# Creation of Agency
## Introduction
Agency is a fundamental concept in commercial law, describing the fiduciary relationship where one person, the agent, is authorised to act on behalf of another, the principal, to create or alter legal relations with a third party. The existence of an agency relationship determines when a principal will be bound by the actions of their agent. This essay will outline the primary ways in which an agency relationship can be created under the law of England and Wales: by agreement, by estoppel, by necessity, and through subsequent ratification.
## Creation by Agreement
The most common method for creating an agency relationship is through the mutual consent of the principal and the agent. This agreement does not require the formalities of a contract, such as consideration, but consent is essential (Sealy and Hooley, 2020). The agreement can be either express or implied.
An express agreement occurs when the principal explicitly appoints the agent, either orally or in writing. For example, a formal written contract may set out the agent’s duties and the scope of their authority.
More frequently, agency is created by implied agreement. This arises from the conduct and relationship of the parties. The court will look at the substance of the relationship rather than any labels the parties may have used. As Lord Pearson stated in *Garnac Grain Co Inc v HMF Faure & Fairclough Ltd* [1968] AC 1130, if an agreement, viewed in its entirety, results in one party acting on behalf of another and creating legal relations, an agency relationship will be inferred. For example, agency may be implied where a person is appointed to a certain position, such as a company director, who would have the usual authority associated with that role.
## Creation by Estoppel (Apparent Authority)
Agency by estoppel, also known as apparent or ostensible authority, arises not from any agreement between the principal and agent, but from a representation made by the principal to a third party. Where a principal’s words or conduct lead a third party to reasonably believe that an individual has authority to act on the principal’s behalf, the principal will be ‘estopped’ (prevented) from denying that authority.
The classic requirements for apparent authority were established in *Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd* [1964] 2 QB 480. For agency by estoppel to be established, three conditions must be met:
1. A representation that the agent had authority was made by the principal (or someone with the principal’s actual authority) to the third party.
2. The third party relied on this representation.
3. The third party altered their position in reliance on the representation, for example by entering into a contract.
This doctrine is designed to protect innocent third parties who rely on reasonable appearances of authority created by the principal.
## Creation by Necessity
Agency of necessity is a rare form of agency that arises in an emergency without any agreement. It allows a person to act on behalf of another to preserve their property or interests when it is impossible or impracticable to obtain instructions. The courts have applied strict conditions to limit its application. Based on cases such as *Great Northern Railway Co v Swaffield* (1874) LR 9 Ex 132, for an agency of necessity to arise, the agent must prove:
1. There was a genuine commercial necessity to act.
2. It was impossible or impracticable to communicate with the principal to get instructions.
3. The agent acted in good faith and in the best interests of the principal.
If these conditions are met, the law creates an agency relationship, binding the principal to honour the transaction and reimburse the agent for any expenses.
## Creation by Ratification
Ratification occurs when an agent acts without any authority, or exceeds the authority they were given, but the principal subsequently adopts the act as if it had been authorised from the outset. This has a retrospective effect, validating the agent’s unauthorised action from the moment it was performed.
For ratification to be valid, several conditions must be met. Firstly, the agent must have purported to act on behalf of a principal who was identifiable at the time of the act (*Keighley, Maxsted & Co v Durant* [1901] AC 240). This means an undisclosed principal cannot ratify a contract. Secondly, the principal must have been in existence and had the legal capacity to make the contract at the time the act was carried out and at the time of ratification. Finally, the principal must have full knowledge of the material facts and must ratify the whole of the act; they cannot pick and choose which parts to adopt.
## Conclusion
In summary, the creation of an agency relationship is not confined to formal agreements. While consent forms the basis of most agency relationships, whether express or implied, the law also provides other mechanisms. The doctrine of estoppel protects third parties who rely on representations of authority, while the limited doctrine of necessity addresses emergency situations. Furthermore, the ability to ratify an unauthorised act provides commercial flexibility. Together, these methods demonstrate how the law accommodates various commercial circumstances to establish the legal relationship of principal and agent.
## References
- Sealy, L. and Hooley, R. (2020) Commercial Law: Text, Cases, and Materials. 6th edn. Oxford University Press.
- Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480.
- Garnac Grain Co Inc v HMF Faure & Fairclough Ltd [1968] AC 1130.
- Great Northern Railway Co v Swaffield (1874) LR 9 Ex 132.
- Keighley, Maxsted & Co v Durant [1901] AC 240.
