Question

A principal cannot deny the agents authority when he does some prior positive or affirmative act establishing the agency of the other person. This is known as ____.

• A. Agency of necessity
• B. Agency by operation of law
• C. Agency by holding out
• D. Agency by ratification

Answer 1

Answer: (C)

Agency by holding out

Agency by holding out:

Such an agency is based on the “doctrine of holding out” which is a part of the law of estoppel. In this case also the alleged principal is bound by the acts of the supposed agent, if he has induced third persons to believe that they are done with his authority.

Thus, where an employer has been accustomed to pay for goods bought on his behalf by his employee from P, the employer may be liable for a purchase made in the customary manner, even though it is made, by the employee fraudulently after he has left the employment.

The employer’s conduct in ‘holding out’ his employee to be his agent (paying for purchases made by the employee on previous occasions) estops him from denying that his authority was not still in existence.

It may be noted that where the agent is ‘held out’ as having only a ‘limited authority’ to do acts, the principal is not bound by an act outside the authority.