Mode of creating Agency

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

  1. Agency my express agreement:- Normally agency is created by an express agreement, specifying the scope of the authority  of 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, 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:-
  1. General power of attorney: – Under this attorney, the agent is authorized to do all dealings, i.e., to act generally in the business of agency.
  2. Special power of attorney: – Under this attorney, the agent is authorized to do a special transaction e.g. Selling of land etc.
  3. Particular power of attorney: – Under this attorney, the agent is authorized to do a particular single act, e.g. Submission of document in the particular office or court.
  4. Agency by implied agreement: – Implied agency arises when there is no express agreement appointing a person as agent. It arises from the conduct, situation or relationship of parties. The authority to act as an agent is inferred from the nature of business, the circumstances of the case, the conduct of the principal or the course of dealing between the parties. Partners, wives etc. are usually regarded as agent by implications of their relationship. It may be the following types: –
  5. Agency by estoppels: – Estoppels is a legal doctrine which prevents a person from denying a fact. When a person, by his conduct or statement, induces others to believe that certain person is his agent, he is precluded from subsequently denying it. The agency created in this way is called agency by estoppels.
  6. 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.
  7. Agency by necessity: – This third mode of creating agency under implied agreement or authority. Sometime the agency can be created because of necessity. The cause behind this is that sometime one may need to do work being agent of another even in the absence of express authority. In this situation, the principal is responsible for 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 creation of 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 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. It was held that the station master become an agent of necessity and the owner liable for the charges incurred by him.

  1. Agency by ratification: – Ratification means subsequent acceptance by the principal in respect of an act done by the agent without authority. It is the subsequent adoption and acceptance of an act originally done without authority or instructions.

Rules or essentials of valid ratification

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

  1. The agent must act on behalf of the principal.
  2. The principal must have contractual capacity.
  3. The principal must be in existence at the time of conduct.
  4. The principal must have full knowledge of material facts or ratification.
  5. Whole transaction must be ratified.
  6. Ratification must be done within reasonable time.
  7. Act to be ratified should not be void or illegal.
  8. Ratification mast not injures a third party.
  9. Act to be ratified must be within power of principal.
  10. Ratification may be express or implied.
  11. Ratification must be communicated to the concerned party.
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