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Agent's Authority Under Indian Contract Act,1872

Agency in law connotes the relation which exists where one person has an authority or capacity to create legal relation between a person occupying a position of a principal and the 3rd parties. The function of an agent to enter into contractual relations on behalf of his principal with 3rd person.

Contract entered through an agent and obligations arising from the acts done by an agent may be enforced in a same manner and will have the same legal consequences as if the acts have been done by the principal himself.

Agent's Authority

The authority of an agent is his power to affect, his principal position by doing the acts on his behalf. Authority can be of the following types:
  1. Actual Authority
    Actual Authority is the legal relationship between principal and agent created by a consensual agreement to which they alone are parties.
  2. Apparent Authority
Apparent authority is also known as ostensible authority. Apparent or ostensible authority is that authority of the agent which appears to others.

The notion of apparent authority is essentially confined to relationship between the principal and the 3rd party. The doctrine of apparent authority involves the assumption that there is no authority at all. Under this doctrine, the principal represents to the 3rd party that the other part has the authority. In such a scenario principal will be bound against 3rd party by the acts of that other person.

In Lloyd v. Grace, Smith & Co., 1921,[i] the managing clerk of a firm of solicitors fraudulently induced a client to transfer properties to him. It was held that by allowing the managing clerk to deal with the client, the firm had given ostensible authority to conduct certain types of business. Therefore, the firm was held liable for the fraud.

Section 237 of Indian Contract Act deals with Agency by estoppel. It renders the principal liable for the acts of the agent, if the principal has by words or conduct induced to belief in 3rd party dealing with the agent that the acts of the agents were within the scope of his authority. According to Anson, 'a man is not permitted to resist an inference, which a reasonable person would necessarily draw from his word or conduct.'

When the agent act is said to fall within the scope of his apparent authority, it mean is that the acts appear to be authorized. In the case of Pickering V. Busk[ii], it was held that 'apparent authority is the real authority'.

The liability under section 237 is an application of the principle of estoppel. It's basis is natural justice, that if a principal without the intentional fraud has enable his agent to do an act which may cause damage or loss to another innocent party, he should himself suffer the injury rather than innocent 3rd party.

Express and implied authority

Agent authority can be expressed or implied. Implied authority include doing such things also which are incidental or customary in order to carry out the main act.

The extent of agent's authority is given in section 188 of the Indian Contract Act. It includes authority to do every lawful act which is necessary to do the main act. Section 189 protects the agent if for safeguarding the interest of the principal, he does some acts without expressed instruction from the principal.

Agent exceeds authority

When the agent Exceeds the authority, the principal would be bound only by those acts which are authorized, provided the same can be separated from the unauthorized acts. This will be read subject to section 237 of the act. However, when the agent's acts are not separable from the acts within the authority, the principal would not be bound by the transaction.

When agent act behalf of principal without his authority, the principal may ratify the act or disown it.

Personal liability of an agent

The general rule is that agent can't personally enforce the contract, nor he is personally liable under the contract. However, the principal and agent may contract to contrary.

The principle of agent's immunity from personal liability applies to both actual and apparent authority. Through agency Contract is entered into between the principal and the 3rd party. Thus, there is a privity of contract between the principal and 3rd party. The agent not being a party to the contract is not liable.

But, second part of section 230 of Indian Contract Act,1872 entails an exception to this rule. According to this though, the agent is not personally liable in the absence of any contract to contrary to that effect, yet the law shall presume the existence of such contact in three cases mentioned therein:
  1. When the agent deals with merchant residing abroad
  2. Agent represents Undisclosed principal
  3. Incompetent principal
In conclusion, the authority of an agent under the Indian Contract Act, 1872 is an essential aspect of contractual relationships. Agents can possess actual or apparent authority, with the latter being based on the perception of authority by third parties. The case of Lloyd v. Grace, Smith and Co., 1921, highlighted the concept of apparent authority and held the principal liable for the agent's fraudulent actions.

Section 237 of the Act, known as Agency by estoppel, imposes liability on the principal if they induce a reasonable belief in a third party that the agent's actions are within their authority. Express and implied authority allow agents to carry out necessary acts incidental to their main tasks. If an agent exceeds their authority, the principal is only bound by authorized acts that can be separated from unauthorized ones.

The agent's personal liability is generally exempted unless specifically agreed upon in the contract between the principal and the agent. However, exceptions exist under Section 230, such as when the agent deals with a merchant residing abroad, represents an undisclosed principal, or deals with an incompetent principal. Understanding the agent's authority is crucial for both principals and third parties in ensuring legal and contractual obligations are met in a transparent and accountable manner.

  • Indian Contract Act, 1872
  • Avtar Singh, Contract and Specific Relief
  • J. Beatson, A. Burrows, and J. Cartwright, Anson's Law of Contract
  • Pollock and Mulla, The Indian Contract Act
  1. (1912) UKHL 606
  2. Pickering v. Busk (I812) 15 East

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