Ostensible Authority and Actual Authority: Distinction

In India, the relationship shared by the principal and agent runs on contractual
bases, so the terms and conditions of the contract between them govern their
boundaries. In the agency contract, two parties have a legal relationship where one
person acts on behalf of the other.

The person who acts on behalf of the other acts as an agent, and the person from
whom the agent derives jurisdiction to act becomes the principal. Agent and
principal are defined under Section 182 of the Indian Contract Act 1872. A person
employed to perform any act for another or to represent another in interactions
with third parties is referred to in the section as an agent. The principle is the party
on whose behalf the act is performed or who is so represented.

Present Legal Condition

Agency law controls the contractual relationship that the agent has when acting as
the principal's representative in dealings with third parties. The competent agent can
represent the principal legally in front of a third party. As a result, a two-way link is
required to complete a deal through an agent.

One aspect of agency law is the ability of the numerous representatives to affect the
legal position of the primary and, on the other hand, the external business ties of an
economic unit. On the other hand, it regulates the relationship between the agent
and the principal internally and imposes requirements on the representation. There
is no requirement that the two relationships line up exactly.

In many contemporary legal systems, the agency is seen as a crucial component of

the current social order. It accomplishes the widest range of functions in both public
and private law; in particular, it helps organize the division of labour in the domestic
and global economy by enabling a principal to significantly expand his or her
individual field of influence by having one or more others work for them.

In addition to the person principal, a principal may also be a group of people who
conduct their trade or company through a partnership, a registered corporation, or
another sort of corporate organization. As firm units have become more involved in
transactions done at a distance (via the hiring of factors or commercial agents) or
have grown, the requirement for legal guidance in some form has increased.

Continental law also enables legal representatives, such as a parent, guardian,

curator, or other incompetent people, to give minors, insane individuals, and other
individuals the ability to act. Although common law recognizes a comparable
category of "authority by law," powers based on familial ties are uncommon and
only appear in a small number of instances.

Duties Of An Agent
Section 211: (following the instructions of the principal when conducting business)
The agent is required to conduct business in accordance with the principal's
instructions. If the agent doesn't follow through or suffers a loss as a result, he is
liable for accruing and maintaining the profit for the principal.

Section 212: (working diligently and skillfully)

It is crucial for the agent to work diligently when conducting business. If he neglects
to do so and engages in any misbehavior, he will be responsible for paying damages.
The loss will only be paid when there is direct misbehavior because misconduct can
be both direct and indirect.

Section 213: (Creating the appropriate accounts)

The agent must provide an accurate accounting of the principal. Since accounting is
required to demonstrate the business's performance. It ought to be accompanied by
the account's supporting paperwork.

Section 214: (contacting the principal in challenging situations)

If the agent is working on a challenge that requires the principal's approval, he
should speak with the principal first.

Section 215: (Principal's rejection of the transaction)

When an agent does business on his own account without first getting authorization
from the principal and the principal learns of it, he has the right to revoke the
transactions if the agent has performed any act that is detrimental to him
dishonestly.

Section 216: (not to manage one's own account)

The principal is entitled to any advantage that the agent receives if the agent seeks
to conduct business on his own behalf without the principal's knowledge.

Section 218: (Agent's obligation to pay principal the amount received)

The agent is required to give the principal the full amount that was received on his
behalf.

Types of The Authority of Agents

Actual Authority

The actual authority is the power granted by the principle to the agent. It can be
broken down into two groups: express and implied. When a command is given
verbally or in writing, it is said to be expressed. One example of express authority is a
power of attorney. The scope of express authority is worked out in this document by
taking an example, eg: When a principal authorised his agent and partner to carry on
his business while he was away and his wife to accept invoices for his personal
business, he was not held accountable when she did so, which was separate from his
personal business.eg 2 By writing a check on behalf of his principle to pay the
principal's workers, the agent secured a loan without authorization; as a result, the
principal was made responsible.

However, he would be obligated by it if the third party knew about the agent's
authority limitation or could have found out about it via reasonable examination. If
an agent does not have unambiguous permission to borrow on behalf of his
principal, he cannot do so. When an agent has the authority to borrow, the fact that
he went over the permitted amount does not bar a third party from holding the
principal accountable. The case does not go beyond the limits of authority because
the agent acted with an improper motivation. The case does not go beyond the
limits of authority because the agent acted with an improper motivation.

When something may be inferred from the facts of the case, such as what was
spoken or written, or what was common practice, then is when an authority is said
to be implied. Whether the power is limited by words or by conduct simply
determines whether it is express or implied.

Apparent Authority

When someone is thought to have authority even if it may not have been explicitly
stated or indicated, this is known as seeming authority. It happens when a principal's
conduct necessitates a third party's assessment in order for them to comprehend
why the agent would be able to act.

The principal is not obligated by the contract if the agent (the person with apparent
power) gives the third party a false or deceptive appearance of authority.

Difference Between Actual and Apparent Authority

The concept of authority in law arises whereby ‘I’ put someone else in ‘My’ place to
work on ‘My’ stead. So when someone is representing ‘Me’ the law deems such
other person’s work as ‘My’ work.

The situation above enumerated is based on Latin legal principle qui facit per alium
facit per se- which literally means the one who acts through another does the act
himself. It is the fundamental rule of law relating to Agency.

The logic behind holding ‘Me’ responsible for the acts done on my behalf is multi-
fold, to hold the person having more resources would be in a better position to
restore the wronged person or for cases where I take advantage of a situation and
make someone act upon my saying which causes wrong to other, the innocent party
acting on my words would be wronged too, which is anti-thesis of equity.
So now that I have established the base of the pyramid, let us move a level up.

I would like to quote from Spiderman here “with great powers come great
responsibility.” Before the agent who works on my stead is made responsible for his
acts, there has to be some power given to him (and this we call authority). The
exception is Agency by ratification and Agency by necessity.
This authority is of two kinds.
Real authority: - It is the authority conferred on the agent by the principal. It may be
done in two ways - Expressly (by words spoken or written) or Impliedly (here, the
authority is inferred from the conduct of the principal in the circumstance of the
case). So the difference here between the two is that if I say that I name X as the
manager of my business (it is express authority), but I put someone in the position of
manager, he has the implied authority to do all acts a person in such position
ordinarily does.

Apparent authority: - It is also known as Ostensible authority, is a kind of authority of

the agent which appears to others. So, technically Apparent authority often overlaps
with Real authority w.r.t. Implied Authority.
However, the difference lies in the fact that in Implied authority, the authority is
seen from the side of the principal (i.e. from the actions) and in Apparent authority,
the authority is seen from the perspective of the third person (i.e. what it appears to
the person in the given circumstance).

So when we say that an agent’s act is within the scope of his apparent authority, all
that it is meant is that the act is appeared to be authorized.
Example: I make X my manager and expressly limit is authority to dealing with 1 lakh
rupees unless I accept a deal above 1 lakh. So here, his actual authority is limited to 1
lakh rupee, but his apparent authority will include all usual authority as that of a
manager in his dealings with those who do not know this limitation.

Conclusion

It has become clear over time that an agent fulfils a variety of functions within 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 idea first emerged,
the subject of discussion and thought has been the extent of his authority. Judges
have voiced a variety of perspectives and viewpoints on an agent's authority over
time and in the instances reviewed by the study paper. Numerous classifications of
agents were also identified to further complicate the process of determining this
power. Depending on the tasks they complete, these agents' duties and fundamental
powers vary. A typical definition of an agent is someone who assumes the role of his
principal and performs all duties with the same level of care and diligence as the
principal would in a similar situation. The presence of the agent or the absence of
reasonable care and attention to the activity at hand has become a basic criterion
that has emerged to assess an agent's liability. In the event that his authority is
exceeded, the principal may challenge it in court; nevertheless, the party who
entered into the contract in question 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 hold the Agent harmless from losses brought on by his errors, but
rather seek to hold the Third Party harmless from the same. In the event that the
agent exceeds his authority without a very good and necessary reason, the principal
retains the right to sue the agent and seek compensation.