATIONSHIP CAN BE CREATED

Agency is a consensual relationship created by contract or by law where one party, the principal, grants
authority to another party, the agent, to act on behalf of and under the control of the principal to deal
with a third party. An agency relationship is fiduciary in nature, and the actions and words of an agent
exchanged with a third party bind the principal.

An agreement creating an agency relationship may be express or implied, and both the agent and
principal may be either an individual or an entity, such as a corporation or partnership.

Agency may be created in four ways:

1. By Appointment: Appointment can be express/direct appointment or Implied or indirect

appointment. Express appointment is the most common and standard way of creating agency, where a
person in writing or speech appoints a person to be his agent. The scope of an agent’s authority is
confined to those which are expressly conferred on him by the terms of his appointment. Implied
appointment on the other hand, may arise from an express authority. It is the authority that permits the
agent to do all that is incidental to the task for which he is appointed. Implied authority may give an
agent to do all that is considered normal in the context of his trade or profession in order to execute the
express authority granted him.

2. By Estoppel: As a general rule, a person cannot be bound as principal by a contract made without his
written or oral authority. However, (as an exception) where in his conduct he has portray another as his
agent and on that portrayal an innocent third person enters into a contract with the person portrayed as
his agent, the principal will be estopped i.e., prevented from denying the existence of an agency
relationship as such will be deemed to have been created. Thus, the principal will be prevented from
denying the existence of agency if an innocent third party has materially changed his position in
reasonable reliance on the previous representation made by the principal.
This rule is based on the maxim “allegans contraria non post audiendus” meaning, “a person cannot be
heard or allowed to blow hot or cold with regard to the same transaction.” For agency by estoppel to
operate, there are conditions that must be satisfied. There must be a representation made by the
principal or someone authorized by him to make such representation, the representation must have
been made to the aggrieved third party or to all the world to justify inference that the aggrieved third
party knew of it, the representation must be one of fact and not of law, the representation must have
been made intentionally or negligently, the aggrieved third party must have relied on and acted on the
representation thereby altering his position (to his detriment).

3. By Ratification: This arises where an act of a person who acted on another’s behalf without his
knowledge and either at a time when he was not the agent, or had no authority as an agent to do such
act, is ratified and made valid as if it had been done with authority from the beginning, thus giving
retrospective authority to the agent, an agency relationship is created. For a ratification to be valid, the
principal must exist as a legal person, the principal must also have contractual capacity at the material
time the agent entered into the contract and at ratification, the agent must have purported to have
acted as an agent and the principal must be ascertainable at the time the act was done, Ratification
cannot be in part. It must be of the whole act; the principal must be aware of all the material facts
before ratification can validly take place.

4. By Operation of Law: There circumstances in which the law will confer power on a person to act as an
agent without obtaining the consent of the principal. Such instances are Necessity and Cohabitation.
Necessity arises when a person has to act on behalf of another to save the person from any loss or
damage, without expressly being appointed as an agent. For Cohabitation, where a man and woman
(wife/mistress) live together and cohabit (although they may not be married) and maintain a household
establishment, the wife/mistress can be deemed in law to be the man’s agent by co-habitation and she
is entitled as an agent to pledge his credit for necessaries like food, clothing and lodging suitable to her
situation in life. In Saunderlands v. Cairns (1945) 1 KB 270, a wife who was deserted by her husband was
forced to live in a boarding house where she borrowed money to buy clothes and some accessories. It
was held that the owner of the boarding house was entitled to claim from the husband as the wife was
his agent.