RAJIV GANDHI NATIONAL UNIVERSITY OF LAW,

PATIALA

CONTRACTS LAW PROJECT

‘IMPLIED AUTHORITY OF AN AGENT’

SUBMITTED BY: SUBMITTED TO:

RISHABH JADAM DR. SANGEETA TAAK

17006 ASSISTANT PROF. OF LAW

GROUP NO. 2
CONTENTS

INTRODUCTION............................................................................................... 2

Who is an Agent? ............................................................................................. 2

DUTIES AND RIGHTS OF AN AGENT ......................................................... 3

AUTHORITY OF AN AGENT ......................................................................... 6

ACTUAL AUTHORITY ................................................................................. 6

IMPLIED AUTHORITY ................................................................................ 7

IMPLIED vs. ACTUAL AUTHORITY......................................................... 8

CONCLUSION.................................................................................................. 12
 ACKNOWLEDGEMENT

I would like to express my special thanks to Dr. Sangeeta Taak Ma’am for helping me in
making the project on the topic ‘Implied Authority of an Agent. I would also like to
acknowledge my parents and friends, who were constant source of inspiration for me and
helped me complete this project in time.

RISHABH JADAM
17006

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 INTRODUCTION

Who is an Agent?
An agent is a person employed to do any act for another or to represent another in dealings
with third persons.1 The person for whom such act is done, or who is so represented, is called
the ‘principal’. The Indian Contract Act of 1872 does not make any distinction between
different classes of agents.2 On one hand an agent may be appointed by the principal; it also
includes an employment by any authority authorised by law to make the employment.3 Agents
are distinguished in respect of authority as general or special agents. The former expression
includes brokers, factors, partners, and all persons employed in a business of filling a position
of a generally recognised character, the extent of authority being apparent from the nature of
employment or position; the latter denotes an agent appointed for a particular occasion or
purpose, limited by the employment. A special agent has only authority to do some particular
act for some special occasion or purpose which is not within the ordinary course of his business
or profession.4 This distinction is made to determine the authority of that agent. It has been
stated:5

“A general agent has the full apparent authority due to his employment or position and the
principal will be bound by his acts within that authority though he may have imposed special
restrictive limits which are not known to the other contracting party. A special agent has no
apparent authority beyond the limits of his appointment and the principal is not bound by his
acts in excess of those limits whether the other contracting party knows of them or not

1
Section 182 of the Indian Contract Act, 1872.
2
Kalyanji Kuwarji v. Tirkaram Sheolal AIR 1938 Nag 254.
3
Sukumari Gupta v. Dhirendra Nath Roy Chowdhury AIR 1941 Cal 643.
4
Amrit Lal C Shah v. Ram Kumar AIR 1962 Punj. 325.
5
Jacob v. Morris [1902] 1 Ch 816.

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 DUTIES AND RIGHTS OF AN AGENT

Under the Indian Law, the Agent has certain duties. An agent is bound to conduct the business
of his principal according to the directions given by the principal, or, in absence of any such
directions, according to the custom which prevails.6 It is the duty of every agent to carry out
the mandate of his principal.7 An agent is bound to conduct the business of the agency with as
much skill as is reasonable.8 An agent is bound to render proper accounts to his principal on
demand.9 It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in
communicating with his principal, and in seeking to obtain his instructions.10 If an agent deals
on his own account in the business of the agency, the principal may repudiate the transaction.11
The important rights of an agent can be seen as well. In the absence of any special contract,
payment for the performance of any act is not due to the agent until the completion of such
act.12 An agent who is guilty of misconduct in the business of the agency is not entitled to any
remuneration in respect of that part of the business that he has misconducted.13 An agent may
retain all moneys due to himself in respect of advances made or expenses properly incurred by
him in conducting such business.14 The employer of an agent is bound to indemnify him against
the consequences of all lawful acts done within the authority.15 Where one person employs
another to do an act, and the agent does the act in good faith, the employer is liable to indemnify
the agent against the consequences of that act.16 Where one person employs another to do an
act which is criminal, the employer is not liable to the agent.17 The principal must make
compensation to his agent in respect of injury caused to such agent by the principal’s neglect
or want of skill.18

6
Section 211 of the Indian Contract Act, 1872.
7
Singh, Avtar Law of Contract and Specific Relief Page 745 (Tenth Edition).
8
Section 212 of the Indian Contract Act, 1872.
9
Section 213 of the Indian Contract Act, 1872.
10
Section 214 of the Indian Contract Act, 1872.
11
Section 215 of the Indian Contract Act, 1872.
12
Section 219 of the Indian Contract Act, 1872.
13
Section 220 of the Indian Contract Act, 1872.
14
Section 217 of the Indian Contract Act, 1872.
15
Section 222 of the Indian Contract Act, 1872.
16
Section 223 of the Indian Contract Act, 1872.
17
Section 224 of the Indian Contract Act, 1872.
18
Section 225 of the Indian Contract Act, 1872.

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1) Agent's duty in conducting principal's business (Section 211):

An agent is bound to conduct the business of his principal according to the directions given by
the principal, or, in the absence of any such directions, according to the custom which prevails
in doing business of the same kind at the place where the agent conducts such business. When
the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and, if
any profit accrues, he must account for it.

2) Skill and diligence required from agent (Section 212):

An agent is bound to conduct the business of the agency with as much skill as is generally
possessed by persons engaged in similar business, unless the principal has notice of his want
of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he
possesses; and to make compensation to his principal in respect of the direct consequences of
his own neglect, want of skill or misconduct, but not in respect of loss or damage which are
indirectly or remotely caused by such neglect, want of skill or misconduct.

3) Duty to render proper accounts (Section 213):

According to Section 213 of Indian Contract Act 1872, An agent is bound to render proper
accounts to his principal on demand.

4) Duty to communicate with principal (Section 214):

It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating
with his principal, and in seeking to obtain his instructions.

5) Not to deal on his own Account:

Section 215 of the Indian Contract Act 1872 deals with right of principal when agent deals, on
his own account, in business of agency without principal's consent. Section 215 runs as follows:

If an agent deals on his own account in the business of the agency, without first obtaining the
consent of his principal and acquainting him with all material circumstances which have come
to his own knowledge on the subject, the principal may repudiate the transaction, if the case
shows either that any material fact has been dishonestly concealed from him by the agent, or
that the dealings of the agent have been disadvantageous to him.

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1) Right to Receive Remuneration: According to Section 219 of the Indian Contract Act, an
agent is entitled to his remuneration. But Section 220 of the said Act says that, an agent who is
guilty of misconduct in the business of the agency is not entitled to any remuneration in respect
of that part of the business which he has misconducted.

2) Right of Lien (Section 221): Agent’s lien on principal’s property

In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and
other property, whether movable or immovable, of the principal received by him, until the
amount due to himself for commission, disbursements and services in respect of the same has
been paid or accounted for to him.

3) Right to Indemnity: Agent to be indemnified against consequences of lawful acts. Indemnity

means promise make good the loss. According to Section 222 of the Indian Contract Act, 1872
“The employer of an agent is bound to indemnify him against the consequences of all lawful
acts done by such agent in exercise of the authority conferred upon him.”

4) Right to Compensation:

According to section 225 of the said Act, an agent is entitled to claim compensation for the
injuries suffered as a consequence or want of skill of the principal. Section 225 reads as follows:

“The principal must make compensation to his agent in respect of injury caused to such agent
by the principal’s neglect or want of skill.”

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 AUTHORITY OF AN AGENT

It has been seen in the case of Palestar Electronics Private Limited v. Additional
Commissioner19 that the acts of the agent within the scope of his authority bind the principal.
Contracts entered into through an agent, and obligations arising from acts done by the agent,
may be enforced in the same manner, and will have the same legal consequences, as if the
contracts had been entered into and the acts done by the principal in person.20 It is necessary
for this effect to follow that the agent must have done the act within the scope of his authority.
The authority of an agent and more particularly its scope are subjects to some controversy.21
The uncertainty is largely due to the fact that the authority of an agent does not depend upon
one source. It has been rightly held in the case of Ramlesh v. Jasbir Singh22 that agency came
into being to promote and not to hinder commerce. The authority of an agent means his capacity
to bind the principal. It refers to “the sum total of the acts it has been agreed between principal
and agent that the agent should do on behalf of the principal.”23 When the agent does any such
acts, it is said he has acted within his authority as was seen in the case of Nand Lal Thanvi v.
LR of Goswami Brij Bhushan.24

ACTUAL AUTHORITY
The authority conferred on an agent by the principal is termed as the actual authority. It can be
classified into two categories, namely express and implied.25 An authority is said to be express
when it is given by words spoken or written.26 A power of attorney can be taken as an example
of express authority as was seen in the case of Syed Abdul Khader v. Rami Reddy.27 The scope

19
(1978) 1 SCC 636.
20
Section 226 of the Indian Contract Act, 1872.
21
Municipal Corporation, Delhi v. Jagdish Lal (1969) 3 SCC 389. Sardar Gurucharan Singh v. Mahendra Singh
(2004) 1 MPLJ 252 (MP).
22
AIR 2004 P&H 216.
23
Montrose, J.L. Actual and Apparent Authority, (1938).
24
AIR 1973 All 302.
25
Section 186 of the Indian Contract Act, 1872.
26
Section 187 of the Indian Contract Act, 1872
27
AIR 1979 SC 553.

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of express authority is worked out by the construction of words used in the documents.28 A
case on this point can be that of Attwood v. Munnings where a principal, while going abroad,
authorised his agent and partner to carry on his business, and his wife to accept bills on his
behalf for his personal business, he was not held bound when his wife accepted bills on his
behalf for the business, which the agent was conducting and which was different from his
personal business.

An authority is said to be implied when it is to be inferred from the circumstances of the case;
and things spoken or written or the ordinary course of dealing, may be accounted circumstances
of the case.29 The distinction between express and implied authority depends merely on
whether the authority is delimited by words or by conduct. In the case of Ramanathan v.
Kumarappa30 an estate agent was appointed to find a purchaser for a certain property. He
accepted a deposit from a prospective customer and misappropriated it. The principal was held
liable because an estate agent has an implied authority to take a deposit. However, he cannot
receive payment or give any warranty unless actually authorised as held in the case of Foujdar
Kameshwar Dutt Singh v. Ghanshyamdas.31

IMPLIED AUTHORITY
Implied authority refers to an agent with the jurisdiction to perform acts which are reasonably
necessary to accomplish the purpose of an organization. Under contract law, implied authority
figures have the ability to make a legally binding contract on behalf of another person or
company.

Implied authority is authority that is not express or written into a contract, but it is authority an
agent is assumed to have in order to transact the business for a principal. Implied authority is
incidental to express authority since not every single detail of an agent's authority can be spelled
out in the written contract.

Implied authority applies to insurance company agent that is given the authority to solicit
applications for life insurance on behalf of the insurer. When the insurer gives the agent that
express authority, it also gives the agent the implied authority to telephone prospects on its
behalf to arrange sales appointments. Implied authority also applies in a situation where a

28
Singh, Avtar Law of Contract and Specific Relief Page 775 (Tenth Edition).
29
Section 187 of the Indian Contract Act, 1872.
30
AIR 1938 Cal 423.
31
1987 Supp SCC 689.

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person is wearing a uniform or nametag bearing the logo or trademark of a business or
organization

IMPLIED vs. ACTUAL AUTHORITY

Actual authority, also referred to as “express authority,” pertains to specific powers to given to
an agent in an oral or written contract. This differs from implied authority in that implied
authority is has been assumed because of the circumstance.

For example, when an employee or agent wears a uniform, name tag, or has a business card
bearing the trademark or logo of a company, that individual carries implied authority. This is
because consumers are likely to assume the individual has authorization to act on behalf of the
company. The same would be true of an employee sent by a company or agency to make
repairs, even if the employee wore no uniform or name tag. Because implied authority is often
incidental, it is impossible to define every single aspect of the agent’s authority in a written
contract.

EXAMPLE OF IMPLIED AUTHORITY

When John visits a local bar, the server tells him he will receive a free drink if he orders an
entrée. By making this offer, the server has made an oral contract with John on behalf of the
bar. John assumes that the server has the authority to offer a free drink since he is an employee
of the business and acting on behalf of the owner.

LIABILITY IN ACTUAL AND IMPLIED AUTHORITY

When an agent acts on actual authority, the scope of which is outlined in a written document,
both the agent and agency may be held liable the results of such actions. When an agent acts
on implied authority, however, the scope cannot be specifically determined, and so liability
becomes a fuzzy issue. The employer or agency may claim the agent acted outside his authority,
leaving the agent holding the bag.

TERMINATION OF IMPLIED AUTHORITY

At any given time, an agency can take implied authority away from an employee. This can be
done in several ways including:

• Amending a contract or agreement taking away authority.

• Ending the agent’s employment.
• Discharging the agent of any obligations.

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• Implied Authority of a Partner.

Each partner in a business has the implied authority to act in the name of the company. Such
acts are binding on the other partners, so long as they fall within the ordinary course of the
company’s normal business. Such acts of implied authority may include:

• Buying or selling goods on behalf of the company.

• Accepting payments on debts owed to the firm.
• Accepting, making, or issuing bills on the firm’s behalf.
• Taking on a new lease on the firm’s behalf.

On the other hand, implied authority does not authorize a partner to:

• Submit a company dispute to arbitration.

• Relinquish any claim made by the firm.
• Withdraw or proceed in a legal suit.
• Admit liability in a legal suit against the firm.
• Purchase property on the firm’s behalf.
• Enter a new partnership on the firm’s behalf.

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 CONCLUSION

Over the years, it has been seen that an agent plays several roles in a contract. He has to step
into the shoes of the principal, yet is excluded from liability for his actions in general. Hence,
the limits of his authority have been a question of debate and pondering for several decades
since the emergence of the Agent-Principal relationship idea. Several judges over a span of
time, in various cases that have been covered in the research paper have expressed varying
opinions and views regarding the authority of an agent. In lieu of simplifying the task of
deciding this authority, several classes of agents were also identified. The responsibilities and
underlying powers of these agents differ, depending on the work they carry out.

An agent is often seen as a person who steps into the shoes of his principal and carries out all
tasks like the principal would do in similar circumstances, with his utmost diligence and
vigilance. A general rule that has been evolved to check an agent’s liability is his presence or
lack of reasonable care and attention to the work at hand. His authority, if exceeded, can be
challenged by the principal in a court of law; however, the third party which has entered into
the contract in question shall have a binding right on it. Overall, after this extensive study of
the elaborate and complex nature of the Agent’s contract we can see that courts, especially in
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. At the same time, the
principal maintains the right to sue the agent and demand compensation in case the agent has
exceeded his authority without a very reasonable and essential reason for the same.

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