Formation of Agency

Agency define which subsists between principal and an agent, where the agent has been authorized to act for the principal or represent him in dealing with others or 3rd party. Agent is person who is employed by the principal to do certain act for him to represent him in dealings with 3rd party. Principal is a person who authorizes the agent to act on behalf of him. There are five formation of agency, which is by express appointment, by implied appointment, by ratification, by necessity and by the doctrine of estoppel or ‘holding out’.

Firstly is formation agency by necessity. Section 142 stated that “An agent has authority, in an emergency; to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances. ” A person, who has no authority, may become an agent due to the necessity or emergency circumstances, in order to protect the principal from loss. Agency by necessity may happen in two situations. First, is when a wife is deserted and has no means of support.

A wife can pledge her husband’s credit for necessaries suited to the income and life condition of her husband. However, she cannot become an agent by necessity if her husband has provided her with sufficient allowance. Secondly, when a person is entrusted with another person property and it becomes necessary for him due to the emergency, to do something in order to preserve and to protect that property although he has no authority to do so. Illustration (b) to section 142, “A consigns provisions to B at Taiping , with directions to send them immediately to C at Parit Buntar.

B may sell the provisions at Taiping, if they will not bear the journey to Parit Buntar without spoiling. ” In the case of Great Northern Railway v Swaffield, the railway company ( plaintiff ) had been untrusted to deliver horse of the defendant to a destination. However, when it reached the destination nobody came to take the horse. The plaintiff had to look after the horse and took several actions in order to preserve the safety of the horse. Plaintiff then claimed from the defendant the extra expenses incurred in preserving the interest of the defendant.

However, the defendant refused to pay on the ground that the plaintiff was not authorized to do so. The held is the plaintiff was an agent by the necessity and therefore entitled to the claimed. Some condition must be satisfied before agency by necessity may arise in the following. Firstly there must be a real an actual emergency. In the case of Phelps James and Co v Hill the held is what is meant by “emergency” must be referrer to the reasonable situation by looking into the dangerousity, facilities available, cause, time distance etc.

Secondly, the agent was entrusted with the principle properties/goods. Any person, who was not entrusted with the principal properties, is not entitled to become an agent by necessity. According to the case Jebarra v. Ottoman Bank, the held is agency by necessity only exist if the agent is entrusted with the goods of the principal or being instructed to deliver the goods to certain destination and where at that time emergency occurred while the goods are under the responsibility of the agent. Thirdly, it is impossible for the agent to get the principal’s instructions at that time.

Whenever an emergency occurs, an agent is under a duty to communicate with the principal to get some instruction. According to section 167, “it is the duty of an agent, in cases of difficulties, to use all reasonable deligence in communicating with his principal, and in seeking to obtain his instruction”. However, if he failed to communicate with the principal, than only the agent may use his own discretion taking the necessary steps. According to the cases Springer v. Great Western Railway Co, the defendant agreed to carry the plaintiff’s tomatoes from Jersey to Covent Garden Market.

Owing to bad weather, the ship arrived late at Waymouth. Meanwhile, the defendants wokers on strike. Therefore the tomatoes were found to be bad. The defendant decided to sell the tomatoes at Waymouth because the defendant felt that the tomatoes could not arrive at Convent Garden Market in the sealable conditions. However the defendants did not communicate this to the plaintiff. Plaintiff claims for damages. The held is the plaintiff was entitled to damages because the defendants were not agents by necessity because they have failed to communicate with the plaintiff when they could have done so.

Lastly, the agent of necessity has acted in good faith. What is done might be done by any other person in a similar position. The effect of agency by necessity is the agent will be protected from any claim of the principal. Secondly, the agent will be entitled to the additional payment for his effort to protect and to preserved the safety and interest of the principal. Thirdly, a contract exists between the principal and the third party. There are three effects of agency by necessity. The agent will be protected from any claim of the principal.

The agent also will be entitled to the additional payment for his effort to protect and to preserve the safety and interest of the principal. Lastly contracts exist between the principal and the third party. Secondly agency is formed by implied appointment. The contract of agency between a principal and an agent may occur impliedly in three situations. First is implied from the circumstances of the case. The creation of agency may be implied by referring to the words, conduct or the regular conduct of the business between the parties. It appears to the public that certain person is having authority to act on behalf of another person.

Refer to section 140, “an authority is said to be implied when it is to be inferred from the circumstances of the case;… or the ordinary course of dealing…” Illustration to section 140 is “A owns a shop in Kajang, living himself in Kuala Lumpur, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purpose of the shop, and of paying them out of A’s funds with A’s knowledge. B has an implied authority from A to order goods from in the name of A for the purposes of the shop.

The held is, once Chan told William Jacks that Yong is his partner, it shows that Yong has the implied authority to act on behalf of Chan. Second is implied from the relationship of husband and wife. It is implied that the wife has authority to pledge the husband’s credit in a contract. On condition that, the contracts are for necessaries, suited to their condition and style of living. Impliedly, the wife is and agent to the husband. The wife has an implied authority to make contract on behalf of the husband.

The husband, as a principal is liable upon such contracts provided that the contracts are for necessaries and suitable to their condition of life and style of living. However, the husband can rebut this authority by proving that he expressly forbid his wife from pledging his credit or he expressly warned the tradesman not to supply his wife with goods or credit, or his wife was sufficiently provided with the goods of the kind in question, or his wife was given a sufficient allowance for buying goods without having to pledge her husband’s credit, or the contract was nreasonable, taking into consideration her husband’s income at that time.

Third is implied by the Partnership Act 1961. Section 7 of this Act provides that each partner in a partnership is an agent to the firm or other partners in the firm, when contracting in the course of the partnership’s business. Each partner is an implied agent to the firm. Each partner has the implied authority to act on behalf of the partners. The firm or other partners are the implied principals to any one of the partners. The firm or other partners are liable to whatever contracts, which had been entered into by any of the partners.

In a conclusion, agency by necessity may happen in two situations. First, is when a wife is deserted and has no means of support. Secondly, when a person is entrusted with another person property and it becomes necessary for him due to the emergency, to do something in order to preserve and to protect that property although he has no authority to do so. The contract of agency between a principal and an agent may occur impliedly in three situations. First is implied from the circumstances of the case. Second is implied from the relationship of husband and wife. Third is implied by the Partnership Act 1961.