Agency relations in legal aspects of business

LEGAL ASPECTS OF
BUSINESS

Introduction
Agency relationship denotes a contractual relationship between a principal and an agent
where the latter is bound to do certain acts on behalf of the former. Thus it is a fiduciary and
a consensual relationship between two persons, as was held in the popular case law of Bristol
and West Building Society v Mothew [1996] EWCA Civ 533. The loyalty and the trust are
rightly stated as the two key pillars of the agency relationship.
The objective of the following report is to evaluate the various aspects of the agency
relationship, in particular the legal duties and responsibilities of the principals and agents
towards each other and in general. This would be in addition to the elaboration of the chief
characteristics of such a relationship, which makes it different from other contractual
relationships. The discussion would be supported with the renowned case laws which would
enable a comprehensive understanding of the features of the agency relationship in detail.
Key features of the agency relationship
The agency relationship is defined as a legal arrangement where under an agent is appointed
by a principal for the purpose of acting in a specified manner at the direction of the principal.
In the business scenarios, the agents are generally appointed for the introduction and the
conclusion of the business agreements with the third parties such as the customers, suppliers
and others. Thus, it is important to note that the law of agency is not only limited to the agent
and the principal relationship, but also extends to the principal and the third party, and also to
the agent and the third party. The agents have a central and a mediating role to play in the
actualization of the contracts, and thus in commercial sense, the existence of the agents
cannot be avoided. The agency relationship can be established in one of the five following
manners that are the express agreement, implied agreement, by ratification, by necessity, and
by estoppel.
The features of the agency relationship are elaborated as follows. The prime feature is the
expression of consent of both the parties. The said expression can be in the form of an oral or
a written agreement. However, it must be essentially noted that the occurrence of the agency
relationship can also take place in the light of the circumstances even when an explicit
agreement is not there in this regard. The occurrence of the implied agency is the question of
the facts and the circumstances, and the same cannot be generally specified. The case of

Bamgboye v. University Of Ilorin (1991)8 NWLR is important to be noted here. In the stated
case it was held by the Courts of Appeal that in order to determine the existence of the
agency relationship shared between the parties, the evaluation would not be limited to the
terminology used by the parties to define the relationship. Rather, it would depend on the
nature of the relationship. This means that whether or not the parties refer their relationship as
an agency relationship, the conclusion would depend on the facts and circumstances of each
case.
In addition to the consensual relationship, the next feature of an agency relationship is the
“representation.” Within an agency relationship, the agent represents the principal in front of
the third parties, and hence the former must act lawfully and within the terms and conditions
of the contract, as agreed on between the parties. Hence, it would not be wrong to state that
the agents are the “alter ego” of their principals or the ones that establish a connection
between the third parties and the principal.
The next key feature of an agency relationship is that the authority of the agent. It must be
noted that an act that fall beyond the scope of the agent’s authority, if not ratified by the
principal, would not bind the latter, and the agents would be personally responsible in this
regard. Thus, not all the acts would lead to the liability of the principal. In order to understand
the duties of the agent, the nature and types of authorities by which an agent acts must be first
essentially understood. The source of the authority of an agent is either the implied or
expressed terms and conditions of the contract, or the provisions in the law as applicable for
the time being. Thus, the authorities are categorised as follows.
Actual Authority: An actual authority arises when there is a reasonable belief on the part of
the agent that an act was required to be taken. The said actual authority is further categorised
into express authority and the implied authority. The express authority is when an act is
required to be done as per the specific instructions. The implied authority is when an act is
done which is incidental to the performance of the expressed authorised act and has not been
prohibited to be done by the agent in the express terms.
Apparent Authority: In contrast to this, the apparent authority or the ostensible authority is
when the authority to do an act does not exist prima facie, however the same is derived from
the expression made to the third parties that the agent is authorised to do such an act. Such a
representation arises from the function of an office to which an agent is appointed or by the
previous dealings in which such acts have been done by the agents on a consistent basis.