Creation of Agency: Types of agency

Creation of agency and types of agency contract has been provided under the Indian Contract Act, 1872. The modes of creation of agency are classified into two categories i.e. express and implied agency.

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Creation of Agency

The contract of agency is created between the two parties, whereas one is the principal and the other is an agent. The agent is employed by the principal to work on his behalf of him and under the control and authority of the principal.

Creation of agency may be either an express contract or an implied contract. Further, consideration is not an essential element for the creation of an agency. An agency contract may also arise by the estoppel, necessity or ratification.

Types of Agency Contracts

Types of agency contracts are provided under the Contract Act in the following manner;

1. Express Agency

The contract of an agency may be created either orally or in writing. Most of the contracts of agencies come under this category.

Illustration

A written contract of an agency is a document like the power of attorney that gives a right the agent to act on behalf of the principal in accordance with some terms and conditions.

2. Implied Agency

The contract of an agency can be created by the conduct of the parties or the situation of parties or is necessary for the parties.

Illustration

According to the partnership act, every partner is an agent of the firm as well as other parties. It is implied agency.

Agency by Estoppel (Sec. 237)

Agency by estoppel has been provided under section 237 of the Indian Contract Act, 1872, as '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.'

Therefore, estoppel arises when you have been represented as a fact, although it is not a fact.

Illustration

A allows third parties to believe that B is acting as A's authorized agent, then he will be estopped from denying the agency with B if such third parties relying on it make a contract with an even when B had no authority at all.

Wife as Agent

Where a husband and wife are living together, then we presume that the wife has her husband's authority to pledge on the credit of the husband for the purchase of necessities of life suitable to their standard of living.

But, the husband will not be liable when the husband shows that;

When the husband had expressly warned the tradesman not to supply the goods on credit to his wife;
When the husband had expressly forbidden the wife to use his credits.

Agency of Necessity (Sec. 188 & 189)

The agency of necessity has been provided under section 188 of the Indian Contract Act, 1872 as a person who has been entrusted with another's property may have to incur unauthorized expenditure to protect the life. This is known as a contract of agency for necessity.

As per section 189 of the Contract Act, An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.

Illustration

A sent a dog by railway, but there is no one at the station to receive the dog, therefore, the railway authority is bound to take reasonable steps to keep the dog alive, therefore, the railway authority is an agent of the necessity of A.

Agency by Ratification (Sec. 169 to 200)

Agency by ratification is provided under sections 196 to 200 of the Indian Contract Act, 1872. A contract of agency by ratification is created when the principal agrees or consents to the act of the agent to whom he has not given authority to do such an act.

As per section 196 of the Indian Contract Act, 1872, the effect of ratification of the agency has been provided as a relationship of the agency will come into existence when the act of the parties is ratified and it will be if he had previously authorized the person to act as his agent.

By Holding Out

The principal is bound by the act of the agent if on an earlier occasion he has made others believe that another person doing some act on his behalf is doing with his authority.

Illustration

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

FAQ

What are the methods of creation of an agency?

The modes of creation of agency are classified into two categories i.e. express and implied agency.

What is the creation of an agency in contract law?

The creation of an agency may be either an express contract or an implied contract. Further, consideration is not an essential element for the creation of the agency. An agency contract may also arise by the estoppel, necessity or ratification.

What does an agency creation require?

To create an agency, the consent of the agent and the principal is necessary. The principal must intend that the agent acts for him or her, and the agent must intend to accept the authority and act on it.

How many modes of creation of agency are there?

There are two modes of Creation of Agency - Contract of agency can be created through two modes, namely express agency and implied agency. An agency can be created by the following methods: By express or implied contract: A principal can employ an agent either explicitly or indirectly via a contract.

Conclusion

Creation of agency and types of agency contract has been provided under the Indian Contract Act, 1872. The modes of creation of agency are classified into two categories i.e. express and implied agency. Creation of an agency may be either an express contract or an implied contract. Further, consideration is not an essential element for the creation of the agency. An agency contract may also arise by the estoppel, necessity or ratification.

Referred Books:

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Creation of Agency: Types of agency