Creation of Agency PDF

# Creation of Agency ## Agency can be created in one of the following four ways: - **By Agreement** - whether contractual or not between the principal and agent, which may be express or implied from the agreement - **By Ratification** - **By Estoppel** - **By Operation of Law** ## The co...

# Creation of Agency ## Agency can be created in one of the following four ways: - **By Agreement** - whether contractual or not between the principal and agent, which may be express or implied from the agreement - **By Ratification** - **By Estoppel** - **By Operation of Law** ## The court in PASCUTTO v. ADECENTRO (NIG) LTD (1997) LPELR - 2904(SC) formulated the law as follows: "The relationship of principal and agent may arise by express appointment, by virtue of the doctrine of estoppel, by subsequent ratification by the principal of a contract made on his behalf without any authorisation from him, by implication of law in cases where it is urgently necessary that a person should act on behalf of another and by presumption of law in the case of cohabitation. The defendant did not bring its defence within any of the above recognised ways of forming agency." Per EMMANUEL OBIOMA OGWUEGBU, JSC (PP 41 - 42 Paras F - A) ## By Agreement - Agency relationship can be created through an agreement between the principal and agent. - This is the most common mode of creating an agency relationship. The agent and principal agree that the former acts on behalf of the latter in creating contractual relationships between the principal and third parties or disposition of property. - The agreement is reached either expressly or impliedly. Therefore, there is express or implied creation of agency. ## Express Agreement - This involves circumstances where the principal and agent consent to an arrangement whereby the agent acts on behalf of the principal. The basis of this type of agency is that both parties consent to the relationship. Thus, it is said that they are in consensus ad idem. - Understand that a consensual agency does not automatically mean the same as a contractual agency. For an agency to bear out of a contract, there must be consideration unless the contract is made under seal. - However, an individual can consent to be an agent without earning a commission or obtaining any form of consideration from the principal - this is known as a gratuitous agency. - It is important that where an express agreement to create an agency relationship is based on a contract, the ordinary rules of contract law are complied with. Thus, the parties must consent freely to creating the relationship between them, i.e. their minds must be ad idem, and there must be no fraud, duress, misrepresentation, or mistake. - There is no particular form required for the creation of an express agreement: it can be done orally, in writing or under seal. It is advisable that it is in writing for certainty of the terms upon which the agreement was reached. - However, there are a few cases in which an agent's appointment must be under seal, and a few where it must be in writing. - For example, a power of attorney is given for the agent to make contracts under seal. - Appointment in writing is necessary in certain cases e.g. where the disposition of land or an interest in land is concerned. In this connection, section 78 of the Property and Conveyancing Law 1959 which was applicable in the states of the former Western region of Nigeria and Bendel State, provided that an agent cannot create or dispose of an interest in land or dispose of an equitable interest or trust on behalf of a principal unless he had been appointed in writing. ## Implied Agreement - Parties sometimes do not expressly agree to create an agency relationship, although they intend to make such a relationship. - The court can infer an agency relationship from the conduct of the parties. The court will imply such an agreement if the parties have by their conduct consented to a state of affairs which is explicable only in terms of agency. - The effect of such an implication is to put the parties in the same position as if the agency had been expressly created. - Quare: what is the distinction between implied agency and agency by estoppel? ## Ratification - Ordinarily, the principal confers authority on the agent before the agent acts. However, the principal can confer authority after the agent has acted. - In ratification, what is done on behalf of the principal is done when the relationship between principal and agent does not exist; in that, the agent has no authority to do what he does at the time he does it. But it so happens that after the act, the person whose behalf it is done accepts or adopts it. The process of adopting the act or transaction is known as ratification. - Ratification becomes necessary where the agent acted without authority or where he exceeded his authority. - In either case, ratification duly made, puts the parties in the same position in which they would have been if the agent had the principal's authority at the time that the contract was made. - Ratification need not take a particular form. In most cases any act or statement which clearly shows the intention of the principal may be a sufficient act of ratification (even for a written contract). But if the contract made by the agent is in the form of a deed, then the principal's ratification must be by deed. Oxford Corp. v. Crow (1893) 3. Ch. 535. ## Requirements for Valid Ratification - The Agent contracts expressly as an agent (see Keighley Maxsted & Co v Durant [1901] A.C.240; Folashade v Duroshola 1961 All N.L.R 87). - The Principal must be in existence as at the time of formation of contract (see Kelner v. Baxter (1866) L.R. 2 C.P. 174; Caligara v. Gionvani Sartori & Co Ltd (1961) All N.L.R 534; Newborne V Sensolid (GB) Ltd (1953) | All E R 708; Urhobo v Chief J.S. Tarka 1976 CCHCJ2629). See Section 96 of CAMA 2020. - The principal must have the capacity to do what the agent did (see Boston Deep Sea Fishing & Ice Co v Farmham (1957) 3 All ER 205.) - The principal must be aware of the material facts to enable him decide whether to ratify or not (see Savery v King (1856) 5 HL Cas 627). The principal should ask questions for he may be liable even without full knowledge if he adopts the contract without making enquiries as to the true state of affairs or was negligent (see Marsh v Joseph (1897) 1 Ch 213). - The act must be lawful and ratifiable (see Ashbury Rly Carriage & Iron v Riche (1875) LR 7 HL 653). Illegal acts are not ratifiable (see Brook v Hook (1871) LR 6 Exch. 89; Bedford Insurance Co Ltd v Instituto de Resseguros do Brasil [1985] QB 966; [1983] 3 All ER 766). Also, void acts cannot be ratified (see Danish Mercantile Co v Beaumont [1951] Ch 680; [1951] | All ER 925. - The principal must ratify the whole contract (see Union Bank of Australia v McClintock (1922) I AC 240; Presentaciones Musicales SA v Secunda [1994] 2 All ER 737 at 750). - Ratification must be within a reasonable time; ## Effect of Ratification - The effect of ratification is to put the parties in the position they would have been had the agent been conferred with authority in the first place. In other words, it renders the contract as binding on the principal and third party as if the agent had been properly authorized beforehand. - Ratification has a retroactive effect (see Boston Deep Sea Fishing Co. v Farham (Supra) 1957 3 All ER 204 at 209). ## Estoppel - Estoppel is a rule of evidence which precludes a person from denying the truth of certain matters under his or her control and upon the strength of which others have altered their position. - Thus, where a person represents another as his agent in circumstances in which a third party has relied on the representation to alter his position or to his detriment, the person who made the representation will not be allowed to turn around and claim that that is not the true state of affairs. - Being a rule of evidence, the applications of the principle of estoppel are not limited to the law of agency. ## Requirements for Agency by Estoppel to arise are as follows: - There must be a representation (see Colonial Bank v Cady (1890) 15 App. Cas 267; Farquharson Bros. v King & Co (1902) AC 325.) The court in AYANKOYA & ORS v. OLUKOYA & ANOR (1996) LPELR- 669(SC) noted that "If a person represents or permits it to be represented that another person has authority to act on his behalf, he will be bound in the same way as he would be if that other had in fact authority to act. See Rimmer v. Webster (1902) 2 eh. 163. The foregoing is based on the legal principles of "estoppel" and "holding out". There is nothing strange or new about it as the law always allows one man to authorize another to contract for and bind him by an authorised contract. The legal effect is that he who does an act through another is deemed in law to do it himself. See Chitty on Contracts, Specific Contracts, para. 1, 22nd Ed." Per YEKINI OLAYIWOLA ADIO, JSC (PP 21 - 21 Paras A-C) - The third party relied on the representation (see Farquharson Bros v King & Co) - There must be an alteration of a party's position resulting from the reliance (see Spiro v Lintern (1973) 3 All ER 319) ## The operation of the doctrine of estoppel also frequently operates in cases of partnerships. - In a partnership, partners are deemed to be each other's agent for contracts made in the ordinary course of the partnership business. A retiring partner must therefore give reasonable public notice of his retirement. If he retires without making a public announcement of that fact and the remaining partner enters into a contract with persons who had previously dealt with the partnership and who are unaware of his retirement he will be bound by such contract because he had by his conduct held himself out as a continuing partner. - See Scarf v Jardine (1882) 7 App. Cas 345; Tower Cabinet Co. Ltd v Ingram [1949] All.E.R 1033; [1949] 2 Κ.Β. 397 ## Agency by Operation of Law - At times, there is clear evidence that there is no agency relationship between two or more persons, but due to policy considerations, the law imposes that relationship on them. This is what is known as agency by operation of law. This takes either of two forms: Agency of Necessity and Agency presumed from Cohabitation. - Agency by Necessity arises in circumstances when someone needs to act to preserve the property of another. It comes with a sense of urgency. In such a situation, even though the person who so acts, has no authority to do so, yet because of the urgent need, the law regards what has been done by someone as having been done with the authority of some other person, and therefore as his agent. ## If an agency of necessity is to be conferred, the following conditions must be satisfied: - Prior contractual relationship: This kind of agency is very readily implied in situations where there is in existence a prior contractual relationship between the parties and the act constituting the agency of necessity is a mere extension of that relationship by the agent who in the unforeseen circumstances that have arisen is compelled to exceed his authority. For example, the master of a ship. (see Great Northern Rly Co v Swaffield (1874) L.R. Ex 132); Sims & Co v Midland Rail Co [1913] | Κ.Β 103. - Apart from cases where prior contractual relationships exist, the doctrine of agency of necessity hardly applies. Thus where someone gratuitously interferes to protect another's property, as for example, where a stranger, not bound by an existing contract with the owner, looked after a stray animal, no liability to reimburse the stranger could be imposed on the owner; for the general principle is that benefits (or burdens) cannot be imposed on a person behind his back. Binstead v Buck (1777) 2WN BL 1117. - It must be impossible or impracticable to communicate with the owner of the goods in order to get his instructions (see Springer v Gt. Western Rly Co [1921] | K.B 257 the plaintiff one Mr. Springer consigned tomatoes from Jersey to London. The ship delivered the consignment of tomatoes at one of the London docks 3 days later than expected and owing to a railway strike the tomatoes could not be unloaded until a further two days later. When unloaded, they were found to be bad, and the railway company decided to sell them locally. No attempt was made to communicate with Mr. Springer. The railway company was held liable in damages to Mr. Springer as they should have communicated with him and asked for his instructions as soon as the ship arrived.) - The modern means of communication may reduce the potency of this requirement. - The agent must act bonafide in the interest of all the parties. Prager v Blastspiel Stamp & Heacock Ltd [1924] Ι Κ.Β 566. - In conclusion, it must be said that in spite of the attempts to limit the scope of the doctrine to the classical situation mentioned above, the doctrine has also been held to arise where a person carries out the moral duty of another. Thus a railway police inspector who took an injured passenger in a railway collision to an inn was held to be an agent of necessity of the railway company for board and lodging supplied to the injured passenger. Langan v Great Western Railway Co. (1873) 30 LT 173. ## Agency Presumed from Cohabitation - The law presumes that a woman who cohabits with her husband in their household has the implied authority to pledge his card for necessaries consistent with the kind of life they lead. - This is a mere presumption that can be rebutted. - The question whether goods are necessaries is one fact. But in determining this (i.e. whether goods supplied are necessaries), it seems regard is had to the man's style of living rather then his actual means. - Willes J said in Phillipson v Hayter (1870) LR 6 CP 38 of 42 put it eloquently: "What the law does infer is that the wife has authority to contract for things that are necessary and suitable to the style in which the husband chooses to live, in so far as the articles fall fairly within the domestic department which is ordinarily confided to the management of the wife." - This shows that if a husband chooses to live beyond his means, his liability may be increased. - In any event, the husband's liability even in this circumstance is always subject to the proviso that the goods are suitable and reasonable in kind and quantity. - Necessaries would then include clothing, both for the wife and her children, articles of household equipment, food, medicines and medical attendance, and even the hiring of servants. So if a wife orders things which are not suited to the husband's style of living, or she orders things of an extravagant nature or excessive in quantity, there is no presumption of authority, and action cannot be maintained against the husband. ## Requirements of Cohabitation - There must be cohabitation: the husband and wife are living together in such a circumstance from which it is reasonable to infer that the wife is acting on behalf of her husband when she orders necessaries. Marriage is not a prerequisite, i.e, the person alleged to have authority need not be married to the person sought to be held liable as principal. The presumption applies equally in the case of a woman living with a man as his mistress. So, as long as there is cohabitation between a man and woman in circumstances in which the outside world takes them for a man and wife, the woman will be in the same position as a wife. - if the wife is separated from her husband, she has prima facie, no authority to pledge his credit and this form of agency cannot be invoked to create liability in the husband. But the appreciation of the presumption will depend on the reason for separation. Where the parties are living apart by reason of wife's misconduct e.g. where she is guilty of desertion, or committed adultery, the wife does not have his authority. - There must be domestic establishment: this means that the fact a man and a woman live together as husband and wife is not sufficient; They must in addition be living together as man and wife in circumstances which show that they are a family. This point is very illustrated by Debenham v Mellon (1880) 6 App Cas 24. Husband and wife were manager and manageress of a hotel where they lived and cohabited. The wife had an allowance for clothes, but the husband forbade her to pledge his credit for them. The wife bought clothes from the plaintiff in her name and paid the bills. Then she incurred a debt with the plaintiff who demanded payment of it from the husband. The House of Lords held that the husband was not liable. One of the reasons given for that decision was that no presumption of agency could be drawn because the parties were not cohabiting in a domestic establishment but in a hotel. ## Factors Which Deprive the Wife of Authority - Even where the goods are undoubtedly necessaries, the husband is only presumptively liable, and he may rebut the presumption and so escape liability. The presumption is rebutted if he proves any of the following: - the goods were supplied exclusively on the wife's credit. - the trader has been expressly warned not to supply goods to the wife on the husband's credit. - The wife was forbidden to pledge his credit whether or not the supplier knew of this. However, it is important to observe here that if the husband has held his wife out in the past to the plaintiff so as to invest her with apparent authority under the doctrine of estoppel, then a mere private prohibition addressed solely to the wife, will not relieve him from liability in respect of her future purchases of a similar nature. In such a case, it is his duty to convey an express warning to the tradesman. - The goods though necessaries are excessive or extravagant having regard to the husbands income. - the wife was already supplied with sufficient articles of that kind or with sufficient allowance with which to purchase them. ## Is the Wife's Independent Means Relevant? - Lord Denning in Biberfield v Berens [1952] 2 All E.R. 237 suggested that in computing the husbands liability for necessaries a "means state" must be applied. The reasoning is, that it must follow from the modern equality of the sexes, that the wife, if she can afford it, must help in discharging the household accounts, and that a wife who is well off is not entitled to spend all her money on luxuries and throw all domestic liability on the shoulders of her husband. Hutchinson v Olagide (1970) 2 NCLR 330.