160 10: Agency law Part D The formation and constitution of business organisations
2.4 Formation of agency agreement without consent
An agency may be created, or an agent's authority may be extended, without express consent. This
happens by estoppel, when the principal 'holds out' a person to be their agent, and when there is an
agent of necessity.2.4.1 Implied agreement
In some cases, an agency created by implied agreement might result in the agent having more implied
authority than the principal might have consented to.2.4.2 Agent by estoppel
An agency relationship may be formed by implication when the principal holds out to third parties that a
person is their agent, even if the principal and the 'agent' do not agree to form such a relationship. In such
a case, the principal is estopped from denying the agent's apparent/ostensible authority, hence the name
'agent by estoppel'. An agency relationship is not so formed if it is the 'agent' who creates the impression
that they are in an agency relationship with a 'principal'.2.4.3 Agent by necessity
In some rare situations, it may be necessary for a person to take action in respect of someone else's
goods in an emergency situation. That person can become an agent of necessity of the owner of the
goods, as they take steps in respect of the goods.Illustration^
(^)
A seller is shipping frozen goods to a buyer in another country. While the ship is docked, the freezers in
the ship break down and the relevant part required to fix them cannot be obtained. If the ship's captain
(acting as the agent of necessity) cannot make contact with the owner of the goods, they might, of
necessity, sell the goods while they are still frozen, rather than allow them to spoil by defrosting.
This is particularly rare, because it would only occur when the 'agent' could not make contact with the
'principal', which in the modern world is extremely unlikely.
This principle is a historic part of English shipping and merchant law and you should be aware that it
might be possible, but do not worry about the other details of the doctrine.
3 Authority of the agent
If an agent acts within the limits of their authority, any contract they make on the principal's behalf is
binding on both principal and third party. The extent of the agent's authority may be express, implied or
ostensible. Express and implied authority are both forms of actual authority.
A principal does not give the agent unlimited authority to act on their behalf. A contract made by the agent
is binding on the principal and the other party only if the agent was acting within the limits of their
authority from their principal.
In analysing the limits of an agent's authority, three distinct sources of authority can be identified:
Express authority
Implied authority
Ostensible authority
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