Page 62 - DMGT407Corporate and Business Laws

Unit 3: Contracts of Bailment and Agency

2. Anand owns a shop in Serampur, living himself in Kolkata and visiting the shop Notes
occasionally. The shop is managed by Bharat and he is in the habit of ordering goods
from Cooper in the name of Anand for the purposes of the shop and of paying for
them out of Anand’s funds with Anand’s knowledge. Bharat has an implied authority
from Anand to order goods from Cooper in the name of Anand for the purposes of
the shop.

Agency by Holding Out

Though part of the law of estoppel, some affirmative conduct by the principal is necessary in
creation of agency by holding out.

Example: Puran allows his servant Amar to buy goods for him on credit from Komal
and pay for them regularly. On one occasion, Puran pays his servant in cash to purchase the
goods. The servant purchases good on credit pocketing the money. Komal can recover the price
from Puran since through previous dealings Puran has held out his servant Amar as his agent.

Agency of Necessity (S.189)

This arises where there is no express or implied appointment of a person as agent for another
but he is forced to act on behalf of a particular person.

Examples:
1. The Master of a ship, which is in distress and requires heavy and urgent repairs, can
pledge the ship or cargo (without express or implied authority) and raise money in
order to execute the voyage. He will be considered as the agent of the owner by
necessity.
2. A horse is sent by rail and at the destination is not taken delivery by the owner. The
station master has to feed the horse. He has become the agent by necessity and hence
the owner must compensate him.
The doctrine of agency by necessity also extends to cases where agent exceeds his authority
provided (a) it was not reasonably possible to get the principal’s instructions, (b) the agent had
taken all reasonable and necessary steps to protect the interests of the principal and (c) he acted
bona fide.

Agency by Ratification (Ss.196-200)

Where agent does an act for his principal but without knowledge of authority, or where he
exceeds the given authority, the principal is not held bound by the transaction. However, s.196
permits the principal, if he so desires, to ratify the act of the agent. If he so elects, it will have the
same effect as if the act was originally done by his authority. Agency in such a case is said to be
created by ratification. In other words, the agency is taken to have come into existence from the
moment the agent first acted and not from the date of principal’s ratification. The rule is that
every ratification relates back and is equivalent to a previous command or authority.

Example: Lallan makes an offer to Badal, Managing Director of a company. Badal accepts
the offer though he has no authority to do so. Lallan subsequently withdraws the offer, but the
company ratifies Badal’s acceptance. Lallan is bound by the offer. The ratification by the company
relates back to the time Badal accepted the offer, thus rendering the revocation of the offer
inoperative. An offer once accepted cannot be withdrawn.

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