How is agency created and terminated?

Contract of agency is like any other contract with the difference that there is no need of consideration in contract of agency. A contract of agency comes into existence in any of the following ways.

1. Agency by express Agreement: The contract of agency may be made orally or in writing. In most of the business dealings the agency is created by a word of mouth. If this form was not recognized by law, the trade and industry could hardly go on. Agency is also created by a contract in writing. Agency is normally preferred in the dealings of immovable property. The common form of an agreement in writing is “power of Attorney” whereby, authority is given to the power of attorney holder, either generally or specifically, to act on behalf of the Principal. A general power of attorney authorises the Agent to do all things on behalf of the Principal i.e. to act generally in the business of the Principal. A specific power of attorney empowers the Agent to do or perform a single transaction e.g. selling of house or borrowing money on a mortgage etc.

2. Agency by implied Agreement: Implied agency may arise by conduct or situation of the parties of the circumstances of the case. Such an agency may take any of the following forms:

a) Agency by estoppel: Such an agency is based on the principle of estoppel. The rule of estoppel can be stated thus: Where a person, by his words or conduct, has willfully led another to believe that certain set of circumstances or facts exist, and that other person has acted on that belief, he is estopped from denying the truth of such statements. In other words, estoppel arises when one is precluded from denying the truth of anything which he has represented as a fact, although it is not a fact.

b) Agency by holding out: Such agency is based on the principle of holding out which is a part of the principle of estoppel. The only distinction is that in this case some affirmative conduct by the Principal is necessary. For example, a dealer in iron usually sent his employee to buy on credit and paid for it afterwards. On one occasion, he sent the employee with cash, who bought the iron on credit and pocketed the money. It was held that the iron merchant was liable to pay for the iron, as the previous dealings justified the seller in assuming that the Agent had authority to buy on credit. The employer’s conduct in ‘holding out’ his employee to be his agent estops him from denying the existence of authority of the employee. However, if the Agent is held out as having only a limited authority to do acts, the Principal is not bound by an act outside the authority.

c) Agency by necessity: In certain circumstances, the law authorises a person to act as agent for another without any regard to the consent of the Principal. A wife deserted by her husband and forced to live separate from him, can pledge her husband’s credit to buy all the necessaries of life according to the position of the husband even against the wish of the husband and the husband can be held liable for the same. In other cases where in order to save the property of another, one has to act before the instructions of the owner can be received, he is, by necessity, authorised to act as Agent and the consent of the owner as Principal is assumed in law. An Agent exceeding his authority, bona fide, in an emergency or the carrier of the goods acting as bailee and doing anything to protect or preserve the goods in an emergency, although there is no express authority, are the examples of implied agency by necessity.

3. Agency by ratification: Ratification means the subsequent adoption and acceptance of an act originally done without instructions or authority. Thus, where an Agent exceeds his authority (except under emergency), the acts of the Agent are not binding on the Principal. The Principal, however, may afterwards confirm and adopt the contract so made and this is known as ratification. Section 196 of the Contract Act provides for ratification and states that ‘where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority