Formation of Agency Relationship

Question 1

What is an Agency?

Answer 1

A fiduciary relationship that arises when one person (the principal) appoints another (the agent) to act on the principal’s behalf and under his control, and the agent consents to so act.

Question 2

What are the main requirements for the creation of Agency relationship?

Answer 2

1. Capacity
2. Consent
3. Writing (if required by SOF): Generally, agency law does not require the appointment of an agent to be in writing. However, the SOF may require one.

Level of Consent for Principal vs. Agent

• Principal must have full contractual capacity
• Agent must have at least minimal mental capacity

Question 3

What are the main modes of creating agency relationship?

Answer 3

By Act of the Parties

1. Actual Authority— Parties may create an agency by agreement between the principal and agent
2. Apparent Authority — Parties may also be bound in an agency relationship through holding out by the principal
3. Ratified Authority — When an agent acts without authority, the principal may be bound if the principal validates the contract.

By Operation of Law

1. Estoppel: An agency may be created through estoppel. Estoppel is virtually the same as apparent authority in that it requires third-party reliance on the principal’s communication.
2. Statute: Statutes creating agencies are usually designed to accomplish a limited purpose