(3) Formation of agency
  1. Agency by appointment
a. An agency is created by express appointment when the principal appoints the agent by express agreement with the agent. This express agreement may be an oral or written agreement between the principal and the agent.
b. Contract law principles apply to an agency agreement. An agent may agree to act in consideration for a reward. On the other hand, an agency is gratuitous if the agent agrees to act for no consideration.
c. The general rule is that agency may be created orally and there is no formality for the creation of agency by express agreement, except for one situation which is discussed below. This general rule applies even to cases of appointing agents for the signing of agreements for sale and purchase of immovable property, whether on behalf of the vendor or the purchaser.

The one exception is where an agent is appointed to execute a deed on behalf of the principal. In this case, the agent will have to be appointed by deed, which is called a power of attorney.

  2. Agency by estoppel (implied appointment)
a. Agency by estoppel arises when A makes a representation to a third party, whether by words or conduct, that B is his agent, and subsequently that third party deals with B as A's agent in reliance on such representation. A will not be permitted (is estopped) to deny the existence of the agency if to do so would cause damage (usually financial loss) to that third party.
b. The person who makes such representation ("A" in paragraph (a) above) is treated as having created an agency relationship between himself as the principal and the other person ("B" in paragraph (a) above) as his agent, although there is in fact no agreement between the two parties ("A" and "B" in paragraph (a) above) as to the creation of the agency relationship. Agency by estoppel is sometimes called implied appointment of agent.
c. In agency by estoppel, the authority of the agent is described as only apparent or ostensible but not actual, as the principal has, in fact, not granted the agent such authority to act on the principal's behalf.
d. The extent of apparent or ostensible authority of the agent in an agency by estoppel depends largely upon the contents of the representation made by the principal to the third party who relies and acts on the representation. The principal is said to "hold out" a person as his agent with such authority as the principal may induce the third party to believe and is estopped from denying the existence of agency.
  3. Agency by ratification
a. Agency by ratification arises when a person (the principal) ratifies (that is, approves and adopts) an act which has already been done in his name and on his behalf by another person (the agent) who in fact, had no actual authority (whether express or implied) to act on his (the principal's) behalf when the act was done.
b. Ratification by itself only creates an agency relationship between the principal and the agent in respect of the act ratified by the principal, but not in respect of any other act, whether past or future.
c. The person who ratifies an act of another person must have been in existence and have the legal capacity to carry out that act himself both at the time when the act was done and at the time of ratification. A person may lack legal capacity on grounds of bankruptcy, infancy or mental incapacity.
  4. Agency of necessity
a. Agency of necessity arises when a person ("A") is faced with an emergency in which the property of another person ("B") is in imminent jeopardy and it becomes necessary, in order to preserve the property for A to act for and on behalf of B. In this case, A acts as an agent of necessity of B.
b. Agency of necessity arises only when it is practically impossible for the agent to communicate with the principal before the agent acts on behalf of the principal. (This would be difficult to establish with today's advanced communication systems and is the reason why agency of necessity does not often arise.)
c. Authority to act in case of emergencies cannot usually prevail over express instructions to the contrary given by the principal.

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