Creation of Agency – Indian Contract Act Notes – Law Tribune
Introduction
The relationship of principal and agent may be created in any of the following ways :
1. Express appointment : Any person who is competent to contract and who is of sound mind may appoint an agent. The appointment may be expressed in writing or it may be oral. “In Indian law the definition does not limit the employment to one by the principal only…It includes an employment by any authority authorised by law to make the employment
2. Implied agencies : Implied agencies arise from the conduct, situation or relationship of parties. Whenever a person places another in a situation in which that other is understood to represent or to act for him he beomes an implied agent. (Smith v. Moss) : Where a woman allowed her son to drive a car for her, she paying all the expenses of maintenance and operation, it was held that the son was an implied agent of the mother and when he made a collision injuring his wife, the wife could sue the mother for the fault of her agent.
Agency by Estoppel or Holding out : One of the well-known illustration of implied agency is agency by estoppel or holding out.
This is agency by holding out and agency by estoppel.
Husband and Wife : A wife living with her husband has the implied authority of the husband to buy articles of household necessary. But this implied authority is subject to, in first place, it is necessary that the husband and wife should be living together. Secondly, they must be living together in a domestic establishment of their own. This well known principal was established in Debenham v. Mellon.
Thirdly, the wife can run her husband into debt only for necessaries.
Lastly, the husband will not be liable if he makes a reasonable allowances to his wife (reference case : Girdhri Lal v. Crawford)
Husband not implied agent of wife : A husband has no original, inherent, or implied power to act as an agent for his wife.
Agencies of necessity : Although the powers of the agents are, ordinarily, limited to particular acts, yet,..extraordinary emergencies may arise, in which a person, who is an agent, may, from the necessities of the case, be justified in assuming extraordinary powers; and his acts fairly done, under such circumstances, will be binding upon his principal.
The principle of agency of necessity was first applied to cases of marine adventure. (One more example can be given is relief of injured persons.)
Prager v. Blastpiel Stamp and Heacock Ltd. :
Conditions for application of the principle, ‘agency by necessity’ are
- Inability to communicate with principal.
- Act should be reasonably necessary
- Bonafide in the interest of party concerned.
Ratification (Sec 196 to 200)
The doctrine of ratification comes into play when a person has done an act on behalf of another without his knowledge or consent. The doctrine gives the person on whose behalf the act is done an option either to adopt the act by ratification or to disown it.
Ratification is thus a kind of affirmation of unauthorised acts.
Example : A person insures the goods of another without his authority, the owner may ratify the policy and then the policy will be as valid as if the agent had been authorised to insure the goods. (Williams v. North China Insurance Co).
Ratification may be express or implied.
196. Right of person as to acts done for him without his authority-effect of ratification :
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.
197. Ratification may be expressed or implied :
Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.
Illustrations
(a) A, without authority, buys goods, for B. Afterwards B sells them to C on his own account; B’s conduct implies a ratification of the purchase made for him by A.
(b) A, without B’s authority, lends B’s money to C. Afterwards B accepts interest on the money from C. B’s conduct implies a ratification of the loan.
198. Knowledge requisite for valid ratification
No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.
“To constitute a binding adoption of acts, these conditions must exist : i) the acts must have been done for and in the name of the principal ii) there must be full knowledge of what those acts were, that the inference may be drawn that the principal intended to take upon himself the responsibility of such acts, whatever they were”.
199. Effect of ratifying unauthorized act forming part of a transaction
A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of which such act formed a part.
200. Ratification of unauthorized act cannot injure third person :
So in this case, section 200 says that an act cannot be ratified which by ratification, “would have the effect of subjecting a 3rd person to damages”.
An act done by one person on behalf of another, without such other person’s authority,
which, if done with authority would have the effect of subjecting a third person to damages, or of terminating any right to interest of a third person cannot, by ratification, be made to have such effect.
Illustrations
(a) A, not being authorized thereto by B, demands, on behalf of B, the delivery of a chattel, the property of B, from C who is in possession of it. This demand cannot be ratified by B, so as to make C liable for damages for his refusal to deliver.
(b) A holds a lease from B, terminable on three months’ notice. C, an unauthorized person, gives notice of termination to A. The notice cannot be ratified by B, so as to be binding on A.
Sunil v. Maharashtra State Mining Corpn : Where the managing director of a company removed an employee whom he was not authorised to remove, it was held that, such illegal termination could not be ratified.
Conditions of ratification (Rules governing ratification)
A valid ratification has to fulfil certain conditions. Some of them :
1. Act on behalf of another : In the first place, it is necessary that the act in question must have been done on behalf of the person who wants to ratify it. It is not necessary that he should be named but there must be such description of him.
If the agent acts in his own name and makes no allusion (signal) to agency his act cannot be ratified by any other person even if the agent in his secret mind intended to act for another. (Keighley, Maxsted & Co v. Durant)
2. Existence of the Principal : The principal must be in existence at the time of the acts.
3. Competence of Principal : Since ratification relates back to the date when the contract was originally made by the agent, it is necessary that the principal who purports to ratify must be in existence at the time of the contract and should also be competent.
4. What acts can be ratified : Only lawful acts are open to ratification. An act which is void from the very beginning cannot be ratified.
5. Knowledge of facts : (s 198) : If the knowledge of the facts is materially defective, there is no valid ratification.
6. Whole transaction : A person cannot ratify a part of the transaction which is beneficial to him and repudiate the rest. 7. Within Reasonable Time : A ratification to be effective must come within reasonable time. If a time is fixed, before that time otherwise within a reasonable time.