Special Contracts

Box 6.10 Driving for Friend is an Implied Contract of Agency

Notes
X has a car but he does not know how to drive. He usually takes the services of Y, his neighbour, in
this regard, whenever he goes outside. Y while driving the car meets with an accident and injures Z,
a passerby. X will be liable to Z for damages, since Y is the implied agent of X.

Agency by estoppel Estoppel arises when someone is stopped or precluded from denying the
truth of anything that he/she has represented by his/her words or conduct as a fact, although such
a state of thing did not exist at all. Section 237, which deals with agency by estoppel, states, ‘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’.
A practical situation will help understand the point better. A tells B in presence and within hear-
ing distance of P that he is P’s agent. P does not contradict the statement. Later on B enters into a
contract with A, honestly presuming that A is P’s agent. P will be bound by this contract for there is
an agency by estoppel between him and A. In a suit between P and B, P will be prevented or stopped
from denying his agent’s authority and getting himself relieved from his obligations to B by proving
that no such relationship existed in fact.
Agency by holding out The doctrine of ‘holding out’ is also based on the principle of estoppel.
Here, the alleged principal by his/her words or conduct wilfully leads another person to believe
that the alleged agent is representing him/her. If someone enters into a contract with the person
so representing on that belief, then the person so represented (i.e., the alleged principal) is stopped
from denying the truth of such statements subsequently. In this way, agency, by holding out is a
type of agency by estoppel, where the agency by estoppel is created by the actions of the agent, the
agency by holding out comes into existence by the actions of the principal. For example, P allows
his servant to purchase certain goods from B’s shop on credit and later on he pays for the goods. It
is repeated many times. Later on, when the servant was not in P’s employment, he purchased goods
on P’s credit from the same shop and disappeared. B can recover the price from P on the basis of
the doctrine of holding out.
Agency by necessity Sometimes, owing to the exigencies of circumstances, a person may be
compelled to act as an agent to the other without requiring or seeking the consent of the latter.
Such an agency is called the agency by necessity. For example, a shipmaster can borrow money at a
port where the shipping company has no agent, to get the ship repaired or fuelled so as to complete
the voyage. In this case, the shipmaster becomes an agent by necessity.
In Sims & Co. vs Midland Rly. Co.9, quantity of butter was consigned with the defendant railway
company. The goods being perishable was becoming useless owing to delay in transit and was, there-
fore, disposed of by the station master for the best price available as it was not possible to obtain
instructions from the principal; the sale was held binding on the owner. The company’s action was
justified on the ground of unforeseen emergency, arisen in the course of transit.

Agency by ratification
Where a person without being authorised, purports to act as agent, or a duly authorised agent
acts beyond his/her authority, the principal may elect to ratify or disown such acts. If he chooses to
ratify the agent’s transactions supposedly based on his behalf, an agency by ratification arises. The
effect of ratification is that it renders the ratifier (i.e., the principal) bound to the contract as if he
had expressly authorised the person to transact the business on his behalf.
An agency by ratification is also known as ex post facto agency, i.e., agency arising after the
event. Section 196, which recognises the creation of agency by ratification, provides thus:
‘Where acts are done by one person on behalf of another, but without his knowledge or author-
ity, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as Self-Learning
Material 107
if they had been performed by his authority.’