Creation of agency and types of agents
Agency arises when a principal authorises an agent to make legal relations with third parties. It is created expressly, by implication, necessity, ratification or estoppel.
What agency is
Agency is the relationship in which one person, the agent, is authorised to act for another, the principal, so as to create legal relations between the principal and third parties. The maxim is qui facit per alium facit per se: he who acts through another acts himself. When an agent makes a contract within his authority, the contract is between the principal and the third party, and the agent usually drops out. In Sri Lanka, the law of principals and agents is English law, applied through the Civil Law Ordinance.
The agency triangle
- back to Principal
If the agent exceeds his authority, the principal is not bound unless he ratifies, and the agent may be personally liable.
How agency is created
| Method | Meaning | Example |
|---|---|---|
| Express | By words, oral or written; a formal appointment is a power of attorney | A company appoints a distributor in writing; a migrant worker gives a relative a power of attorney |
| Implied | From conduct or the circumstances | A shop manager has implied authority to buy stock and hire casual staff |
| Necessity | In a real emergency, a person holding another's goods acts to save them, cannot contact the owner, and acts in good faith | A transporter sells a load of vegetables that will rot after a breakdown, when the owner cannot be reached |
| Ratification | The principal later approves an act done in his name without authority; approval dates back to the act | A trader approves a purchase that his clerk made in his name without authority |
| Estoppel (holding out) | The principal's words or conduct make a third party believe someone is his agent; he cannot later deny it | Freeman & Lockyer v Buckhurst Park: a director allowed to act as managing director bound the company |
Conditions for valid ratification
- The agent must have claimed to act for that principal.
- The principal must have existed and had capacity when the act was done (Kelner v Baxter: a company not yet formed cannot ratify).
- The principal must ratify the whole act, not just the favourable part.
- Ratification must be within a reasonable time.
- The act must be lawful.
- The principal must know the material facts.
Types of agents
| Type | Meaning | Example |
|---|---|---|
| General agent | Authority for all acts in a trade or business | A branch manager |
| Special agent | Authority for one particular act | A person authorised to sell one plot of land |
| Universal agent | Unlimited authority; rare | A power of attorney covering all the principal's affairs |
| Factor | Has possession of goods and sells them, often in his own name | A merchant holding and selling an estate's produce |
| Broker | Brings buyer and seller together; no possession of goods | Tea brokers at the Colombo Tea Auction; stockbrokers |
| Auctioneer | Sells goods by public auction for the seller | A vehicle auction |
| Del credere agent | For an extra commission, guarantees that buyers he introduces will pay | A sales agent who stands behind his customers' credit |
| Commission agent | Buys or sells for the principal for a commission | An importer's buying agent abroad |
Sri Lankan tea producers sell through tea brokers at the Colombo Tea Auction: the broker is the agent, the producer the principal, and the exporter who wins the bid is the third party. Many families with members working abroad manage property at home through a power of attorney.
Short answer: “What is agency by ratification?” Agency created when a principal later approves an act done in his name without authority; the approval dates back to the act.
Structured question: “Explain the different types of agents.” General, special and universal agents by authority; mercantile agents: factor, broker, auctioneer, del credere agent, commission agent, each with an example.
Essay: “Explain the ways in which an agency may be created.” Define agency and the maxim; explain express, implied, necessity, ratification (conditions, Kelner v Baxter) and estoppel (Freeman & Lockyer), with examples; close.
Agency is created by E-I-N-R-E: Express, Implied, Necessity, Ratification, Estoppel.