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Agency by estoppel: Such an agency is based on the principle of estoppel.

The rule of estoppel can be stated


thus: Where a person, by his words or conduct, has willfully led another to believe that certain set of
circumstances or facts exist, and that other person has acted on that belief, he is estopped from denying the truth
of such statements. In other words, estoppel arises when one is precluded from denying the truth of anything
which he has represented as a fact, although it is not a fact.
A person cannot be bound by a contract made on his behalf without his authority. However, if he by his words
and conduct allows a third party to believe that the particular person is his agent even when he is not, and the
third party relies on it to the detriment of the third party, he will be estopped or precluded from denying the
existence of that persons authority to act on his behalf.
The Burnt Cotton Case: In 1863, T sold 144 bales of cotton to A, P's agent, for 40 cents a pound. Before the
cotton could be put on a boat, 90 bales were bur ned. P had instructed A to buy at an average price of 30 cents a
pound and not vest ownership till delivery at Memphis, so A violated instructions. Must P pay for the burnt
cotton? The U.S. Supreme Court agreed that P must pay, in a unanimous in opinion by Justice Strong. A did
have express authority to buy cotton for P, subject though he was to secret instructions on how he was to do it. It
was impractical for T to delay and ask P if A had authority. Having the express authority to be a general agent,
he had the apparent authority to pay the market price for typical terms of delivery.
Agency by necessity: In certain circumstances, the law authorises a person to act as agent for another without
any regard to the consent of the Principal. A wife deserted by her husband and forced to live separate from him,
can pledge her husbands credit to buy all the necessaries of life according to the position of the husband even
against the wish of the husband and the husband can be held liable for the same. In other cases where in order to
save the property of another, one has to act before the instructions of the owner can be received, he is, by
necessity, authorised to act as Agent and the consent of the owner as Principal is assumed in law.
An agency by necessity may be created if the following three conditions are met:-
1. It is impossible for the agent to get the principal's instruction
2. The agent's action is necessary, in the circumstances, in order to prevent loss to the principal with respect to
the interest committed to his charge e.g. when an agent sells perishable goods belonging to his principal to
prevent from rotting.
3. The agent of necessity must have acted in good faith.
In an emergency an agent has authority to do all such acts for the purpose of protecting his principal from loss
as would be done by a person of ordinary prudence.
Agency by ratification: Ratification means the subsequent adoption and acceptance of an act originally done
without instructions or authority. Thus, where an Agent exceeds his authority (except under emergency), the
acts of the Agent are not binding on the Principal. The Principal, however, may afterwards confirm and adopt
the contract so made and this is known as ratification.
Agency by ratification can arise in any one of the following situations:-
1. An agent who was duly appointed has exceeded his authority or
2. A person who has no authority to act for the principal has acted as if he has the authority.
Ratification is retrospective i.e. it dates back to the time when the original contract was made by the agent and
not from the date of the principals ratification.
On 2 January 1996, A appointed B as his agent to buy a car not exceeding RM 100,000/-. On 5 January B went
to GRG Motors and ordered a car costing RM 135,000/-, telling GRG Motors salesman that he was buying the
car on As behalf. On 12 January, GRG Motors deliver the car to A. If A confirms and adopts the contract on 12
January, then B is said to be an agent through ratification. A can also rejects the contract since B had exceeded
his authority. Contract can be ratified under the following circumstances:- 1. The act must be authorized & 2.
The agent must, at the time of the contract, expressly act as an agent for the principal. i.e. he must not allow the
third party to think that he is the principal.
An agent, R was authorised by the appellants to buy wheat at a certain price. The agent exceeded his authority
and bought at a higher price in his own name but intending it for Keighley. Keighley agreed to take the wheat at
that price but failed to take delivery. The court held that Keighley was liable to the Durant since R at the time of
the contract did not recognize to act as an agent.
A contract of agency can be created in several ways. The most common method is an express agreement in
writing. Sometimes, it arises by implication. But, there are two other methods that are often discussed, estoppel
and ratification.
Here are two commonly accepted definitions:
Estoppel means that if the principal causes third persons to believe that someone is his agent and that third
party deals with the agent, then the principal cannot deny the agency relationship even though it did not
exist in fact.
Ratification means that if a person having no authority whatsoever, purports to act as an agent and the
purported principal later adopts the acts of that agent, an agency relationship has retroactively been created.
The two concepts are somewhat similar, but they are different in the sense of the confirmation. In both cases, the
agency relationship was not clear and defined, and it took a subsequent act to make the antecedent agreement, a
valid and enforceable contract. In the case, of estoppel, it is the Principal who acts. The agent had no authority,
but, the Principal does something that allows a third party to say that the Principal is prevented (or estopped)
from denying that the agent was truly acting for the Principal. Here, it is the contract of agency which is
confirmed or acknowledged. When considering ratification, again it is the Principal who acts. The agent had no
authority, but the Principal does something to confirm the agreement between the Principal and the third party.
This cannot be the case, unless the agency agreement is found to be in place. So, when the Principal adopts the
benefit of the contract, this ratifies and confirms the contract of agency. Lets look at the following example.
Bill and Ron are both vintage car enthusiasts. Bill is a doctor and would like to buy a nice car as an investment,
finally one that goes up in value rather than simply depreciates. Ron is a mechanic. Bob asks Ron to visit a
vintage car auction one weekend. Bob sees a 1960 Corvette and registers his name as a bidder so that he can
participate in the auction. The vehicle sells for $30,000, which was $5,000 more than Bob was prepared to offer.
That was Saturday and Bob leaves, but, Ron goes back the next day. As it turns out, the Corvette is still
available. The successful bidder couldnt close. Now, heres where the story changes a bit. Estoppel: Ron can
sign the papers
Ron says he has a friend who will take the Corvette for $25,000. The owner agrees. Ron knows that Bill will
take it. He calls Bill and Bill then speaks directly to the owner. He says Ron is my agent and he can sign the
papers on my behalf. The deal between Ron and the owner is confirmed by Bill. The legal agreement is drawn
up between the owner as the seller and Bill as the buyer. Ron is Bills agent, although, he wasnt Bills agent
when he made the offer.
Ratification: Ill buy the Corvette
This time the scenario is slightly different.
Ron says he will take the Corvette for $25,000. The owner agrees. Ron knows that Bill will take it. He calls Bill
and Bill then ratifies the deal between Ron and the owner. The legal agreement is drawn up between the owner
as the seller and Bill as the buyer. Ron is Bills agent, although, he wasnt Bills agent when he made the offer.
So, to summarize:
Estoppel: Principal confirms the agency contract
Ratification: Principal confirms the third party agreement
The result in both cases is the same. The agent is deemed to be the agent of the principal right from the
beginning. The two legal doctrines are sufficiently similar that in most cases a plaintiff will allege either
estoppel or ratification and let the Court decide.