Agency

• Pages: 223-237

CHAPTER 12

AGENCY

Formation of agency

At common law, the principal/agent relationship may arise in a variety of circum-

stances, for instance where an agent is appointed to negotiate a contract for the sale

of goods on behalf of his principal, or to execute a conveyance of land; also, there are

specialist agents who are qualifi ed to perform specifi c functions, such as auctioneers,

attorneys and solicitors, brokers, factors and real estate agents. In addition to these

species of agent, whose relationships with their principals and the third parties with

whom they have dealings are governed by the law of contract, there is also the well-

known principal/agent relationship which arises in the law of tort where a ‘casual

agent’ drives a motor vehicle for some purpose for the owner of the vehicle.

1

As far as the law of contract is concerned, the basic function of an agent (A) is to

establish a contractual relationship between his principal (P) and a third party (T)

and, having done so, he normally ‘drops out of the picture’, leaving P and T bound

by a contractual obligation.

Agency may be created in any one of four ways:

(i) by express or implied appointment giving A actual authority to act for P;

(ii) by subsequent ratifi cation by P of a contract entered into by A without P’s

authority;

(iii) by ostensible authority conferred on A by P, although no authority was actually

given; or

(iv) by authority given by implication of law in cases of necessity .

Actual authority

Lord Diplock has described actual authority as ‘a legal relationship between prin-

cipal and agent created by a consensual agreement to which they alone are parties.

Its scope is to be ascertained by applying ordinary principles of construction of

contracts, including any proper implications from the express words used, the

usages of the trade, or the course of business between the parties.’

2

Actual authority of an agent may be express or implied. It is express when P

expressly selects and appoints A, and A accepts the appointment, thus creating a

contract between P and A. No particular form of appointment is required; it may be

written or oral, except where A is required to make contracts by deed (including

conveyances of land), in which case P will need to give A a power of attorney by

deed.

3

1 See generally, Kodilinye, Commonwealth Caribbean Tort Law , 4th edn (2009), pp 331–8.

2 Freeman and Lockyer (a Firm) v Buckhurst Park Properties (Mengel) Ltd [1964] 1 All ER 630, at 644.

3 Cheshire, Fifoot and Furmston, Law of Contract , 13th edn, p 485.