Different modes of Creation of Agency

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This article is written by El-varith Fahad.AP, student of Markaz Law College at Calicut,Kerala. This article is a general view of creation of Agency.

Introduction

Now a days different types of contract such as contract of agency, come into effect as per the need of people according to the change of the world. Agency system is very ordinary in the current business scenario. According to Indian contract act, 1872 it clearly defines the system of agency and deals with provisions with regard to different features of contract of agency, kinds of agent and creations of agent. Generally it consists of two parties, one is the principal and another the agent. In an agency one party employs another in order to act in dealing with third party. In other words, one party delegating his authority to another to represent him or to act on his behalf, in dealing with a third person. The relation between them is called agency.

Agency;

Agency is a kind of special contract which is very ordinary in the current business scenario. Contract of agency means delegating power by one person to another in order to act on his behalf.

According to section 182 of Indian contract act, 1872 defines the principal and agent. The principal is one who delegating authority to another to act on his behalf and the agent is a person acting on behalf of his principal. Actually an agent is a connecting link between his principal and third party. So the act of agent binds the principal in the same manner in which he would be bound if he does the act himself. In order agency contract to be come into force, some conditions prescribed under sections 10 of the contract act should be strictly satisfied. Both 183 and 184 Sections of the same act dealing with the conditions to be a principal and agent respectively. As per section 183 of the act states that it is necessary to be a principal he should be competent to contract as per mentioned in 11 section of the contract, whereas even a minor can act as an agent between principal and third person in some particular circumstance.

Creation of agency

As we stated above an agency is process in which one party delegating his power to another to act in dealing with third person. In this context, the act done by an agent on behalf of the principal binds the principal towards a third person. It is because act done by the agent is according to the direction of the principal. That’s why the principal is responsible for the acts done towards the third person. There are some circumstances in which the principal is bound by the acts of the agent.

The following are different modes of creation of agency;

  1. By Actual authority;-

As we have aforementioned, the principal will be the responsible for any act done by his agent towards the third person, with the actual authority given by himself to the agent. Because, in the contract of agency the agent steps into the shoes of the principal in dealing with the third party.

The authority of an agent can be broadly classified into two.

  1. Express authority.
  2. Implied authority.

Express Authority;

an authority is said to be an express when it is made by words spoken or written as per mentioned under section 187 of Indian contract act.

Implied Authority;

An authority is said to be an implied when It is conferred from the circumstance. Mostly this kind of agency comes into effect by the relation between the parties.

Illustration;

A and B are brothers. B decided to get settled in foreign country. A, without requesting from B, handed over the land belonging to B, to C for agriculture and A is collecting and remitting the amount of rent to A. Here, A automatically becomes the agent and B becomes his principal.

  1. By Emergency;

Section 189 of the Indian Contract Act introduces particular emergency situations allowing one person to act as an agent, even without an express authority, for another in order to save that person’s property from being loss. In other words, law permitting one person to stand as an agent, even without actual authority from the real owner of the property, when the property is in danger.

The followings are its conditions;

  1. There must be a necessity for acting on behalf of another.
  2. There must be impossible to communicate with another within the time available.
  3. The act of the agent must be for the benefit for another.

Illustration;

A consigns some objects to B at Kerala, with directions to send those objects to C at Culcutta. Here, B may sell those objects at Kerala if they will not bear the journey to Culcutta without spoiling.

  • By Estoppel;

Sometimes the agent has neither express nor implied authority to act on behalf the principal. But the principal by his acts made an impression in the mind of third party that the agent is doing on behalf of the principal and according to his instructions. In such case, the principal will be liable towards third person, by any act done by the agent on his behalf, on the ground of the application of law of estoppel.

Illustration;

In the presence of A, B says to C that what he (B) is doing is on behalf of A, though it is not so actually. But A has not restricted B from making such a statement. Here, A is liable towards C, by any act done by agent as A made an impression in the mind of C that, B is his agent.

  1. By Holding out;

This mode of creation of agency is a part of the law of estoppel. In this case, the principal is liable by the act of alleged agent if on an earlier occasion he has made the third party believe that the other person doing with authorized acts on his behalf.

  1. Wife as agent;

Prima facie we presume while both spousaes living together, that wife has her husband’s authority to pledge his credit for the purpose of purchasing necessaries for life suitable to their standard of living. In addition to that, husband is also responsible for necessary to his wife even though they living apart, provided that, that should be due to husband’s fault.

But in the following circumstances, husband will not be liable

If he shows that;

  1. He has warned the tradesman that not to supply goods on his credit to his wife.
  2. He has warned his wife not to use his credit.
  3. He already supplied sufficient goods to his wife.

But, here one more thing to be noted that if the spouses are living apart due to wife’s fault, in such cases, husband is not liable for necessary goods to his wife.

  1. By Ratification;

Ratification literally means subsequent adoption of the activity. When one person does an act on behalf of another person, though without his actual authority to do so, the person on whose behalf the act is done has the following options :- Either

  1. Reject the act, or
  2. Ratify the act.

In such case, when one person untruly represents and says that what he is doing is on behalf of the principal, with a view to making impression in the mind of third party. If the person on whose behalf the act is done, subsequently ratifies the act, the relation between them will come in to effect and the person who does the act is called agent and the person who ratifies the act is called principal. As a result of this, the person who ratifies the act will be liable for any act done by his agent on behalf of him, even for the act done before the ratification. By the ratification, the contract is binding on principal as if the agent had been authorized before and the ratification effects on the whole transactions, though he ratifies the act subsequently.

Essentials of ratification;

  1. The act should be done on behalf of other.
  2. The principal should be existence and competent to contract, when act is done.
  3. Ratification may be implied or express.
  4. Ratification should be with full knowledge of the facts.
  5. Ratification should of the whole transaction.
  6. Ratifies act should not be injuries to the thirs party.
  7. Ratification should me made within reasonable time.

Conclusion

There are different types of contract in the present world. contract of agency is one of its type and is very familiar with current business scenario. In the agency system, one person delegating his power to another in order to act on his behalf, in dealing with third party. The agent in the agency system, should act according to the directions of his principal. Therefore, the principal will be liable towards the third party for any act done by his agent. Mostly, the act done by the agent on his principal’s behalf, with the actual authority given by his principal. But, in some particular circumstances, one may do an act as an agent on behalf of another, though without actual authority from one on whose behalf act is done.

 

Reference;

INDIAN CONTRACT ACT By Dr. R.K. Bangia

LAW OF CONTRACT By Dr. S.S Srivastava

THE INDIAN CONTRACT By Narendar Kumar

Author: FAHAD Ap,
Markaz law college, At Knowledge city

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