Ways to create Agency
Agency by Express Authority (Sections 186 and 187)
The authority of an agent is said to be express when it is given by words, spoken or written. A large number of agencies are created by express authority. No particular form is required for appointing an agent. But in certain cases, a formal document is essential.
In Harshad J.Shah v. L.I.C[1], an L.I.C agent had received his letter of appointment and it had been stated clearly in it that he should not collect premium on behalf of L.I.C or otherwise. However, he did collect a premium. The Court ruled that it cannot be said that the collection of the premium was necessary to the effective execution of the express authority granted to an L.I.C Agent.
Agency by Implied Authority (Sections 186 and 187)
An agency is said to be implied, when it is to be inferred from the circumstances and the conduct of the parties. Things spoken and written, in the ordinary course of dealings, may be accounted for circumstances of the case. Where the agency is implied and the agent contracts within the limits of his authority the principal is liable to such acts. This implied authority of an agent is called as ‘ostensible authority’. Implied agency includes:
- Agency of estoppel (Section 237): When an agent has, done any act without authority, or incurred obligations to third parties on behalf of his principal, the principal is bound by such act or obligations if he has by his words or conduct induced such third parties to believe that such acts or obligations were within the scope of the agent’s authority. Agency by estoppel may also arise in cases where an agent is terminated and no public notice is given to that effect. In such cases, if the terminated agent deals in the name of the former principal, the principal is liable for the acts of the terminated agent.
- Agency by Holding Out: It is a branch of the agency by estoppel. In this type, a prior positive or affirmative act of the principal will be taken into account to establish agency relationship
Agency by Necessity
In certain circumstances, an agency may arise by virtue of necessities, not in the course of an ordinary event. Some important instances of agency by necessity are:
- In case of Emergency: Where an agent is appointed to do a particular act, his powers are confined to such act. But while performing such act, if he faces an emergency, he can do all such acts which are necessary for the purpose of protecting his principal from loss. Such acts done in emergency will bind the principal as agency by necessity
- Husband and Wife: The relationship of husband and wife does not make them as agent for one another. But, when they are living together and the wife is managing the house hold affairs, and if the wife buys any necessaries, such act of the wife will be treated as agency by necessity and the husband will be held liable for such purchases. The same rule is applicable in cases where the husband and wife are living separate and the husband does not provide sufficient funds for her maintenance however it is not applicable if is she has sufficient means.
Agency by ratification (Sections 196 to 200)
Meaning of Agency by Ratification
Ratification means ensuing approval for an unauthorized earlier act. According to Section 196 where an act is done by one person on behalf of another, without his knowledge or authority, he can choose to ratify or to disown such acts. If the principal ratifies it, he becomes bound by the act and will be liable for the same. A ratification will havea retrospective effect i.e., when an act is ratified, it gives validity to the act from the date of doing the act and not from the date of ratification.
Section 197 provides that ratification may be either express or implied. An express ratification cannot be treated as complete until it is communicated to the third party with whom the agent had entered that transaction unauthorized. Before the completion of the communication of ratification, it may also be revoked. Implied ratification is derived from the conduct of the person on whose behalf the act is done. Accepting the benefit of the transaction by the principal is the strongest evidence of implied ratifications.
In M/s. Chandur Forgings (P.) Ltd. V. M/s Bhandari Interstae carriers[2], the respondent company, a registered partnership firm, by special power of Attorney, signed by only one partner of the firm, authorized its employee to file a suit for recovery of freight and other charges from the appellant. Subsequently, another power deed was signed by all the partners of the Firm was executed. The Court held that the first power deed stood rectified by the execution of the second one.
Essentials of a valid ratification
- For the act to be ratified, it is necessary that the same has been done on behalf of the Principal. If an agent acts for another or for himself, this cannot be ratified by the Principal.
- The principal must have been in existence at the time of contract. A contract cannot be ratified by a principal who was not in existence at the time of contract.
- The principal must have contractual capacity: If the principal was not competent to enter into a contract at the time when the contract was entered into (by the agent), he cannot ratify it subsequently when he gets competence to contract. Thus, a minor on whose behalf a contract is made cannot ratify it on attaining majority.
- The act to be ratified must be legal and capable of being ratified by the principal. It must not be illegal or void.
- According to Section 198, no valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.
- According to Section 199, ratification must relate to the whole transaction. He cannot ratify a part of the transaction which is beneficial to him and reject the rest.
- According to Section 200, if ratification would result in injury to the interest of a third person, then it would be invalid.
- Ratification must be done within a reasonable time. Ratification after a long delay may not be valid.
- It must be communicated to the parties to contract.
[1] A.I.R. 1997 S.C. 2459
[2] A.I.R. 2008 Mad. 218
REFERENCES
https://www.scribd.com/document/414669745/Law-of-Agency
https://blog.ipleaders.in/law-of-agency-what-is-principal-agent-relationship/
Author: Aditi Shanmugam,
Chettinad School of Law, 2nd year/ Student
