Formation of Agency

1) The agency relationship consists of three parties:

|The principal is the person who has legally empowered the Agent to enter into contractual relations with a Third Party. The contract itself though is between the principal and the third party.

Two specific examples of agency relationships noted in F4 syllabus are:

(a) Partners – per the Partnership Act 1890 (PA 1890) all partners are deemed to be agents of the firm and are hence able to bind all copartners and make them jointly and severally liable for business transactions.

(b) Company Directors – the board of directors is deemed to be the agent of the company (though not the shareholders) and can therefore bind the company without personal liability.Individual directors do not have the power to bind the company unless they have derived any of the powers of agency.

2) Agency relationships can be formed in the following ways:

(a) Express agreement – between the agent and principal.

(b)Ratification – where although the purported agent acted without authority the principal retrospectively ratifies the contract.

(c) Implication – the position that someone holds may imply they have the power to bind, such as partners in a partnership.

(d) Necessity – in instances of genuine emergency, where it is not possible to contact the principal, an agent may appoint themselves where they have acted bona fide in the interest of the principal.

(e) Estoppel – where a person ‘holds themselves out’ they acquire apparent authority, which the purported principal may be estopped from denying due to their ‘acquiescence’ per Freeman and Lockyer V BPP

3) The agency arrangement may be terminated in the following ways:

(a) Expiry of agreement

(b) Mutual agreement

(c) Death, insanity, or bankruptcy of either party