Important ways in which an agency can be created are listed below:
1. Agency by Express Agreement:
Normally agency is created by an express agreement, specifying the scope of the authority of agent. The agent may, in such a case, be appointed either by word of mouth or by an agreement in writing (Sec. 187).
ADVERTISEMENTS:
However, in certain cases, e.g., to execute a deed for sale or purchase of land, the agent must be appointed by executing a formal ‘power of attorney’ on a stamped paper.
2. Agency by Implied Agreement:
Implied agency arises when there is no express agreement appointing a person as an agent, but instead the existence of agency is inferred from the circumstances of the case, or from the conduct of the parties on a particular occasion, or from the relationship between parties (Sec. 187). Such an agency may take the following forms:
(a) Agency by estoppel;
ADVERTISEMENTS:
(b) Agency by holding out;
(c) Agency by necessity.
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We shall deal with each of these in turn:
ADVERTISEMENTS:
(a) Agency by estoppel. Such an agency is based on the ‘doctrine of estoppel’ which may briefly be stated thus, “Where a person by his words or conduct has wilfully led another to believe that certain set of circumstances or facts exists, and that other person has acted on that belief, he is estopped or precluded from denying the truth of such statements, although such a state of things did not in fact exist.”
Section 237 of the Contract Act, which deals with agency by estoppel, also provides to the same effect. The Section lays down that “when an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of agent’s authority.”
We may sum up thus, an agency by estoppel is created when the alleged principal by his conduct or by words spoken or written, leads wilfully the other contracting party into an honest belief that the supposed agent had authority to act as such and bind the principal.
Such a principal will be estopped from denying subsequently his agent’s authority, although the agent did not in fact possess any authority whatever.
Illustrations:
(a) 7″ tells M in the presence and within the hearing of N that he (7) is N’s agent. N does not contradict this statement and keeps quiet. Later on M enters into a transaction with T believing honestly that 7″is A”s agent.
A’ is bound by this transaction and he will be estopped from denying the existence of the agency, even though such an agency did not in fact exist. Notice that by virtue of the doctrine of estoppel an apparent or ostensible agency becomes as effective as an agency deliberately created.
(b) A consigns goods to B for sale and gives him instruction not to sell under a fixed price. C, being ignorant of B’s instruction, enters into a contract with B to buy the goods at a price lower than the reserved price. A is bound by the contract. [Illustration (a) to Section 237]
(b) Agency by holding out:
Such an agency is based on the “doctrine of holding out” which is a part of the law of estoppel. In this case also the alleged principal is bound by the acts of the supposed agent, if he has induced third persons to believe that they are done with his authority.
But, unlike an ‘agency by estoppel’, an ‘agency by holding out’ requires some affirmative or positive act or conduct by the principal to establish agency subsequently.
Thus, where an employer has been accustomed to pay for goods bought on his behalf by his employee from P, the employer may be liable for a purchase made in the customary manner, even though it is made, by the employee fraudulently after he has left the employment.
The employer’s conduct in ‘holding out’ his employee to be his agent (paying for purchases made by the employee on previous occasions) estops him from denying that his authority was not still in existence.
It may be noted that where the agent is ‘held out’ as having only a ‘limited authority’ to do acts, the principal is not bound by an act outside the authority.
(c) Agency by necessity:
In certain circumstances the law confers an authority on one person to act as agent for another without any regard to the consent of the principal. Such an agency is called an agency of necessity. Bowstead has rightly observed:
“An agency by necessity is conferred by law in certain cases, where a person is faced with an emergency in which the property or interests of another are in imminent danger, and it becomes necessary in order to preserve the property or interests, to act before the instructions of the owner can be obtained.
The law assumes the consent of the owner to the creation of the relationship of principal and agent.” Thus, the conditions which enable a person to act as an agent of necessities of another are as follows:
(i) There should be a real necessity for acting on behalf of the principal.
(ii) It should be impossible to communicate with the principal within the time available.
(iii) The alleged agent should act bonafide in the interests of the principal.
Generally the ‘agency by necessity’ arises in the following cases:
(i) Where the agent exceeds his authority, bona fide, in an emergency. For example, where A consigns fruits to B at Allahabad with directions to send them immediately to C at Varanasi, and B, finding that the fruits are perishing rapidly, sells them at Allahabad itself for the best price obtainable, the sale will bind the principal and the agent cannot be held liable for exceeding his authority as under the circumstances of the case there arises agency of necessity.
(ii) Where the carrier of goods acting as a bailee, does anything to protect or preserve the goods, in an emergency, although there is no express authority in that regard. Thus a master of a ship is entitled, in cases of accident and emergency, to sell or pledge the goods in order to save their value and the sale or pledge will bind the cargo owners.
Similarly, a land carrier of goods, in case of accident or emergency, becomes an agent of necessity, for example, if a public carrier develops an engine trouble, the driver can pledge a part of the goods loaded thereon in order to raise the money necessary for repairs and the pledge will be binding on the owner of goods. Notice that in these cases it is not practicable to communicate with the principal.
(iii) Where a husband improperly leaves his wife without providing proper means for her sustenance. In a special circumstance the case of husband and wife also provides an instance of agency by necessity.
When the wife has been deserted by the husband and thus forced to live separate from him, the wife is regarded as the agent of necessity of the husband and she has the authority of pledging her husband’s credit for necessaries even against her husband’s wishes. However, this rule does not apply where the wife improperly leaves the husband.
It is relevant to state that in the ordinary Course of things there is an implied agency between the husband and wife and the wife is presumed to have implied authority to pledge her husband’s credit for necessaries suiting to the couple’s joint style of living. But a husband enjoys no corresponding right to pledge his wife’s credit for necessaries.
3. Agency by Ratification:
Ratification means the subsequent adoption and acceptance of an act originally done without instructions or authority. Thus where a principal affirms or adopts the unauthorised act of his agent, he is said to have ratified that act and there comes into existence an agency by ratificaition retrospectively.
Section 196 deals with the effect of ‘ratification.’ It provides that “where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority.”
Illustration:
A buys 5 bag of wheat on behalf of B. B did not appoint as his agent. B may, upon hearing of the transaction, accept or reject it. If B accepts it, the act is ratified and A becomes his agent with retrospective effect.
Ratification relates back to time of contract. As observed above, ratification has got retrospective effect. By ratifying the unauthorised act of the agent, the principal becomes bound by the act as if it had been originally done by his authority.
Thus ratification amounts to ‘prior authority’. It relates back to the original making of the contract. This means that the agency comes into existence from the moment the agent acted and not from the time when the principal ratified.
Illustration:
The managing director of a company, purporting to act as agent on company’s behalf, but without its authority, accepted an offer made by L, the defendant, for the purchase of some sugar works belonging to them. L subsequently withdrew the offer but the company ratified the managing director’s acceptance. Held, L was bound.
The ratification, related back to the time of managing director’s acceptance, and so the withdrawal of the offer was inoperative. An offer once accepted cannot be withdrawn. (Bolton vs Lambert)
Ratification may be express or implied. Section 197 provides; “Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.”
Illustrations (Appended To Sec. 197):
(a) A, without authority, buys goods for B. Afterwards B sells them to C on his own account. B’s conduct implies a ratification of the purchase made by A for him.
(b) A, without B’s authority, lends B’s money to C. Afterwards B accepts interest on the money from C. B’s conduct implies a ratification of the loan.