Q. Explain the various modes of creation of agency.

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Note: this post is a part of our important question answer series on Contract Law. You can read other questions by clicking here.



Also read: Brief intro of Law of Agency.


Primarily, there are 4 methods, by which an agency can be created:

1.       Agency by Express agreement,

2.       Agency by Implied authority,

3.       Agency by Operation of law, and

4.       Agency by Ratification.


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1.      Agency by an express agreement (Direct agency) (sec 186):

When a principle appoints an agent, by way of express words or writing, and agent show his assent thereto, the contract of agency is created.

Illustration: A made an oral request to B, to act as his agent for certain purpose or certain period of time. Here, the principal agent relationship has been created.


2.      Agency by implied authority (sec 187):

An authority is said to be implied when it is to be inferred from the circumstances of the case, or from the ordinary course of dealing.

Illustration: A owns a shop in Serampore, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purposes of the shop, and of paying for them out of A‟s funds with A‟s knowledge. B has an implied authority from A to order goods from C in the name of A for the purposes of the shop.

I.              Agency by necessity (sec 189)

It arises under the following conditions:

A.      When there is an actual and definite necessary for acting on behalf of the principal,

B.      If it’s impossible to communicate with the principal and obtain his consent,

C.      When the act has been done in the best interest of the principal.

Illustration: P consigned some fruits and vegetables from Delhi to Mumbai by a truck. The truck met with an accident. In this condition, if the consignment was sold by A due to its perishable nature, then the sale is binding on P.


II.             Agency by estoppel (section 237)

It arises where a person by his words or conducts, induces third persons to believe that a certain person is his agent.

Illustration: A tells T in the presence and within the hearing of P that he is P’s agent. P doesn’t contradict this statement. Later on, T enters into a contract with A and supplies certain goods to A, who pretends to act as an agent of P. In such a case, P is liable to pay the price to T and he can’t be permitted to say that A is not his agent.


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3.      Agency by operation of Law

Sometimes, Law itself creates, or treats the relationship of principle and agent without any formal agreement and formalities. The best example in this context, can be referred as contract of partnership. In a partnership firm all partners acts as an agent and works for the benefit of the firm.


4.      Agency by ratification (sections 196-200)

If the agent had no authority to contract on behalf of a principal, or exceeded such authority as he had, the contract is not binding on the principal. The principal may, however, afterwards confirm or adopt the contract so made, and this is known as ratification. This is also known as agency by subsequent authority, or ex-post facto agency. The effect of ratification is to render the contract as binding on the principal as if the agent had been properly authorized beforehand.

Illustration: 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.



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