3. Agency Flashcards
Who can appoint an agent
According to section 183,
Any person who has attained majority According to the law to which he is subject and who is of sound mind, may employ an agent
Minor agent
According to the provisions of Section 184 of the Indian Contract Act, 1872, as between the principal and a third person, any person, even a minor may become an agent. But no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal. Thus, if a person who is not competent to contract is appointed as an agent, the principal is liable to the third for the acts of the party agent.
No consideration is necessary to create an agent
Unlike other regular contract, a Contract of Agency does not need consideration. In other words, the relationship between the Principal and Agent need not be supported by consideration an per Section 185 of the Contract Act, 1872.
Modes of creation of agency
The law recognises various modes to create the agency, which are as follows:
(1) Express appointment & implied appointment: [Section 187]An authority is said to be express when it is given by words, spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case, conduct of the parties and things spoken or written, or in the ordinary course of dealing, may be accounted from the circumstances of the case.
(ii) Agency by necessity: An agency of necessity arises due to some emergent circumstances. In emergency a person is authorised to do what he cannot do in ordinary circumstances. Thus, where an agent is authorised to do certain act, and while doing such an act, an emergency arises, he acquires an extra-ordinary or special authority to prevent his principal from loss.
(iii) Agency by ratification: Section 196: Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority. In simple words, “Ratification” means approving a previous act or transaction. Ratification may be express or implied by the conduct of the person on whose behalf the act was done.
(iv) Agency by Estoppel: [Section 237]: The principle of estoppel lays down that “when one person by declaration (representation), act or omission has intentionally caused or permitted another person to believe a thing to be true and to act upon such belief, he shall not be allowed to deny his previous statement or he shall be stopped to deny his previous statement or conduct”.
Husband and wife- implied authority
The position of husband and wife is special and significant case of implied authority. According to the Indian Contract Act 1872, where the husband and wife are living together in a domestic establishment of their own, the wife shall have an implied authority to pledge the credit of her husband for necessaries.
However, the implied authority can be challenged by the husband only in the following circumstances.
(1) The husband has expressly forbidden the wife from borrowing money or buying goods on credit
(2) The articles purchased did not constitute necessities.
(3) Husband had given sufficient funds to the wife for purchasing the articles she needed to the knowledge of the seller
(4) The creditor had been expressly told not to give credit to the wife
Further, where the wife lives apart from husband without any of her fault, she shall have an implied authority to bind the husband for necessaries, if he does not provide for her maintenance.
Agent’s authority in case of emergency
Section 189: An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.
Conditions to constitute a valid emergency
To constitute a valid agency in an emergency, following conditions must be satisfied.
(i) Agent should not be a in a position or have any opportunity to communicate with his principals within the time available.
(ii) There should have been actual and definite commercial necessity for the agent to act promptly.
(iii) The agent should have acted bonafide and for the benefit of the principal.
(iv) The agent should have adopted the most reasonable and practicable course under the circumstances, and
(v) The agent must have been in possession the goods belonging to his principal and which are the subject of contract.
Agency of necessity
In certain circumstances, a person who has been entrusted with another’s property may have to incur unauthorized expenses to protect or preserve it. This is called an agency of necessity.
Essentials of a valid Ratification
Essentials of a valid Ratification
(a) Ratification may be expressed or Implied [Section 197]: Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.
(b) Knowledge requisite for valid ratification [Section 198]: No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.
(c) Effect of ratifying unauthorized act forming part of a transaction [Section 199]: A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of which such act formed a part. There can be ratification of an act in entirely or its rejection in entirely. The principal cannot ratify a part of the transaction which is beneficial to him and reject the rest.
(d) Ratification of unauthorized act cannot injure third person (Section 200: An act done by one person on behalf of another, without such other person’s authority, which, it done with authority, would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot, by ratification, be made to have such effect.
(e) Ratification within reasonable time: Ratification must be made within a reasonable period of time.
(f) Communication of Ratification: Ratification must be communicated to the other party.
(g) Act to be ratified must be valid: Act to be ratified should not be void or illegal, for eg. payment of dividend out of capital, forgery of signatures, any other criminal offence, or anything which is not permitted under law,
an agency by estoppel may be created when following essentials are fulfilled
- The principal must have made a representation;
- The representation may be express or implied:
- The representation must state that the agent has an authority to do certain act although really he has no authority;
- The principal must have induced the third person by such representation; and
- The third person must have believed the representation and made the contract on the belief of such representation.
Sub agent
A sub-agent does his work under the control and directions of agent
The agent not only appoints a sub-agent but also delegates to him a part of his own duties
There is no privity of contract between the principal and the sub-agent
The sub-agent is responsible to the agent alone and is not generally responsible to the principal
The agent is responsible to the principal and third persons for the act of the sub-agent (Section 193)
The sub-agent has no right of action against the principal for remuneration due to him
The agent remains liable for the acts of the sub-agent as long as the sub-agency continues
Substituted agent
A substituted agent works under the instructions of the principal
The agent does not delegate any part of his task to a substituted agent
Privity of contract is established between a principal and a substituted agent
A substituted agent is responsible to the principal and not to the original agent who appointed him
The agent is not responsible to the principal for the acts of the substituted agent
The substituted agent can sue the principal for the remuneration due to him
The agent’s duty ends once he has named the substituted agent
Sub agent (191) & his termination (210)
According to section 191 of the Indian Contract Act, 1872, a “Sub-agent” is a person employed by, and acting under the control of, the original agent in the business of the agency.
Section 210 provides that, the termination of the authority of an agent causes the termination (subject to the rules regarding the termination of an agent’s authority) of the authority of all sub-agents appointed by him.
Principal is not always bound by the acts of a sub-agent
The statement is correct. The governing principle is, a delegate cannot delegate. (Latin version of this principle is, “delegates non potest delegare”). Normally, a sub-agent is not appointed, since it is a delegation of power by an agent given to him by his principal. However, there are certain circumstances where an agent can appoint sub-agent.
If a sub-agent properly appointed, the principal is bound by and is held responsible for the acts of the sub-agent. Their relationship is treated to be as if the sub-agent is appointed by the principal himself.
If a sub-agent is not properly appointed, the principal shall not be bound by the acts of the sub- agent. Under the circumstances the agent appointing the sub-agent shall be bound by these acts and he (the agent) shall be bound to the principal for the acts of the sub-agent.
Negligence of substituted agent
According to section 194 of the Indian Contract Act, 1872, where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.
Further, as per section 195, in selecting such agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exerci se in his own case; and, if he does this, he is not responsible to the principal for the acts or negligence of the agent so selected.
