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AGENT’S AUTHORITY
LAW OF CONTRACTS-II
The final project submitted on complete fulfillment of the course, law of contracts-II during the
academic session 2019-2020, Semester-3.
August, 2019
CHANAKYA NATIONAL LAW UNIVERSITY, NYAYA NAGAR,
Mithapur, patna 800001.
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ACKNOWLEDGEMENT
I would like to thank my faculty Dr. vijay kumar vimal whose assignment of such a relevant
topic made me work towards knowing the subject with a greater interest and enthusiasm and
moreover he guided me throughout the project.
I owe the present accomplishment of my project to my friends, who helped me immensely with
sources of research materials throughout the project and without whom I couldn’t have
completed it in the present way.
I would also like to extend my gratitude to my parents and all those unseen hands who helped
me out at every stage of my project.
Thank you
Name- Madhavi Bohra
Roll no.- 2023
Semester- 3rd.
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DECLARATION
I hereby declare that the work reported in this project report entitled “agent’s
authority” submitted at Chanakya National Law University, Patna is an outcome
of my work carried out under the supervision of Dr. Vijay kumar vimal. I have
duly acknowledged all the sources from which the ideas and extracts have been
taken. To the best of my understanding, the project is free from any plagiarism
issue.
Madhavi bohra
Date- 21-08-2019.
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Contents
1. Introduction- ...................................................................................................................... 5
1.1 Meaning and definition of agency- ............................................................................. 6
1.2 Features of the contract of the agency- ....................................................................... 6
1.2.1 one is -principle.................................................................................................... 6
1.2.2 Test of agency- ..................................................................................................... 7
1.2.3 Creation of agency- .............................................................................................. 7
1.2.4 Agency by stopple- .............................................................................................. 7
1.2.5 Agency by necessity ............................................................................................ 7
2. Duties and rights of an agent- ............................................................................................ 8
3. Agent’s authority- .............................................................................................................. 9
4. Types of Authority of Agents- ......................................................................................... 10
4.1 Actual authority- ....................................................................................................... 10
4.2 Apparent Authority is Real Authority. ...................................................................... 12
4.2.1 Representation.................................................................................................... 12
4.2.2 Statutory Provision about Apparent Authority. ................................................. 12
4.3 Usual Or Incidental Authority ................................................................................... 13
4.4 Employer’s Authortiy To Pay Insurance Premium ................................................... 13
4.5 Agent’s Authority In An Emergency ........................................................................ 14
4.6 Authority Of Special Agents ..................................................................................... 14
5 mercantile agent and its type- .......................................................................................... 16
5.1 kinds of mercantile agent- ......................................................................................... 16
5.1.1 on the basis of rights- ......................................................................................... 16
5.1.2 On the basis of function- .................................................................................... 16
6 Agent Exceeding Authority ............................................................................................. 18
7 Conclusion- ...................................................................................................................... 19
8 bibliography- .................................................................................................................... 20
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1. INTRODUCTION-
An agent is one who is:
An agent is a person employed to do any act for another or to represent another in dealings
with third persons.1The 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.4 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.5 This distinction is made to determine the authority of that agent. It has been
stated:6
“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.”
Agency is a fiduciary relationship in which one entity principle authorizes another i.e. agent to
act on its behalf in dealing with third parties. Fiduciary is a relationship in which agent takes
in and handles money and signs contracts on behalf of the principle and is accountable. Now
when we talk about insurance, here the agency becomes important, here the agency is the
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
Leake, Page 323, 6th Edition.
5
Amrit Lal C Shah v. Ram Kumar AIR 1962 Punj 325.
6
Jacob v. Morris [1902] 1 Ch 816.
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fiduciary, lawful situation, a relationship between the agent and the principle. The agent signs
the contract on behalf of the principle and is liable to pay money and other liabilities.
The law of agency: The law of agency is an area of commercial law, dealing with a set of
contractual, cause-contractual and non-contractual fiduciary relationships that involve a person
called the agent who is authorized to act on behalf of another i.e. principle to create legal
relationships with the third party i.e. the laws of agency relate to the law of contract. i.e the
agency and the principle and the relationship is crystallized by the agent who has got the ability
to sign and to initiate the contract.
7
Section 211 of the Indian Contract Act, 1872.
8
Singh, Avtar Law of Contract and Specific Relief Page 745 (Tenth Edition).
9
Section 212 of the Indian Contract Act, 1872.
10
Section 213 of the Indian Contract Act, 1872.
.
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3. AGENT’S AUTHORITY-
It has been seen in the case of Palestar Electronics Private Limited v. Additional
Commissioner12 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.13 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. 14
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 Singh15 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.”16 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.17 With regards to contracts and acts which are not actually
authorised, the principal may be bound by them, on the principle of estoppels, if they are within
the scope of the agent’s ostensible authority, but in no case is he bound by any unauthorised
act or transaction with respect to persons having notice that the actual authority is being
exceeded.18
12
(1978) 1 SCC 636.
13
Section 226 of the Indian Contract Act, 1872.
14
Municipal Corporation, Delhi v. Jagdish Lal (1969) 3 SCC 389. Sardar Gurucharan Singh v. Mahendra Singh
(2004) 1 MPLJ 252 (MP).
15
AIR 2004 P&H 216.
16
Montrose, J.L. Actual and Apparent Authority, (1938).
17
AIR 1973 All 302.
18
Mulla, Dinshah Fardunji Mulla The Indian Contract Act Page 344 (13th Edition 2011).
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19
Section 186 of the Indian Contract Act, 1872.
20
Section 187 of the Indian Contract Act, 1872.
21
AIR 1979 SC 553.
22
Singh, Avtar Law of Contract and Specific Relief Page 775 (Tenth Edition).
23
(1827) 7 B&C 278.
24
(1894) 2 QB 40.
25
(1905) 33 Cal 343.
26
(1829) 5 Bing 442.
27
(1904) 2 KB 10 (CA).
28
See Section 187 of the Indian Contract Act, 1872.
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In the case of Ramanathan v. Kumarappa29 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.30
29
AIR 1938 Cal 423.
30
1987 Supp SCC 689.
31
Denning LJ.
32
AIR 1964 Ker 176.
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4.2.1 Representation.
The doctrine of apparent authority is really an application of the principle of estoppel, for
estoppel means only that a person is not permitted to resist an inference which can reasonably
be drawn from the principal’s words or conduct. A case on this point is that of Egyptian
International Foreign Trade Company v. Soplex Wholesale Supplies Limited (The Raffaella)34
The person making the representation is estopped from denying the ostensible authority which
was thus created.35 Three things should be noted here. The representation must be made by or
with the authority of the principal. Ostensible authority cannot be created by simply a
representation of the agent.36 The third party must rely on a representation of the agent’s
authority to act as agent.37 The agent’s want of authority must be unknown to the third party.
33
1812 KB 15.
34
[1985] 2 Lloyd’s Report 36.
35
Anson Law of Contract Page 671 (28th Edition).
36
Attorney General for Ceylon v. Silva [1953] A.C. 461.
37
Farquharson Brothers v. King and Company [1902] A.C. 325.
38
Section 237 of the Indian Contract Act, 1872.
39
AIR 1945 Nag 121.
40
Ram Pertab v. Marshall ILR (1898) 26 Cal 701.
41
Sarshar Ali v. Roberts Cotton Association (1963) 1 SC 244 (Pak).
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servant has made a fraudulent misrepresentation which has caused loss to an innocent party
conducting with him are such as to make it just for the employer to bear the loss.
42
Section 189 of the Indian Contract Act, 1872.
43
(2004) 2 MPLJ 529.
44
Page 307 (7th Edition).
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The judgement of the Supreme Court in the case of Abdulla Ahmed v. Animendra Kissen
Mitter51 makes the situation clear: “A house or estate agent is in a different position from a
broker at the stock exchange owing to the peculiarities of the property with which he has to
deal and which does not pass by a short instrument as stocks and shares do, but has to be
transferred after investigation of title as to which various stipulations, which might be of a
45
Section 189 of the Indian Contract Act, 1872.
46
Exall v. Partridge (1799) 8 T.R. 308.
47
Sachs v. Miklos [1948] 2 K.B. 23.
48
(1856) 1 H&N 484.
49
Emerson v. Heclis (1809) 11 RR 520.
50
Anson Law of Contract Page 673 (28th Edition).
51
AIR 1950 SC 15.
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particular concern to the owner, may have to be inserted in a concluded contract relating to
such property. The parties, therefore, ordinarily contemplate that the agent should have the
authority to complete the transaction in such cases. That is why it has been held both in England
and here, that the authority given to a broker to negotiate a sale and to find a purchaser, without
furnishing him with all the terms means ‘ to find a man willing to become a purchaser and not
to bind him and make him a purchaser’.
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In the words of Storey, a broker has been defined as, “an agent employed to make
bargains and contracts in matters of trade, commerce or navigation, between two
parties for a compensation, commonly called brokerage.” He is a person whose
main job is to arrange a buyer for a seller and vice versa, that is to say, the work of
a broker is finished the moment a deal materialises between an intending buyer and
a protective seller. Usually, a broker does not take possession of title to goods, but
only negotiates for their use.
An auctioneer is a special mercantile agent who sells the goods of his principal by
auction. He gets the possession of the goods and gives prior publicity to the time
and place of auction through daily newspapers, pamphlets and catalogues.
The goods to be sold by auction are displayed at the place of auction for the benefit
of the intending buyers. The seller usually quotes the minimum price from where
the auctioneer starts his sale. The lowest price is known as “UPSET PRICE”.
Auction sale may be “WITH RESERVE” and “WITHOUT RESERVE”. In case of
auction “with reserve”, no sale can take place below the minimum price fixed by
the seller which is known as “Reserve Price”. In case of auction “without reserve”,
the auctioneer is bound to sell the product to the highest bidder.
The price for which the bid is accepted is called ‘Knocked down price”, since the
acceptance of a bid by auctioneer is indicated by striking a hammer on the desk by
the latter. After the highest bid is accepted, the auctioneer becomes the agent for
both seller and buyer. For his services, the auctioneer is entitled to a commission,
which is a certain percentage of the sale proceeds, usually fixed between him and
the seller, prior to the auction.
Underwriters are persons who guarantee a company that in case the public does not
subscribe to the entire shares offered by it, they shall subscribe and pay for the
balance of shares specified in the underwriting agreement.
Thus underwriters remove the fear of non-subscription of shares of a company by
the general public since they undertake to buy the shares which the public does not
buy. The underwriters are entitled to an underwriting commission, which is not to
exceed 5% in case of shares and in case of debentures it is 2.5% (the maximum rates
fixed by the Indian Companies Act, 1956)
Such agents despatch goods to foreign countries on behalf of their principals and
play an important part in the international trade transactions. They take possession
of goods in the home country and then arrange for its shipping and insurance before
despatching them abroad.
They assist their principals in importing goods from abroad. They take delivery of
goods when they arrive at the port of destination and after paying the import and
custom duties along with port dues, arranged for their transportations to their
principal’s warehouses.
A warehouse keeper is an agent who keeps the goods of his principal in storage in
his godown, in return for storage charges, to be delivered to the person directed by
the principal. He can exercise his right of lien on goods in his possession in case his
charges are unpaid by the principal.
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b) His agent acting within the actual or apparent scope of his authority makes a statement with
knowledge of its falsity or recklessly not caring whether it be true or false.” It is worthwhile
mentioning the agent’s torts here as well. The case of Atlantic Die Casting Company v. Whiting
Tubular Products53 gives us an idea about it: “The doctrine of ‘respondent superior’ (let the
superior answer) will be applied to make the principal liable where the agent commits a tort
while engaged in the business of the principal.”
52
Section 227 of the Indian Contract Act, 1872.
53
Inc. 337 Mich 414.
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7 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.
Agency has got the power to delegate authorities and power to act on behalf of the promoters
and the company. Now principle is the person who bestows the authority to the agent. The
agent connects the agency and the principle. Here the powers have to be used in a rightful way,
because all the three parties are involved and all the three parties are responsible for the breach
of contract. The agency has to be honest. The agent has to be honest and sincere and the
principle also has to be honest in order to fulfill the requirement as laid down by the law of
contract. The law of contract bestows the right of positive faith and trust for the transaction of
intangible services to the customers.
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8 BIBLIOGRAPHY-
primary source-
Indian contract act 1872, bare act.
Secondary sources-
R.K Bangia, Indian contract act II, Allahabad law agency.
Avtar singh, Indian contracts act II, 10th edition.
http://docs.manupatra.in/newsline/articles
www.Agency-Indian-Contract-Act-1872.pdf
www.lawtimesjournal.in
www.legalmatch.com