Mode of creating Agency

Mode of creating Agency – Business Law | BBA Notes

Mode of creating Agency | Business Law | BBA Notes

There are several modes for creating agency or agency can be created in any one of the following ways.

Agency by express agreement:

Normally agency is created by an express agreement, specifying the scope of the authority of the agent. The term express comprises both the words of mouth and an agreement in written form. Most of the agencies are created orally in a large number of business transactions. But in Nepal, the agency must be created in a written form and it is necessary to register in the prescribed governmental office.

There is no particular form is designed for appointing an agent. When a power of attorney is given to another person, an express agency is created and the agent enables to perform the work on behalf of the principal. The authority of the power of attorney may be different in accordance with the terms and conditions of that document. 

They are as follows:

The general power of attorney: Under this attorney, the agent is authorized to do all dealings, i.e., to act generally in the business of the agency.

Special power of attorney:  Under this attorney, the agent is authorized to do a special transaction e.g. Selling of land, etc.

The particular power of attorney: Under this attorney, the agent is authorized to do a particular single act, e.g. Submission of the document in the particular office or court.

The authority to act as an agent is inferred from the nature of the business, the circumstances of the case, the conduct of the principal, or the course of dealing between the parties. It may be the following types: 

Agency by estoppels:

Estoppels is a legal doctrine that prevents a person from denying a fact. When a person, by his conduct or statement, induces others to believe that a certain person is his agent, he is precluded from subsequently denying it. The agency created in this way is called agency by estoppels.

Agency by holding out

It is also a branch of estoppels. But an agency by holding out requires some positive act of conduct by the principal to establish agency subsequently. Example: – ‘X’ allows his servant ‘Y’ to buy for him goods on credit regularly from a shop on one occasion, he buys goods not ordered by his master (‘X’) but for his own purpose. ‘X’ is responsible to pay the price to the shopkeeper, because ‘Y’ is deemed to be his agent by estoppels.

Agency by necessity: 

This third mode of creating agency under implied agreement or authority. Sometimes the agency can be created because of necessity. The cause behind this is that sometime one may need to do work being an agent of another even in the absence of express authority. In this situation, the principal is responsible for the works of the agent. For the creation of agency by necessity the following conditions must be satisfied: –

– There must be a real and definite necessity for the creation of the agency.

– It must be impossible to obtain notice of the principal.

-The person acting as an agent must act bonafide and in the interest of the parties concerned.

– The agent must follow the necessary and adequate method according to the circumstances.

For Example: In the case of G.N. Railway v. Wawfield (1874), where a horse sent by rail was not taken delivery of by the owner, the station master had to feed the horse.

Rules or essentials of valid ratification

There are some rules or essentials regarding valid ratification. Ratification becomes valid only if the following conditions are satisfied: 

  1. The principal must have contractual capacity.
  2. The principal must be in existence at the time of the conduct.
  3. The principal must have full knowledge of material facts or ratification.
  4. The whole transaction must be ratified.
  5. Ratification must be done within a reasonable time.
  6. Ratification mast does not injure a third party.
  7. Act to be ratified must be within the power of the principal.
  8. Ratification may be express or implied.
  9. Ratification must be communicated to the concerned party.