Agency Relationship

Topics: Contract, Business law, Arbitration Pages: 13 (4347 words) Published: April 30, 2013

An agency is a relationship which exists when one party called the principle appoints and authorizes another called the agent to enter into a contract with a third party , which contract is legally binding to both parties. An agent is therefore a party who is authorized to represent or act on behalf of another for the purpose of bringing that other party into legal relations with a third party. A Principal is a party who authorizes another party to represent or act on his behalf so as to bring him into legal relations with a third party. And a contract is a legally binding agreement that imposes obligations on one or more parties to do or abstain from performing certain acts. In other wards, an agency relationship is where one man may represent or act on behalf of another, with other’s authority for the purpose of bringing him into legal relations with a third party. An agency relationship is governed by the law of agency which is that part of commercial law dealing with a set of contractual, quasi-contractual, and non-contractual relationships between a principal and an agent whereby no party can enter into a contract through an agent which is outside the principles contractual capacity. An agency comes into existence due to a number of circumstances and they are basically five, as explained below;

By an actual authority to contract given by the principal to the agent. In this case, the principal authorizes the agent to enter into contract on his behalf. this authority may be express or implied. In instances of implied authority, an agent has an obligation to act reasonably for the interests of his principle. Even if that obligation was not included in the terms of his agency with the principal, he is expected to do his act as the usual in that particular trade or business, or ordinarily incidental to the due performance of the duties. The authority to an agent may be express, enabling the agent to bind the principal by the acts done within the scope of that authority. This authority is usually given orally if not under seal or written especially in conveyances land. This is mainly due to the law of property Act 1925 which requires the creation or deposition of any equitable interest or interest in land to be in writing, signed, by the grantor or his agent, and authorized in writing.

An agency also comes about by the principal’s ratification of a contract entered into by the agent on his behalf but without his authority, in this case, even if the agent enters into a contract without the authority of his principal, the principal may subsequently ratify, that is adopt the benefit and liability of a contract made on his behalf. This is clearly brought out in the case, Bolton Partners Vs Lanbert; The managing director of the company, purporting to act as agent on the company’s behalf, but without its authority, accepted an offer by the defendant for the purchase of some sugar works belonging to them. The defendant then withdrew his offer, but the company ratified the manager’s acceptance. It was held that the defendant was bound. The ratification related back to the time of the agent’s acceptance and so prevented the agent’s subsequent revocation. Such an agency is said to relate back to the time of the contract.

Another instance where an agency comes about is by an ostensible authority conferred by the principal on the agent even though no actual authority has been given; in this case, the principal creates an inference to act on his behalf, the he is bound to third parties by his agent’s acts. This kind of authority is an implication of estoppel which means only that a person is not permitted to resist an inference which a reasonable man would drew from his words or conduct. That is, the party representing another as having authority to act on his behalf is estopped from denying the ostensible authority which h e has created.

Another instance that leads to the creation of an agency is by...
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