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Modes of Creation of Agency
The various modes to create the contract
of agency are:-
◦ 1. By Express Agreement
◦ 2. By Implied Agreement
◦ 3. By operation of law
◦ 4. By ratification
1. Agency by Express Agreement
(S. 186) An agency by express authority arises
when an express authority is given to the
agent by spoken or written words.
For Ex: P appoints A to manage one of his
business by executing a power of attorney
in A’s favour. Here, the relationship of
Principal and agent has been created
between P and A by an express authority.
2. Agency by Implied Authority
(S. 187) An agency which has to be understood from the conduct and
behaviour of the parties is called implied agency.
It is to be inferred from the circumstances of the case and things
spoken or written or the ordinary course of dealing.
For Examples:
◦ P lives in Delhi but owns a business in Manali and visits
occasionally. The business is managed by A with P’s knowledge.
Thus, A has an implied authority from P to manage the business
in the name of P.
◦ P who resides in Delhi employed A, to recover a debt (due to P)
from T who lives in Chennai. Now, A may adopt any legal process
necessary for the purpose of recovering the debt.
Implied agency include the following:-
◦ i) Agency by Estoppel
◦ ii) Agency by Holding-out
◦ iii) Agency by Necessity
i) Agency by Estoppel (S.237)
It arises where a person by his words or
conducts induces third persons to believe that a
certain person is his agent.
For ex: A tells T in the presence and within the
hearing of P that he is P’s agent. P doesn’t
contradict this statement. Later on T enters into
a contract with A and supplies certain goods to
A, who pretends to act as an agent of P. In such
a case, P is liable to pay the price to T and he
can’t be permitted to say that A is not his agent.
ii) Agency by Holding-Out
It arises when a person by his past affirmative or
positive conduct leads third person to believe that
person doing some act on his behalf is doing with
authority.
In this case, a prior positive or affirmative act on the
part of the principal is required to establish agency
subsequently.
For ex: P allows A, his servant to purchase goods for
him on credit from T and later on pays for them. One
day P pays cash to A to purchase goods. A
misappropriates the money and purchases goods on
credit from T. Now T can recover the price of the goods
from P because P had held out A as his agent on earlier
occasions.
iii) Agency by Necessity (S. 189)
It arises under the following conditions:-
a) When there is an actual and definite necessary for
acting on behalf of the principal,
b) If it’s impossible to communicate with the principal
and obtain his consent,
c) When the act have been done in the best interest
of the principal.
For Ex: P consigned A some fruits and vegetables from
Delhi to Mumbai by a truck. The truck met with an
accident. The consignment was sold by A due to its
perishable nature. Thus, the sale is binding on P.
(case law- Sim and Co. v Midland Rly Co.)
3. Agency by Operation of Law
It arises where the law treats one person
as an agent of another.
For ex:
a) On formation of a partnership, every
partner becomes the agent of other partner.
Such agency is said to be arisen by operation
of law.
b) When a company is formed, its promoters
are its agents by operation of law.
4. Agency by Ratification (S. 196)
Also known as Ex-post facto agency.
Ratification means “approval of the act done by an
unauthorized person”.
It arises when a person ratifies the unauthorised act of
another person pretending to act as his agent.
Thus, when the principal approves an act of the agent
who never had the authority to undertake such an act,
is called ratification.
For ex:
◦ A without P’s authority lends money to T. Afterwards, P accepts
interest from T. P’s conduct implies a ratification of the loan.
◦ A without authority buys goods for P. Afterwards P sells them
to T on his own account. P’s conduct implies a ratification of the
purchases made for him by A.
Case law:Bolton Partner v. Lambert
◦ A the managing director of a company,
without prior authority from the company
accepted an offer made by T. Later, T revoked
the offer but the company ratified A’s
acceptance. It was held that T is bound by
ratification because ratification related back
to the time of A’s acceptance.
Effect of Ratification (S. 196)
The effect of ratification is to make the agent’s
unauthorised acts as authorised as if they have been
performed with the principal’s authority.
“Ratification is tantamount to prior authority”. It means
that the ratification relates back to the date when the
act was done by the agent and not to the date when the
principal ratified the act.
Hence, the agency is deemed to have come into
existence from the time when the agent first acted and
not from the time when the principal ratified the act.
Essentials of Ratification
1. Act on behalf of another person (s. 196)- The acts done by an agent on
behalf of another person can only be ratified. Thus, the acts done by the
agent in his own name can’t be ratified.
2. Full knowledge (s. 198)- No valid ratification can be made by a person
whose knowledge of the facts of the case is materially defective.
3. Whole Transaction (s. 199)- The ratification must be made for the whole
transaction and not for a part of transaction.
4. No damage to third party (s. 200)- An act which has the effect of
subjecting a third person to damages can’t be ratified.
5. Existence of Principal- The principal must be in existence at the time
when the act is done in his name.
6. Contractual capacity of principal- The principal must have contractual
capacity both at the time of contract and at the time of ratification.
7. Within reasonable time- The ratification must be done within a
reasonable time otherwise it will not be binding.
8. Lawful Acts- Only those acts which are lawful can be ratified.
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