Methods of Creating Agency

1. Agency by Express Agreement: An agency is said to be “Express” when the agency is given by either word, spoken, or written. When the agent is selected either by the words expressed or composed or direct of activities, in such cases an agency shall be “Express”.

For example, Anil resides in London, who also owns property in Jaipur, and is looking to sell his property in Jaipur. He authorizes Vimal, a property dealer under a power of attorney to sell the house and take decisions accordingly.

2. Agency by Implied Agreement: An authority can be said to be implied when from certain circumstances of the cases, it can be inferred from the conduct of the parties and things spoken or written or during the ordinary course of dealing. These arrangements/agencies can emerge from the direct circumstance or relationship of the gatherings. Therefore, the implied agency is created by the way of conduct or the situation of the parties; i.e., the principal and the agent, or necessity of the particular case.

For example, Yogesh and Manoj are brothers. Yogesh lives in Mumbai, and Manoj lives in Kanpur, Yogesh has a flat in Kanpur. Manoj with Yogesh’s knowledge let out his flat. Manoj used to realize the rent and remit the same to Yogesh, who was accepting the same. Here, Manoj is the implied agent of Yogesh, though he has not been expressly appointed.

3. Agency by Necessity: Agency by Necessity arises in certain circumstances which require immediate action or act due to some emergent circumstances. As discussed earlier, an agent must perform his act within his authority. But in emergencies, the agent is authorized to do what he cannot do in ordinary circumstances. So when an emergency arises, the agent by nature acquires an extraordinary or special authority to perform all acts, which can prevent his principal from loss. However, certain conditions shall be satisfied to infer whether the agency is turned out by necessity or not, such as:

• There should be an actual necessity for acting on behalf of the principal.
• Within the given available time, it should be impossible to obtain the principal’s instructions.
• The person acting as an agent must have acted bonafide.

For example, Rahul is a dealer of vegetables. He supplies vegetables from Bhopal to Delhi by his truck. One day the truck containing tomatoes and onions broke down in transit. Aman (the truck driver) tried to inform Rahul but was unable to establish communication. Due to the perishable nature of vegetables, the truck driver sold them in the nearby market. This act was done in an emergency, and the situation required Aman to act immediately. Hence, this act of Aman shall bind Rahul because the agent has acted for the benefit of the principal.

4. Agency by Estoppel: The Rule of Estoppel says when a person by his words or by his act has willfully led another person to believe that due to certain circumstances or facts, he has acted in such belief, then he is estopped from denying the truth of such statements. Although, such a state of thing did not exist in actuality. Thus, when a person, by his act or statement, willfully leads another person to believe that a person is his agent, then he is estopped or prevented from denying the truth of agency in such circumstances. The provisions of agency by Estoppel are provided under Section 237 of the Indian Contract Act. An agency by estoppel can be created when the following conditions are fulfilled:

• The principal must have made a valid representation.
• The representation can be express or implied.
• The representation must state that the agent has the authority to do certain conduct, although, in reality, he has no authority.
• The principal must have persuaded the third person by such representation.
• The third person must have believed such representation and made the contract on that belief made by such representation.

For example, A tells B in the presence and hearing of C that A is C’s agent. C keeps quiet and does not contradict this statement. Later on, B enters into a contract with A, honestly believing that A is C’s agent. C is bound by this contract, and in a suit between C and B, C cannot be permitted to say that A was not his agent, even though A was not his agent.

5. Agency by Ratification: When acts are done by one person on behalf of another, but the person has no knowledge nor has given the authority to the other, he may elect to ratify the acts or to disown such acts done by the other person. If he ratifies them, it will have the same effects as he would have performed by his authority. So, Ratification means approving a previous act or transaction which was earlier done without knowledge or authority. Ratification may be express or implied by the conduct of the person on whose behalf the act was done by other people.

For example, A who is B’s agent has on 1st January 2024 purchased goods from C on credit without B’s permission. After the purchase, on 5th January 2024, B tells A that he will accept responsibility to pay for the purchases. However, at the time of purchase, the agent had no authority to buy on credit. B’s subsequent statement on 5th January 2024 amounts to a Ratification of the agent’s (A’s) purchase of goods on 1st January 2024.

An Agency agreement establishes the legal relationship between the agent and its principal. It ensures that both parties understand their roles and responsibilities in a contract, which helps to create mutual awareness that the agent shall bind the principal for his acts done within his ambit of authority. The Contract of Agency also establishes the rights and obligations of an agent in a contract of agency, and it also defines the circumstances under which the agent shall be personally liable for his acts on behalf of the principal along with the legal position of the agent, the principal and any other third parties involved.

Geeky Takeaways:

• Contract of Agency can be observed very easily in business as business houses use the services of agencies to expand their operations and also to focus on their key operations.
• Some examples include appointing a human resource professional to hire individuals or attorneys for legal representation or using the services of a stockbroker.
• The provisions regarding the Contract of Agency are contained in Sections 182 to 238 of the Indian Contract Act, 1872.