A Contract of Agency is an agreement where one person, called the agent, is legally authorized to act on behalf of another person, called the principal, to deal with third parties. The agent represents the principal and works to fulfill their instructions. The principal is responsible for the actions taken by the agent within the scope of their authority.
In simple terms, the agent acts as a link between the principal and third parties. This contract is common in business dealings and day-to-day transactions.
Example: A real estate agent (agent) sells a property on behalf of the owner (principal).
The Modes of Creation of Agency
1. By Express Agreement
An agency is created when the principal clearly appoints the agent through a written or verbal agreement. This is the most direct way of forming an agency.
Example: A company appoints a sales representative to promote and sell its products under a contract.
2. By Implied Agreement
An agency is created by the behavior, relationship, or conduct of the principal and agent, even if there is no formal agreement. Their actions imply that an agency exists.
Example: A shop assistant collects payments from customers on behalf of the shop owner, which shows an implied agency.
3. By Necessity
An agency arises when one person acts for another in an emergency to prevent significant loss or harm. Even without prior authority, the actions are recognized as an agency if they are in the principal’s best interest.
Example: A truck driver sells perishable goods after an accident to prevent them from spoiling.
4. By Ratification
An agency is created when the principal approves or accepts actions already taken by someone on their behalf, even if the person did not have prior authority.
Example: A friend negotiates a deal for you without asking, and you later approve it.
5. By Estoppel
An agency is created when the principal’s actions or words make a third party believe that a person is acting as their agent. The principal cannot later deny the existence of the agency.
Example: A business owner allows an employee to negotiate with clients, making the clients believe the employee is an agent.
6. By Operation of Law
Sometimes, an agency arises automatically due to legal obligations or the nature of the relationship between the parties.
Example: Partners in a business are considered agents of one another under partnership laws.
A Contract of Agency is essential in business and personal dealings, allowing one person to act legally for another. Agencies can be created in various ways, such as through explicit agreements, implied actions, emergencies, or by law. Understanding these modes of creation ensures smoother operations, better trust, and fewer disputes in legal and business relationships.