Agency

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General rule:
No person can bind you in commercial contracts except under
few circumstances.

Need felt:
Agency is central to business dealings;
No owner of a business can do everything himself;
Inability of person to act due to other engagements;
To take advantage of special negotiating skills of person;
Attimes, to avoid personal controversies

In partnerships, the partners act as each other's agents;

And in corporations, the shareholders are completely unable to act

on their own behalf they delegate authority to a board of
directors;

Indeed, agency is one of the main themes of corporate law and in an

indispensable component of modern legal system;

One must delegate some things to agents, and this is true not only
of large corporations but of sole proprietorships that have
employees who work for the owner.
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Historical development of Agencyin Common Law

In the 12th and early 13th centuries, the power to appoint an attorney was
a privilege which must be given by royal grant, and the appointment must be
formally made in Court, But a series of statutes beginning with the Statute of
Merton (1235-6) gave everyone the right to appoint an attorney
This gave rise to the emergence of a class of professional attorneys in legal
matters
.The custom of the merchants, who at that time were already engaged in lively
trade in Europe, witness the admission of some instances of agency
unavoidable.
.Holdsworth observes that "from an early date the records of the fair Courts
show that some sort of commercial agency must be inevitably or unavoidably

recognized

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In the 14th and i5th centuries "the liability of the master or principal was no longer seen as a matter of
debt, but begins more and more to be seen as a matter of contract"

i I command my servant to buy certain things, or if I make someone my factor or attorney to buy merehandise,
etc, and he buys the merchandise from another, in that case I shall be charged by this contraet even
though the goods never come to my hands and even though I have no knowledge of (what the agent has
done), and the reason 1s becauseI have given him such a power (to purchase);

In the 17th and 18th centuries the influence of mercantile law which was embodied into the common law,
led to the emergenee of two classes of mercantile agents, the Juctors and the brokers. The expression
"agent" came into use anyd the "confusion of the principal-agent relationship with that of master and servant
began to disappear: Theourt ofChancery took notiee of the relitionship letwen prineipal anil agent and
began to treat it as if it were a relationship between a beneficiary and trustee;

the due to its increase use due to rise in

A radical change or development was witnessed in concept
commercalization;
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Whole idea of agency is based upon

quifacit per alterun facit per se

He who acts through another does the act himself

Concept of Agency and Definition of Agent

The term "agent" is used in ordinary speech to describe any person who acts on
behalf of another;

But the term "Agent" in law certainly has a more restricted meaning;

Agency deals with situations in which one person - the principal-- uses another
person-the agent--to act on his behalf;

Sometimes the acts of the agent are attributed legally to the principal,
sometimes not;

Delineating the conditions under which each is true are what make up the law of
agency.
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Agency is defined as a relationship which exists between one person
who authorizes and another who is authorized to act on the
former's behalf and the latter agrees to do so;

According to William Anson, "relation between one person and third

person through the second person'"

The Restatement of Agency (Second) defines agency as "the

fiduciary relation which results from the manifestation of consent
by one person to another that the other shall act on his behalf and
subject to his control, and consent by the other so to act.

Essentials of agency by Roscoe Steffin

First, the relation is a consensual one; an

agent agrees,
consents to act under the direction or control of the
or at least
principal;
Second, the relation is a fiduciary one; an agent agrees to act for and on
behalf of the principal

He is in no
sepse
is he expected to
a
proprietor entitled to the gains of enterprise--nor
cary the risks.
 Statutory definition- ICA-1872

182. "Agent" and "principal" defined.-An "agent is a person employed to do

any act for another, or to represent another in dealings with third persons.
The person for whom such act is done, or who is so represented, is called the
principal

Not to be taken so casually

Agent has the representative capacity coupled with power to affect the legal
relations of
principal with third party;
Power of making principal answerable to 3r party

Essence is principal has authorized this person' in a uway that he can represent
him, act for him and can finally bring party in contractual relationship uith 3rd
party

Test for Determining Agency

It's not the form but the substance of the document that is to be
seen; therefore use of the words Agency will not make relationship
as Agency:

What is to be examined is the true nature of relationship and

this will depend on facts of each case;
 Halsbury's Laws of England, 3rd edition, Vol. I p. 146

"351. Agency Depends onTrue Nature of Relationship In order to ascertain

whether the relation of agency exists, the true nature of the agreement or the
exact circumstances of the relationship between the alleged principal and
agent will be regarded and if it is found that such agreement in substance
contemplates the alleged agent acting on his own behalf, and not as an agent in
the agreement, the relation of agency will not have arisen."

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Helping or aiding anyone in pertormance of legal and contractual
ODIIgations cannot be termed as
agent

Representatve character and derivative authority

t
N was to dispose of the goods to customers if he could;

N was not obliged to pay for the goods unless he disposed

them;
N was a monthly account of sales actually made and
to return
to pay for the goods at the PRICE LIST
RATES
Mr.T Mr.N N in fact had the goods dyed and sold them to customers at
Agent his own price, without informing T of the names of the
Principal Customers.
Goods with
Price list

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Would T be liable to the ultimate purchaser X?

Would T be competent to sue the ultimate purchaser XP

Could the persons whom Nemployed to dye the goods sue T for the cost?

POWERLIABILITY
Relation isthe essenceof
this relationship

N was not an agent ofT but a purchaser of T

Had N power to alter T's legal relations with other persons, then N eould be termed by Agent
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Distributors and franchisees are termed as agents but they act as principals dealing in their
Own name; (its more a vendor-purchaser than agent-principal);

Loon Karan Sohanlal v John & Co. 11967 Se

When the Assam Govt placed its quota for commodity at the hands of a dealer for resale to
consumers he was not an agent even if deseribed so.

Mohd Farooq v State Govt 1984 KLT

Where miller was given authority for hulling paddy and distributing the same in accordance with
governments direction and also for the accountability; he was held to be an agent;

Directors ot the company;

Partners inter se

Mone D Ye

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The real distinction between servants and non-servant agents is stated

Singer Manufacturing Companyv. Rahn, 1889, U.S cdearly in

"The relation of master and servant exists whenever the

employer retains the
right to direct the manner in which the business shall be done, as well as the
result to be accomplished...

Corbett agrees to give his uhole time and servioes to the business
of the company; and the
company reserves to tseu the rioht of presribng and regulating not onty uwhat business he shall
do, Dut the anner im unteh ne sthal do
u.

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 Agent and Servant: Points of Difference
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According to Huffcut, Agency (2d ed. i9oi) ch. 5.

Classifies servants as doers of "operative acts not intended to induce third

persons to change their legal relations"; while "an agent makes offers,
representations, or promises for his principal, addressed to third persons,
upon the strength of which such third persons change their relations with
another.

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Representative capacity to bind in contractual relationship;
Extent ofDiscretion (lesser)
Degree of control (higher)

Mode of remuneration;

Liability
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Co-agents
2or more persons may be employedby the principal to act as agents jointly or
severally, or jointly and severally;
Presumption is its jointly and not severally

Co-principals:
Agent appointed by one or more than one principals. He is liable to them jointiy.
He is not bound to account separately to anyone ot them and it he does so he is
not absolved from the liability to others

Halsbury Laus of England, Vol 1 4h edn. pxuru 726;

Co principals may jointly appoint ansue
agent
hi
to act for them and in such case becomes
Jomtiylhable to him and
may jontly

s26IiCi9 ingis

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183. Who may employ agent Any person who is of the age of
majority according t the law to which he is subject, and who is of
sound mind, may employ an agent.

184. Who may be an agent. As between the principal and third

persons, any person 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 according to the provisions in that behalf
herein contained.
 Qualification of Principal
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Major andSound mind;

Minor can never become principal and appoint agent;

Because he is not considered mature enough to make right choices so law
does not provide him with this opportunity to make choices;

Guardian of minor can appoint agent on behalf of minor,

Exception to the rule of appointment of agent

Acts to be performed are of personalcharacter

Works associated with public authority or competency arises out

of public office

Statute doesn't permit delegation

 Qualifications of Agent
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Anyone can become an agent
- No requirement of majority and sound n i n d
- Even an infant may become an agent

Because liability shall come on to the principal and not on them

Onthe question of making agent liable to the principal, here

competeney is required.

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185. Consideration not necessary.-No consideration is necessary to
create an agency

Not required at the time of creation;

Later remuneration or commission is not barred;

m BIUS AEEaD 5

180-
Agrnt s authority nmay be expresoeef or implied.-The authority of an
may be cxpresed or
impliod aget
187,
Definitions of express and implied authority-An authority is said to
express when given by words spoken or written. An
it is be
when iE is to be inlerred trom the circumstances of the authority is said to be
implied
and
P the
oruinary course of decling, may be accounted case things spoken or writlen
circunstances of the case.
Tllastrabion
AWS a stop in Seranpore, iving himsell in
Theshop iamanaged by B, and he is in the habitCalautta, and vitstling the shop oxcasinal
of ordering
orthe rurposes of the shog, and of paytng for them out of A'goods
s
from C'in the name of A
funds
Bhas at mplied authority froem A to crder with knonedge.
goods from Cin the name of AforA'sthe
af the shop parposes

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134
-202
186. Agent's authority may be expressed or implied.-The authority of an agent
may be expressed or implied.
187. Definitions of express and implied authority.-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 cireumstances of the case; and things spoken or written,
or the ordinary course of dealing, may be accounted cireumstances of the case.

Tllustration
A owns a shop in Serampore, living himself in Calcutta, and visiting the shop occasionally
The shop ismanaged by B, and he is in the habit of ordering goods from Cin the name ofA
for the rrposes of the shop, and of paying for them out « "'s funds with A"s knowledge.
Bhas amplied authority from A to order goods from C in the name of A for the purposes
of the shop.

Creation of AgencCy

1 Express authority

2. Implied Authority
Conduct (with dealings or customary trade practices)
Necessity
Relationship

3 Rtification
 A. ExpresS authority

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This may be in oral or writing
The principal has entered into an explicit agreement with the agent authorizing
him to take particular action.
Consensual i.e. consent by both the parties;
For instance through the POA/GPA/statute etc;
Oral is as valid and as good as appointment in writing;

For instance,

When the board of directors of a company votes to authorize the president to

purchase a new office building, this is actual express authority.

B. Implied authority (Conduct, Relationship and necessity)

Conduct:
has authority to
The principal may by words or
conduct, create an inference that agent
act on behalf of the prineipal even though no authority exists in Jact.

the agent
Principal has not specifically authorized the particular action at issue,
reasonably infer that authority for that action has been delegated to him;
can

Ordinary eourse ofaffairs'is also the eriteriato ascertain extent of the authority;
Also includes authority to act according to the usages and customs of the business

If the general manager of a department store hires clerks, the store owner is
For instance,
bound by his contract even if he was not expressly granted that authority.
 Ageney by Estoppel
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237. Liability of principal inducing belief that agent's unauthorized acts were
authorized.-When an agent has, without authority, done acts or incurred obligations
to third persons on behalf of his principal, the principal is bound by such acts or
obligations, if he has by his words or conduet induced such third persons to believe that
such acts and obligations were within the scope of the agent's authority.

Illustrations

(a) A consigns goods to B for sale, and gives him instrutions not to sell under a fixed
price. C, being ignorant of E's instructions, enters into a contract with B to buy the
goods at a price lower than the reserved price. A is bound by the contract.
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(b) A entrusts B with negotiable instruments endorsed in blank. B sells them to C in
violation of private orders from A. The sale is good.

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In
Minskoff Equities v. American Express,

In order to prove ageney by estoppel, the following elements must be established:

0)acts of
commission or omission by the alleged principal which ereated the
appearance of authority in an agent; (specific representation & not representation
to the world)

(2) reasonable and good faith reliance on the appearance of authority in the
agent by the third party; and
putative

(3) A detrimental change in position by the third party due to its reliance on the
agents apparent authority;
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Here itis to benoted that if a peraön employs another as an agent in a character that involves a
particular authority, he cannot by secret reservation divest him from that authority:

Good faith requires that principal shall be held bound by the acts of agent within the seope of
his general authority, for he has held him ont to the public as competent to do the acts and to
bind him thereby;

LIC vs K Raama Iyer, 2004 Kan, where employer in a group savings linked insurance
undertook to pay premiums to the insurer from wages or salarnes of emplovees, but when a
worker died it came to the light that premiums were in default, it was held that insurers were
bound to pay the insurance money to employee's family. The employer hadd become agent of
insurer for agreed purpose,

cannot be any estoppel against the statute (Agent not authorised to take premium, LlC
There
Rules)

Ostensible authority
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What appears to others; I
For instance, when BOD appoint
aiso with ostensible authonty to doone
of their members to be MD they invest him notonly with the implied authority, bat
all such things as fall within the usual scope of that office;

AD
AD authorised to doallworks exoept borrowings beyond certain limits by passing internal resolution. Borrowings by
beyond that imit shall also bind the company;

Wetteau v Fenwick, 1893 QB

Kasinath Das v. Nisakar Rout; 1962 Orissa;

also and landlord was held bound by tenaney
Giving nght to manage lands amount to giving right to give on tenaney
agreement
 By Relationship
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Certain relationships in whichagency is presumed to exist

Husband and wife:

The liabilityof husband for wife's debt depends upon principles of ageney and arises if following
conditios exists;
Both living together;
i Inahousehold set up; (Debenham vMellon, 1880 AC)
. Liability of husband would only arise if wife spends on necessaries;
I.No liability of husband if he provides reasonable allowance to her

Liability of wife (principal) for husband's debt?

May arise expressly, ratification, etc but is not considered as implied for sure. Therefore no implied
authority to sell wife's assets.

Agency created in Necessity

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The general rule of agency that puts restriction on agent's authority to act within
domain permitted by the principal can be departed from in case of an
emergency or necessity;

.Acting beyond the permissible extent in case of extra ordinary cireumstances.

Term usually interpreted in commercial exigencies;

 lgn Tet e ouietReplace
Arange c pe tets Seiect
Conueto SmatArt
Eding

Authority of Ship master

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Shipmaster has implied authority to do all things necessury for due and
proper completion of voyage

This includes various powers such

as power to burrOW credit, hypothecate
ship, selling goods on board ete

as agent of owners one of

of cargo is strietlyunlesS
B u t such authority
and he would not be justified in dealing with goods he
necessity results;
exhausted with all the options that can give better

Started with Marine Adventures but expanded to other carriers also;

Certain conditions were necessary:

i Inability to communicate with the principal;

i. Act should be reasonably necessary

ii. Bona fide in the interest of party concerned

Sims & Co. v Midland Railway Co. (1913) KB;

Sale of perishable goods by the railway company on account of delay in transit was held
a valid sale to bind owner in view of the necessity and inability to communicate with the
principal.
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In another case, Green Northern railway Co, v Swaffield, 1874 All ER;
An act of the transport Co. of delivering a horse to a stable keeper when nobody
came to receive that horse was held to bind the horse owner (principal) for recovery
of charges tor keeping him in view of the necessity in circumstances.

In Sachs v Milkos, 1948 KB, sale of furniture by the defendant on non

communication with the plaintiff who had stored plaintiff's furniture was not held to
be the circumstance of necessity giving power to the defendant to sell the same.

What is necessity is a question offact and danger, distance, accommodation expense

etccan be taken into account while determining so.

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Relief to theInjured Persons:
I t may arise when injured person is in need of medical assistance and
any person call for
services of a doctor

entitled to recover from estate of patient (principal);:

This can happen only if3 conditions fulfilled:

i.
Inability to communicate with the principal;
ii. Act should be reasonably
necessary
ii. Bona fide in the interest of party concerned
 Statutory Recognition

189. Agent's authority in an enmergeney.-An agent has authority, in an

emergeney, to do all such acts for the purpose of protecting his principal from
loss as would be dne by a person of ordinary prudence, in his own case,
under similar circumstances.

Illustrations
(a) An agent for sale may have goods repaired if it be necessary.

(b) A consigns provisions to B at Calcutta, with directions to send them

immediatelyto
bear
C, at
Cuttack.B
may sell theprovisions at Caleutta, if they will
not the journey to Cuttack without spoiling.

4. Agency by Ratification (196-200)

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196. Right of person as to acts done for him without his authority. Effect of
ratification. -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 ratify them, the same effects uwill follow as if they had been performed
by his authority;
After this,
arises a
Meant to affirm the unauthorized acts done by the agent; CHOICE with
Conditions: the PRINCIPAL
Act must have been done on behalf of another;
Act was done without knowledge or authority of person on whose behalf it was
done
Principal must be in existence at the time of act or contract and should be competent;
Clear intention to ratify with full knowledge offacts
 i. Act must have been done on behalf of another;

Another should be in existence and identifiable:

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Identification need not necessarily by but by
name
description would also be
enough;

Act of agent should give impression of agency or the fact he is acting in agent's
capacity

Keighley Maxseted 8 Co. v Durant, ALL ER HL (1901-1903)

Purchase by agent on his own name with the belief of ratilication by principal
was held to be invalid ratification and principal was not made liable for it.

Principal should be in existence and competent to contract

Existence
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Competent
Exception is Pre incorporation Contracts (Section 15 and 19 of Specific
Relief Act, 1963)

15. Who may obtain

specific performance.-Except as otherwise provided by this
Chapter, the specific performance of a contract may be obtained by-
(h) when the promoters of a company have,
before its incorporation, entered into a contract
for the purposes of the
company, and such contract is warranted the terms of the
tncorporation, the company
by
Provided that the company has accepted the contract and has
acceptance to the other party to the contract.
communicated such
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19. Relief against parties and persons clatming under them by subsequent
title.-Except as otheruise provided by this Chapter, specific performance o a
contract may be enforced against
(e) when the promoters of a company have, before its incorporation, entered into a
contract for the purpose of the company and such contract is warranted
by the terms
of the ncorporation, the company:
Provided that the company has
accepted the contract and communicated
acceptance to the qther party to the contract such

197.
inplicd
Ratification may
in the
be
expressed or
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implied-Ratification be
conduct of the
person on whose behalf the acts
may expressed or may be
are done.

Illustrations
a) A, without authority, buys goods for B.
conduct implies a ratification of the Afterwards B sells them to C on his
own account; B's
purchase made for him by A.
(b) A, without B's authority, lends B's
from C. B's conduct money to C.
implies atification of the loan. Afterwards B accepts interest on the money
a

EXpress 1s clear

Implied would arise from showing any act

with intent to
Conduct must be such adopt transaction
as to show INTENTION TO ADOPT the (acquiesce or
silence)
Taking the benefit
of transaction is the
act;
t
may be
receipt of
money or
strongest and most usual
evidence of
disposal of good s recerved under unauthorised contractadoption;
etc;
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198. Knowledge requisite for valid ratification.-No valid ratification can be
made by a person whose knowledge of the facts of the case is materially defective.

Ratification must be founded on full knowledge of facts.

It must also be in relation to the transaction which was valid in itself and not
illegal (certain irregularities in company can be ratified but not illegalities)
Conditions to constitute a binding adoption.

O Acts must have been done and in the name of supposed principal;
o
o There mst be full knowledge of what those acts were or such an unqualified adoption that the
inference may properly be drawn that principle intended to take upon himself the responsibility of
such acts whatever they were

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199.
Effect of ratifying unauthorized act forming part of transaction-A a
his behalf ratifies the whole of
person ratiftying any unauthorized
the transaction of which such
act done on
act formed a part.

Half Ratification not permissible;

A man cannot at his own choice ratify part of the transaction and repudiate
the rest;

A principle cannot ratify the favorable parts of the transaction and disaffirm
the rest because this would allow principle to make a partial contract which
third party might not intend to make.
 200. Ratification of unauthorized act cannot injure third person An act done by one person
done
on behalf of another, without such other authority,
person's which. if with authority, would
have the cffect of subjecting a third person to damages, or of terminating any nght or interest of a
third person, cannot, by ratification, be made to have such etfect

Ilustrations
the
being authorized thereto by B. demands, on behalf of B. the delivery of chattel,
a
(a) A, not
B, so as to
property of B, from C, who is in possession of it. This demand cannot be ratilied by
make C liable for damages for his refusal to deliver.

(b) A holds a lease from B, terminable on three months" notice. C, an unauthorized person, gives
The notice cannot be ratified by B, s o as to be binding on A
notice of termination to
A.

i. Only lawful acts can be ratified

(An act which is void or illegal cannot be ratified;

In Sunil vs Maharashtra State Mining Corporation, 2006 Mah,

It was held that of removal of an employee by managing director of
a n act
to remove was held to be an act
a corporation whom he w a s not authorised

of termination that cannot be cured by ratification.

illegal
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ii. Acts having effect of causing injury to others cannot be ratified.

This gets reflected from the language used in the Section "would have the
effect of subjecting a third person damages
to

nglsh Inds

ii. Acts done on behalf of the Government.

Such acts can be ratified in a same way as private

acts.

Thus, Acts of the public servants in excess of their

authority may be ratified by the government

Government always have the choice of ratifying

excessively exercised authority.