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Business Environment and Law-Performance And Discharge Of Contracts

Creation Of Agency-Performance And Discharge Of Contracts

   Posted On :  07.05.2018 11:34 pm

The relationship of principal and agent may be created in any of the following ways:

Creation Of Agency
The relationship of principal and agent may be created in any of the following ways:

By Express Agreement: 

“The authority of an agent may be expressed or implied.” (Sec. 186) “An authority is said to be expressed when it is given by words spoken or written.” (Sec. 187): Example: A asks B to sell his cow for a commission of 10% on sales. B agrees to do so . Agency has been created.. The agreement need not be in writing. But in certain cases, law requires the agreement to be in writing, e.g. For sale or purchase of land, the law requires the agent to be appointed by executing a formal power of attorney.

By Implied Agreement 

Sec. 187: “… An authority is said to be implied when it is to be inferred from the circumstances of the case, and things spoken or written, or the ordinary course of dealing…” Example: A owns a shop. 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.

1. Agency by estoppel (Sec. 237): “When an agent has without authority done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has, by his words or conduct, induced such third persons to believe that such acts and obligations were within the scope of the agent’s authority.” Example: A starts manufacturing plastic products. A, B and C are sitting together. B in the present of A tells C that A has appointed him as selling agent of his product. A does not contradict this statement, though he had not appointed him as his agent. Later on C enters into a contract with B on the presumption that B is A’s agent. A would be bound by this transaction. A would be precluded from denying that B is his agent.

2. Agency by holding out: The principle of holding out is a part of the law of estoppel. But agency by holding out requires some positive or affirmative conduct by the principal. Example: A sends his servant to buy goods from B on credit. B gives the goods to A’s servant and A pays for them. Later on A’s servant, without A’s asking for it, buys goods from B on A’s credit and runs away. A would be liable to pay for the goods, thought a servant is not an agent, but by paying for the credit purchases made by his servant, A held out that his servant was his agent also and as such he would be liable for the purchases made by his servant.

3. Agency of Necessity: If a person protects the property or interest of another where such property or interests are in imminent danger and the instructions of the owner cannot be obtained, the former would be deemed to be an agent of the latter so as to make the latter liable for whatever he has done provided the former has acted bonafide in the interests of the latter. The principle of necessity also extends to cases where an agent exceeds his authority if the following conditions are fulfilled (i) The agent was not in a position to communicate with the
principal. (ii) The agent takes reasonable and necessary course in the circumstances. (iii) The agent acts bonafide. Example: A sends some bananas to B with the instructions that B should send them to C. When B takes delivery of the bananas, he finds that the bananas are not in a condition to sustain the journey to C’s place and would perish before reaching B, therefore, sells them at the best possible price. A would be bound by this sale under agency by necessity.
In cases of accident and emergency a master of a ship can sell or pledge the goods in order to save their value and such sale or pledge would be binding on the owners of the cargo.

Husband and Wife:

A wife can bind the husband for the contracts she enters into for the purchase of household necessities suiting to the couples joint style of living provided. They are living together and the wife is the in-charge of domestic establishment and the husband has not made reasonable allowance to the wife for her needs. Example: H and W are husband and wife respectively. W chooses to live separately and buys goods on credit from A. On her failure to pay for the purchases A cannot recover the money from H because they are not living together.

However, a husband can escape the liability if he can prove that (i) he had warned the tradesman from supplying the goods on credit to his wife; (ii) he had already supplied sufficient articles in question to his wife he had supplied sufficient means to his wife for the purchase of articles in question. But if the wife is deserted by her husband and thus forced to live separately, she may of necessity become agent of her husband and can pledge her husband’s credit for necessaries to the extent a reasonable maintenance makes it necessary.

Agency By Ratification: 

A person may become another’s agent after having done some work for the latter, if the latter ratifies the act. When a person adopts or accepts an act done on his behalf but without his authority he is said to have ratified it. Example: 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. Implications of Ratification: (i) Ratification relates back to the date of the act. It is tantamount to prior authority. This means that the agency comes into existence not from the time when the act is ratified but from the time when the act was done. I.e. (Ratification is equivalent to an antecedent authority). (ii) No Authority for future: The ratification of an act done without authority does not confer authority to do similar acts in future.
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