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MODES OF CREATION OF AGENCY


Article submitted by Anukriti Sharma.


1). INTRODUCTION

This article deals with modes of Agency. Chapter X of the Indian Contract Act (ICA), 1872 deals with laws relating to agency. The two terms ‘Agent’ and ‘Principal’ is defined under section 182 of ICA[1]. An agent is person who is appointed by principal to represent him or to act on behalf of him and the contract which creates a relationship between them is called an Agency. In P. Krishna v. Mundila Ganapathi, the Madras High Court held that, agency is only when an agent acts as representative of the other in business negotiations, that is to say, in creation, modification or termination of contractual obligations, between that other and third person[2]. For example, A, a property owner delegates B, an Auctioneer to sell property on behalf of him to C (third party) who wants to purchase land. Here, A is the Principal and B is the Agent, who is acting on behalf A and representing his deal to the Third party (C). Therefore, the relationship created between A and B is Agency.

PRINCIPAL Appointed B to represent him AGENT B is acting on behalf of A 3rd PARTY

AGENCY

A: Property owner B: Auctioneer C: Buyer

According to section 183[3], any person who is the age of majority and is of sound mind can appoint an agent and section 185[4] says any person can become an agent between principal and the third party. Thus, even a minor can be appointed as agent because he is acting on behalf of principal and therefore, he is not directly liable to third parties. Agency exist whenever a person has the authority to act on behalf of the other and create a contractual relationship between that the other and third person. As per section 185, consideration is not required to create an agency. The fact that the principal has agreed to appoint and to be represented by an agent is sufficient detriment to the principal to support the contract of agency. In Carr v. Hunt, it was held consent is essential for this relationship and must be from both sides as it shows their intentions behind such relationship[5].

2). MODES OF CREATION OF AGENCY

Modes of Agency by

A). Express agreement B). Implied authority C).By ratification

· Agency by Estoppel(section:237)

· Agency of Necessity (section:188 &189)

1). Agency by Express Agreement

The term ‘express’ connotes agreements in which the terms are explicitly stated by the parties either orally or in writing. By virtue of section 186[6], authority of the agent can be given expressly or impliedly. An express contract of agency can be made orally or in writing. Under section 183, any person who is the age of majority and is of sound mind can appoint an agent.

Where an appointment is made by a deed or by a written agreement is known as “Power of Attorney” that gives a right to an agent to act on behalf of his principal, this happens when it expressly done by principal to establish the relationship of agency.[7] In a case before Supreme Court, a person was appointed as a caretaker of agricultural land by giving him power of attorney to act on behalf of principal. The issue raised before court was how could three persons can appoint one single agent and also by single power of attorney. The court regarded power to be valid and applicable to their respective agricultural land[8]

2). Agency by Implied Authority

The meaning implied is when proposal or acceptance is made otherwise than in words, the promise is said to be implied. It made only through gestures or actions. Section 187 of ICA, talks about implied authority and says “an authority is said to be implied:

a) When it is to be inferred from the circumstances of the case

b) Things spoken or written

c) The ordinary course of dealing, may be accounted circumstances of the case.”

For example, A owns a Tailor shop in Punjab and he lives in Himachal. The shop is managed by B in absence of A. B order raw material for the shop from C in the name of A. Here, B has an implied authority from A to purchase raw material from C.

2.1 Implied Agency by estoppel

The concept of agency by estoppel is given under section 237 of ICA[9] . It is the situation where a principal by his act voluntarily placed an agent in such a situation that a person of ordinary prudence will presume that such agent has authority to perform a particular and therefore deals with the agent, the principal is estoppel against such third person from denying the agents work[10]. For example, A is the owner and he took his servant B along with him for shopping and the shopkeeper will presume that B is acting on behalf of A. Here, a person simply by his gestures or actions acts like another person, his agent and principal cannot deny or revert himself from the fact which was represented as a fact earlier by him. Thus, the relationship created between A and B is Implied agency by estoppel. In order to create such estoppel, the duty to speak arises where “silence would create an erroneous impression which leads the prospective represented to alter his position for the worse”[11]

2.2 Implied Agency by Necessity

The implied agency also arises in case of emergency and necessity. Under section 189, agent is empowered to do acts that protects his principal from any type loss and section 188, gives authority to agent do anything which is lawful and beneficial for his principal.

In Great Northern Railways Co. v. Swaffield[12], A (principal) sent a horse by railways to his agent B. B, went for some other work and could not receive him. Thus, there was no one to receive horse on its arrival at destination. Railway station master received him and was bound to take reasonable steps to keep the horse alive, he was an agent of the necessity on behalf of A and A has the responsibility to pay amount spend by railway company to keep horse alive.

3). Agency by Ratification

Agency of ratification is discussed under section 169-200 of ICA. An agency by ratification arises, where a person not having any authority act as agent, or act beyond its authority, then the principal is not bound by the contract with the agent. But the principal can ratify the agent’s transaction and accept his liability. Section 169 of ICA provides for Rights of the Person as to the acts done for him without his authority. Agency by ratification is an ex post facto agency established after the completion of the task required and after ratification, the contract becomes binding on principal as if the agent had been authorized before and can be expressed or implied. For example, X, without Y’s authority, lends Y’s money to Z. Afterwards Y accepts interest on the money from Z. Y’s conduct implies agency by ratification.

3). CONCLUSION

Chapter X of Indian Contract Act (ICA), 1872 deals with laws relating to agency. An agent is person who is appointed by principal to represent him or to act on behalf of him and the contract which creates a relationship between them is called an Agency. Consideration is not the essential element for contract of agency. There are various methods of creation of agency, it depends on the principal mode which he/she wants to adopt. By virtue of section 186, authority of the agent can be given express or implied. An express contract of agency can be made orally or in writing and on other hand agency by implied authority is done by gestures or actions. It is further divided into types i.e. a). Agency by estoppel and b). Agency by necessity. Agency can also be established by ratification. It is established after the completion of the task and after ratification, the contract becomes binding on principal as if the agent had been authorized before.

[1] Section 182. ‘Agent’ and ‘principal’ defined. — An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the ‘principal’. —An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the ‘principal’. [2] A.I.R. 1955 Mad 648 (India). [3] Section 183. Who may employ agent.—Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent. —Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent [4] Section 185. Consideration not necessary.—No consideration is necessary to create an agency. —No consideration is necessary to create an agency. [5] Carr v. Hunt, 651 S.W. 2d 875 (1983). [6] Section 186. Agent’s authority may be expressed or implied.—the authority of an agent may be expressed or implied. [7] (1968) 1 QB 549. [8] Syed Abdul Khader V. Rami Reddy, A.I.R. (1979) 2 S.C.C. 601(India) [9] 237. Liability of principal inducing belief that agent’s unauthorized acts were authorized.—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 the agent’s authority. —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 the agent’s authority. [10] John S. Ewart, “ESTOPPEL- principal and agent”, 16 Harv LR 186 at pp 187-88. [11] Everbright Commercial Enterprises Pte Ltd. v. AXA Insurance Singapore Pte Ltd., [2000] 2 S.L.R.(R) 287 (India). [12] (1874) L.R. 9 Exch 132.

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