A person who has capacity to contract can enter into contract either by himself or though some other person. If he adopts the first method there is no question of agency. If he adopts the second method, then there is agency. The person who represents another in his dealing with third parties is called agent and that person who is so represented by agent is called principal.
The following are different modes of creation of agency.
- Agency by Express agreement.
- Agency by Operation of law.
- Agency by Ratification.
- Agency by Implied authority.
Agency by operation of law: At times contract of agency comes into operation by virtue of law.
For example: According to partnership act, every partner is agent of the firm as well as other parties. It is implied agency. On account of such implied agency only a partner can bind over firm as well as other partners, to his activities. In the same way according to companies act promoters are regarded as agents to the company.
Agency by Ratification: Ratification means subsequent adoption of an activity. Soon after ratification principal – agent relations will come into operation. The person who has done the activity will become agent and the person who has given ratification will become principal.
Ratification can be express or implied. In case where adoption of activity is made by means of expression, it is called express ratification. For example: Without A`s direction, B has purchased goods for the sake of A. There after A has given his support (adoption) to B`s activity, it is called Ratification. Now A is Principal and B is agent.
The ratification where there is no expression is called implied ratification. For example: Mr. Q has P`s money with him. Without P`s direction Q has lent that money to R. There after R has paid interest directly to P. Without any debate P has taken that amount from R. It implies that P has given his support to Q`s activity. It is implied ratification.
Agency by implied authority: This type of agency comes into force by virtue of relationship between parties or by conduct of parties.
For example: A and B are brothers, A has got settled in foreign country without any request from A, B has handed over A`s agricultural land on these basis to a farmer and B is collecting and remitting the amount of rent to A. Here automatically A becomes principal and B becomes his agent.
Agency by implied authority is of three types as shown below;
- Agency by Necessity
- Agency by Estoppel
- Agency by Holding out.
By Estoppel: In presence of A , B says to C that he (B) is A`s agent though it is not so actually. A has not restricted B from making such statement. Here agency by Estoppel can be seen
By Holding out: B is A`s servant and A has made B accustomed to bring good on credit from C. On one occasion A has given amount to B to bring goods from C on cash basis. B has misappropriated that amount and has brought goods on credit as usually, Here is agency by holding out and therefore A is liable to pay amount to C.