Agency

CREATION OF AGENCY
Agency is the relationship which exists where one person (the

principal) authorizes another (the agent) to act on its behalf and the
agent agrees to do so. Although agency can be relevant in various
areas of the law, this chapter is solely concerned with the agent acting
on behalf of its principal in making contracts with others.
The fact that the principal acquires rights against, and incurs liabilities to,
someone with whom he or she has not personally contracted means that
agency can be regarded as an exception to the doctrine of privity. However, in
most circumstances, one can say without any fiction that the principal, not the
agent, is the real party to the contract concluded by its agent. But that is not
the case where one has an undisclosed principal which is, therefore, a true
exception to privity.
Agent
1)An agent is a person
2)who acts(work) in the name of and on behalf of another,
3)having been given and assumed some degree of
authority to do so.
Most organized human activity—and virtually all

commercial activity—is carried on through agency.
Who is a Principal?
Any person who employs another person to perform an act and who is
being represented by another person in dealing with the third party is the
Principal.
Who is an Agent?
A person employed by the Principal, to act on his behalf, represent him in
the dealings with the third party and also to bring him into a contractual
relationship with the third party, is called an Agent.
Modes of creation
Agency may be created in any one of four ways:
(1) by an actual authority to contract given by the principal to the agent;
(2) by the principal’s ratification of a contract entered into by the agent on the
principal’s behalf but without its authority (ie, the authority is retrospectively
conferred);
(3) by an ostensible authority conferred by the principal on the agent even

though no actual authority has been given;
(4) by authority implied by law in cases of necessity.

(a) Actual authority
Actual authority to contract may be express or implied. Normally the authority given by a principal to its agent
is an express authority enabling the latter to bind the former by acts done within the scope of that authority.
Such authority may, in general, be given orally. But in some cases, it is necessary that the authority should be
given in a special form. First, in order that an agent may make a binding contract by deed, it is necessary that
authority should normally be given in a deed. Certain transactions, for example, conveyances of land, must still
be made by deed.
The creation or disposition of any equitable interest, or interest in land, to be in writing, signed by the grantor or
the grantor’s agent, lays down that in such case the agent shall be authorized in writing.
The authority of an agent may also be implied. But such implied authority can be negatived by an express
limitation. In most cases implied authority is said to be incidental to an express authority or required due to the
circumstances of the case.
1. Actual Authority
❑Principal will give a letter of binding to the Agent
❑ There must be an agreement
❑Agreement can be oral
❑Agreement can be implied /express
(b) Ratification
Even if the agent enters into a contract without the authority of the principal, the principal may subsequently
ratify, that is to say, adopt the benefit and liabilities of a contract made on the principal’s behalf.
This may occur in one of two ways. First, when A, though contracting as P’s agent, and having P in
contemplation as the principal, was not at the time of the contract P’s agent in fact, as no precedent authority
had been received. Secondly, when A was in fact P’s agent at the time of making the contract, but exceeded the
authority which P had given. In either case a ratification duly made places the parties in exactly the same
position in which they would have been if A had P’s authority at the time the contract was made. It is said to
‘relate back’ to the time of contracting and to have a retrospective effect. An unauthorized acceptance may
therefore be ratified even though the off er has in the meantime been withdrawn.
2. Ratifications
❑Ratification comes after doing
❑When the agent did the job that
time the principal had the
authority to do it
Another example The managing director of a company, purporting to act as agent on the
company’s behalf,
but without its authority, accepted an off er by the defendant for the purchase of some sugar
works belonging to them. The defendant then withdrew his offer, but the company ratified the
manager’s acceptance.
The following rules govern ratification:
(i) The agent must purport to act as an agent for a disclosed principal
(ii) The principal must be in existence
(iii) Capacity of the principal to contract
(iv) Manner of ratification
(v) Time and retrospectivity of ratification
(c) ostensible authority
The principal may, by words or conduct, create an inference that an
agent has authority to act on behalf of the principal even though no
authority exists in fact. In such a case, if the agent contracts within
the limits of the apparent authority, although without any actual
authority, the principal will be bound to third parties by the agent’s
acts.
3. Ostensible authority
❑ Agency created before doing

❑ Agency created by inference of
conduct
(d) Usual authority
There are a number of cases which appear to establish that, in certain circumstances, a
principal may be liable for the unauthorized acts of an agent, even though the third party did
not rely upon any representation by the principal of the agent’s authority to act as agent. In
these cases, the existence of the principal was unknown to the third party, so that it could not
be said that the principal held out the agent to have authority to act as agent and was
estopped. Th e apparent rule to be extracted from them is as follows: an undisclosed principal
who employs an agent to conduct business is liable for any act of the agent which is
incidental to or usual in that business, although such act may have been forbidden by the
principal.
4. Usual authority
❑ Principal will be liable for agent

unauthorized act
❑ Third party has no knowledge of that
there was a principal

Agency

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CREATION OF AGENCY

Agency is the relationship which exists where one person (the

Most organized human activity—and virtually all

(1) by an actual authority to contract given by the principal to the agent;

(3) by an ostensible authority conferred by the principal on the agent even

(4) by authority implied by law in cases of necessity.

❑ Agency created before doing

❑ Principal will be liable for agent

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