MODES OF CREATION OF AGENCY

TORAN LAL VERMA

Who is an agent and a principle (Sec. 182)

An “agent” is a person employed to do any act for another, or to represent another in dealing with third  persons. The person for whom such act is done, or who is so represented, is called the “principal”.

The relationship between an agent and a principal is called an “Agency.” An agent therefore brings together his principal and a third person. Ex- A appoints B to Purchase a house for him. A is the principal, B is an agent and the relationship between them is that of Agency.

GENERAL RULES OF AGENCY

  1. Whatever a person competent to contract may do by himself, he may do through an agent, except for acts involving personal skill and qualifications. Like, a person cannot marry through an agent, a person cannot paint a picture through agent.
  2. The acts of an agent are acts of a principal for all legal purposes.

WHO MAY EMPLOY AN AGENT (Sec 183)- According to law, any person who is of the age of majority and who is sound mind, may employ an agent. Any person competent to contract may employ an agent, and a minor, a lunatic or a drunken person cannot employ an agent.

Who can be an agent (Sec 184)- “as between principle and third person any person may become agent” . thus even a minor, a lunatic or a drunken person can be employed as  an agent. However, in such case because runs a great risk as he cannot hold such an agent liable for misconduct or negligence.

Creation of Agency The following are different modes of creation of agency.

  1. Agency by Express agreement.
  2. Agency by Operation of law.
  3. Agency by Ratification.
  4. Agency by Implied authority.

1. Agency by Express agreement:Number of agency contract come into force under this method. It may be Oral or documentary or through power of attorney.

2. Agency by operation of law:At times contract of agency comes into operation by virtue of law.

For example: According to partnership act, every partner is agent of the firm as well as other parties. It is implied agency. On account of such implied agency only a partner can bind over firm as well as other partners, to his activities. In the same way according to companies act promoters are regarded as agents to the company

3. Agency by Ratification: Ratification means subsequent adoption of an activity. Soon after ratification principal – agent relations will come into operation. The person who has done the activity will become agent and the person who has given ratification will become principal.

  • Ratification can be express or implied. In case where adoption of activity is made by means of expression, it is called express ratification. For example: Without A`s direction, B has purchased goods for the sake of A. There after A has given his support (adoption) to B`s activity, it is called Ratification. Now A is Principal and B is agent.
  • The ratification where there is no expression is called implied ratification. For example: Mr. Q has P`s money with him. Without P`s direction Q has lent that money to R. There after R has paid interest directly to P. Without any debate P has taken that amount from R. It implies that P has given his support to Q`s activity. It is implied ratification.

 

  1. Agency by implied authority:This type of agency comes into force by virtue of relationship between parties or by conduct of parties.

For example: A and B are brothers, A has got settled in foreign country without any request from A, B has handed over A`s agricultural land on these basis to a farmer and B is collecting and remitting the amount of rent to A. Here automatically A becomes principal and B becomes his agent. Agency by implied authority is of three types as shown below;

  • Agency by Necessity
  • Agency by Estoppel
  • Agency by Holding out.

(i)By Necessity: At times it may become necessary to a person to act as agent to the other in emergency situation where the property or interest of another is in danger . the conditions which enables a person to act as an agent of another in necessity are as follows:

  1. There should be a real necessity for acting on behalf of the principal.
  2. It should be impossible to communicate with the principle within the time available.
  3. The alleged agent should act bonafide in the interest of the principal.

For example: A has handed over 100 bags of butter for transportation, to a road transport company. Actually it is bailment contract assume that in the transit all vehicles has got stopped where it takes one week for further movement. So the transport company authorities have sold away the butter in those nearby villages. Here agency by necessity can be seen.

 

(ii)By Estoppel: Where a person, by his conduct or words spoken or written, willfully leads another to believe that a certain person is acting as his agenct, he is estopped later on from denying the truth of the fact that such a person is dealing as his agent.

Example:  In presence of A , B says to C that he (B) is A`s agent though it is not so actually. A has not restricted B from making such statement. It is agency by estoppel.

 

(iii)By Holding out: the principal is bound by the act of agent if on an earlier occasion he has made others believe that other person doing some act on his behalf is doing with his authority.

Example: Y is X`s servant and X has made Y accustomed to bring goods on credit from Z. On one occasion X has given amount to Y to bring goods from Z on cash. B bought goods on credit as usually and runs away with the money. This is agency by holding out and therefore X is liable to pay amount to Z.

 

 

 

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