B.A., LL. B (Hons.

)/ Third Semester

Research paper

TOPIC- Authority of Agents Under the Contract of Agency

Submitted To:

Prof. Anu Mishra

School of Law, NMIMS (Deemed-to-be University)

Submitted By:

Kavya Jain

A008

Sap ID: 81012100014

B.A., LL. B (Second Year)

School of Law, NMIMS (Deemed-to-be University)

 TABLE OF CONTENTS

S. No Particulars Page No.

1. INTRODUCTION 2

2. ANALYSIS - AUTHORITY OF AGENTS 3-4

3. LEGISLATIVE FRAMEWORK 4

4. CASE LAWS 5-6

5. CONCLUSION 6

6. BIBLIOGRAPHY 7

1
INTRODUCTION

In our country, the relationship between the agent and the principle is governed by the terms
and conditions of the contract that unites them. The broad framework of regulations and
specifications that govern the establishment and execution of every kind of contract,
including agency contracts, is laid out in Chapter X of the Indian Contract Act of 1872. When
one person works on behalf of another, there is a contractual relationship between the two
parties. Authority is a fundamentally practical matter; it possesses no abstract worth; it is a
shifting quantity. It is crucial to understand law of agency since practically all international
commercial transactions are conducted through agency. All companies, regardless of size,
outsource their job. Therefore, rules pertaining to agencies are an essential component of
Business Law. Principal-agent relationships include three primary parties: the Principal, the
Agent, and a Third Party.

The Latin proverb "Qui facit per alium, facit per se," which roughly translates to " he who
acts through another is deemed in law to act for himself" is the foundation of agency law. An
agent is a person hired to do any act for another or to represent others in dealings with third
parties1. The person for whom the act was performed or who was so represented was known
as the "principal." An agent has no independent rights; they are just the principal's extended
hand.

The Indian Contract Act of 1872 does not make any distinction between different classes of
agents. Agents are characterised by their authority as either general agents or special agents.
The former expression includes brokers, factors, partners, and all persons employed in a
business to fill a position of generally recognised character, and the latter term refers to an
agent appointed for a specific occasion or purpose, whose authority is limited by the position
or employment.2

The purpose of this study is to determine the nature and extent of the authority that may be
delegated to an agent on the basis of the concept, subject to a number of limitations. In this
study, the kinds of agent authority, such as expressed and implied authority, is discussed.
Taking into account the judgements relating to authority of agents it seeks to examine the
scope of authority in different arenas.

1
Section 182 of the Indian Contract Act, 1872.
2
Leake, Page 323, 6th Edition

2
ANALYSIS - AUTHORITY OF AGENTS

Types of Authority

Actual authority refers to the authority granted by the principle to the agent. It may be
divided into two categories: express and implied.

It is asserted that an authority is expressed when it is communicated verbally or in writing. A

power of attorney is an illustration of express authority. An authority is said to be implied
when it may be inferred from the circumstances of the situation; anything stated or written, as
well as the customary way of business, can be considered circumstances of the case. The
difference between express and implied authority is determined only by whether the authority
is delineated by words or actions.

Scope and Extent of Authority

An agent who is authorised to do a certain act is entitled to do everything legal that is

required to carry out that act. An agent with permission to operate a business is allowed to do
anything legal that is required or customarily done in the course of operating that business.

An agent's authority is conferred by its principal. The scope of authority granted to agents by
principals in business matters is usually a combination of all or some of the following: to
introduce, conclude, or otherwise deal with contracts between the principal and customers

Authority in Emergency

An agent has the ability, in an emergency, to take all such actions to safeguard his principal
from loss as a prudent person would in his own situation under identical circumstances.
Under English law, an agency of necessity can arise in the case of a carrier of goods or a
master of ship who, under certain circumstances of necessity, is empowered on behalf of the
ship-owner or the owner of the goods carried to dispose of the goods or enter into such other
contract as may be required, and is deemed to have their authority to do so.

Ratification3

The doctrine of ratification applies when someone acts on behalf of another without their
agreement or knowledge. The doctrine empowers the person for whom an act is performed to
approve or reject the performance. As a result, ratification validates illicit activity.

3
Section 196 of the Indian Contract Act, 1872

3
When Agents Exceeds Authority

When an agent does more than he is authorised to do and when the two can be separated, so
much only of what he does as is within his authority is binding as between him and his
principal. If the act cannot be separated from what is within it, the principal is not bound to
recognize the transaction. Any notice given to or information obtained by the agent, provided
it be given or obtained in the course of business transacted by him for the principal, shall
have the same legal consequences as if it had been given to or obtained by the principal.

The Agent has obligations under Indian law

An agent is required to carry out the business of his principal in accordance with the
instructions provided by the principle, or, in the lack of such instructions, in accordance with
prevailing custom. Every agent has a responsibility to carry out his principal's instructions
and to exert all reasonable care in trying to reach his principal and get his instructions in
difficult situations. When an agent transacts on his own behalf in an agency's business, the
principal has the right to revoke the agreement. An agent who engages in misconduct in the
agency's business is not entitled to compensation for that aspect of the business in which he
engaged in misconduct.

LEGISLATIVE FRAMEWORK

In Palestar Electronics Private Limited v. Additional Commissioner 4, it was determined that

the principal is bound by the agent's actions within the limits of his power. Contracts entered
into via an agent and obligations deriving from activities performed by the agent are
enforceable and have the same legal consequences as if the principal had entered into the
contracts and performed the acts in person. The agent must have acted within the boundaries
of his power in order for this consequence to occur.

The ambiguity is primarily caused by the fact that an agent's authority is not derived from a
single source. The court in Ramlesh v. Jasbir Singh 5 correctly determined that the purpose of
agency is to promote and not inhibit trade. An agent's authority is his power to bind the
principal. It relates to the totality of the activities agreed upon between principal and agent
that the agent would do on behalf of the principal. When the agent does those activities, it is
stated that the agent is acting within his power.

4
Palestar Electronics Private Limited v. Additional Commissioner (1978) 1 SCC 636
5
Ramlesh v. Jasbir Singh AIR 2004 P&H 216

4
CASE LAWS

Chairman L.I.C v. Rajiv Kumar Bhaskar 6

In this case, as per the salary saving scheme of L.I.C, the employer was supposed to deduct
the premium from the employee’s salary and deposit it with L.I.C. Upon the death of the
employee, it was found by his heirs that the employer has defaulted in doing so, causing the
policy to lapse. A clause in the acceptance letter was referred to, in which the employer had
said that he would act as the agent of the employee and not as that of L.I.C.

The expression “agent” in this case may not mean to be one within the meaning of the LIC of
India (Agents) Regulation, 1972; but would mean an agent in ordinary sense of the term. The
use or omission of the word “agent” is not conclusive to determine the legal nature of the
relationship. It was held that the employer was acting as the agent of the company, thereby
making the company (L.I.C) responsible as a Principal due to the fault of the Agent (the
employer).

Robinson v Mollett7

In this case, Robinson authorised M to make a 50-ton tallow buy on his behalf. Since it was
customary in his line of work to purchase huge quantities of tallow in his own name and then
distribute it to his employers, Mollett provided all of his own tallow.

The House of Lords held the custom to be unreasonable. As a result, Mollett was no longer
an agent but a wholesaler. It also created a contradiction between his duty to the principal and
his own interests.

Watteau v Fenwick8

In this case, the defendants had forbidden the manager of their hotel from buying cigars on
credit. The plaintiff gave cigars to the manager on credit, which were used in business. The
manager's name appeared over the board, the plaintiff trusted him and had never heard of the
defendants. Being unable to recover the price from the manager, the plaintiff sued the
defendants. The court found that “cigars were... such as would naturally be supplied to and
dealt in such an establishment”.

6
Chairman L.I.C v. Rajiv Kumar Bhaskar 2003 ACJ 86
7
Robinson v. Mollett 1875 L.R. 7 H.L. 802.
8
Watteau v Fenwick 1893 1 Q.B. 345 (349)

5
Wills J, therefore, held that "once it is established that the defendant was the real principal,
the ordinary doctrine as to principal and agent applied, that the principal is liable for all the
acts of the agent which are within the authority usually confined to an agent of that character,
notwithstanding limitations, as between the principal and the agent, put upon that authority".

Loon Karan Sohan Lal v. John and Co 9

In Loon Karan Sohan Lal vs. John and Co, the Court stated that it was well established that
the use of or omission of the word “agent” was not conclusive in assessing the legal nature of
the connection between the claimed principal and agent.

CONCLUSION

Over the years, it has been seen that an agent plays several roles in a contract. He must fill the
principal's shoes, but he is not held accountable for all of his other acts. Therefore, since the
Agent-Principal relationship notion first emerged, the subject of discussion and thought has
been the extent of his power. Judges have voiced a variety of perspectives and viewpoints on
an agent's power throughout time. Numerous classifications of agents were also established in
an effort to further complicate the process of determining this power. Depending on the tasks
they do, these agents' duties and fundamental capabilities vary.

A typical definition of an agent is someone who assumes the role of his principle and
performs all duties with the same level of care and attention as the principal would in a
comparable situation.

In the event that his power is exceeded, the principal may dispute it in court; nevertheless, the
party who entered into the contract in issue shall have a binding claim against it. Overall,
after this thorough examination of the intricate and complex nature of the Agent's contract, it
is clear that courts, particularly when it comes to judicial interpretation, do not seek to
indemnify the agent against the losses caused due to his mistakes, but rather seek to
indemnify the third party from the same. In the event that the agent exceeds his power
without a very good and necessary cause, the principal has the authority to sue the agent and
seek compensation.

9
Loon Karan Sohan Lal vs. John and Co AIR 1967 All 308

6
BIBLIOGRAPHY

Books

1. Avtar Singh's Law of Contract & Specific Relief, (EBC, India, 12th ed, 2017)
2. R.K. Bangia, Indian Contract Act-1 (Allahabad Law Agency, Faridabad, Haryana,
17th ed, 2017)
3. Pollock and Mulla, The Indian Contract & Specific Relief Act, (16 th ed, 2018)

Scholarly Papers
1. J. O. Fabunmi, THE SCOPE OF AGENTS AUTHORITY AND POWER, Journal of the
Indian Law Institute Vol. 22, No. 3 (July-September 1980), pp. 414-430 (17 pages)
2. Floyd R. Mechem, NATURE AND EXTENT OF AN AGENT’S AUTHORITY,
Michigan Law Review 433 (1905)
3. J. A. Hornby, THE USUAL AUTHORITY OF AN AGENT, Cambridge Law Journal Vol.
19, No. 2 (Nov., 1961), pp. 239-248 (10 pages)
4. Erich C. Stern, A PROBLEM IN THE LAW OF AGENCY, Marquette Law Review,
Volume 4 Issue 1 (1919)

Websites
1. Appointment and Authority of an Agent (Agency – Indian Contract Act, 1872)
Available at: https://lawfoyer.in/appointment-and-authority-of-an/
2. Agent’s Authority- Judicial Interpretation
Available at: http://docs.manupatra.in/newsline/articles/Upload/FA398636-A18A-
4B4A-AD0B-67DF42E894B4.pdf