Scope of agent’s authority and power

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Introduction

In the contemporary modern era, the sustenance and magnification of a business organisation is mostly depended on the skills and the indubitable aid of middlemen, formerly known as agents. Due to the fact that these agents not only reduce the burden of the principal i.e., the person represented by the agent, but also his skills and special knowledge amplify the presence of a business organisation as well as result in phenomenal increase in profits.

Hence, it can be appreciated that via ‘agency’, a person is enabled who otherwise lacks capacity to do something by way of a commercial transaction to do same with the help of another person called his agent. Therefore, the contract of agency has assumed a prominent position not only in the arena of business but also has made a common man’s life easy. Hence, the law of agency with which the whole aspect of agency is regulated in accordance with the law, is one of the most relevant forms of contract in this day and age.

What is ‘Agency’?

The core of the contract of agency can be reflected through the legal maxim, “Qui facit per alium facit per se” which means “he who does an act through another is deemed in law to be have done it himself.”[1] This denotes that an agent by way of representation acts as a connecting link between his principal and third parties.

Under the Indian Contract Act, 1872, Section 182 deals with the concept of agency, “An ‘agent’ is a person employed to do any act for another or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the ‘principal’.”

Hence, it can be ascertained that an agent never acts on his own behalf but only according to the directions of the principal. He may either represent his principal in dealings with a third person or perform an act for the principal. In either case, the act of the agent will be deemed in law to be not his own but of the principal.[2]

 

Extent of the agent’s authority

In a contract of agency, an agent has the authority to do every lawful thing which is necessary to do a particular act on behalf of the principal. He also has the authority to carry on the business on his principal’s behalf and do every lawful thing necessary for the purpose, or usually done in the course of conducting such business[3].

This means that contracts signed by an agent and duties arising from actions performed by the agent can be applied in the same manner which would have the same legal implications as if the contracts were signed and the acts performed by the principal in person. Hence, it is important that the agent must have committed the act within the scope of his jurisdiction.[4]

Hence, the authority of agent 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.”[5]

However, it is apparent that a principal can be even made liable for the acts of the agent which are not authorised via invoking ‘estoppel’ meaning thereby, that when the agent possesses ostensible authority and the said act comes within its ambit[6].

 

Types of Agent’s authority

  1. Acts done with Principal’s Actual Authority

When the principal authorises his agent to do a certain act on his behalf. Such authorization maybe made expressly or implicitly/ impliedly.[7] Under Section 187 of the Act, ‘authority’ is said to be express when it is given by words spoken or written. On the other hand, ‘authority’ is said to be implied when it is to be inferred from the circumstances of the case; and the things spoken or written; or the ordinary course of dealing; maybe accounted from the circumstances of the case.

This means that the principal is liable for all the acts done by the agent which are usual or incidental to the fulfilment or maintenance of a particular purpose or thing. It must be noted that the principal’s consent is a necessary part of an implied authority[8] i.e., if there is evidence that the principal has specifically not consented such implication cannot be made.

This includes the agent’s usual or customary authority in which the agent who is employed in the trade, profession, business, or place has the authority to work according to its usual customs and norms unless this has been expressly negatived by the principal.[9] However, the principal will continue to remain responsible for the acts of his agent even if unauthorised or prohibited, if the third person is ignorant of such internal/secret reservations.[10]

Illustration

A owns a shop in Serampor, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purposes of the shop, and of paying for them out of A’s funds with A’s knowledge. B has an implied authority from A to order goods from C in the name of A for the purposes of the shop.[11]

In the case of implied authority, it depends on the nature of the business in which the agent has been authorised to transact. For instance, an agent employed to sell a horse has an implied authority to give a warranty that the horse is sound[12] or if an agent has been authorised to sell artificial manure has an implied authority to warrant the proportion of its ingredients[13].

Even a power of attorney can be taken as an example of express authority.[14] In Attwood v. Munnings[15], 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, but his wife had accepted bills on behalf of his business which she wasn’t supposed to do, hence, the court ruled in favour of the principal since the wife acted outside her jurisdiction.

  1. Agent’s authority in an emergency

In case of an emergency, an agent has the power to do all such acts with an aim to protect his principal from any loss as would be employed by a person of ordinary prudence in his own case, under similar circumstances.[16]

Historically, the Doctrine of Agency of Necessity/emergency was applicable only to the carriage of goods by the sea which involved the captain’s action to save a ship in the course of a voyage, or the cargo it might be carrying in threatening situations. But in contemporary times, such application of this type of agency is apparent in every agent-principal relation since the ambit of what can be considered an emergency has significantly increased.

In Great Northern Railway Co. vs. Swaffield[17], the plaintiff railway company transported a horse that was supposed to be collected by the defendant but he failed to do so. As a result of which the railway company sent the horse to a stable for its maintenance but still after a month there was no sign of the defendant.

Hence, to recover the stable charges, the plaintiff claimed it from the defendant. In an action by the plaintiff, the court ruled that there was an agency of necessity because the plaintiff was found to have had no choice but to arrange for the proper care of the horse, and hence, the defendant is liable to pay for the cost that the plaintiff spent. However, the agency of necessity can be only claimed when:

  1. Impossibility for the agent in getting the principal’s directions- In Springer v. Great Western Railway Company[18], the defendant sold the plaintiff’s tomatoes on account of some of them going bad. However, the court held that since the defendant ought to have communicated with the plaintiff when the ship arrived at Weymouth to get instruction but failed to do so, hence, there was no agency of necessity.
  2. Act done out of necessity- If there is no urgency and then goods are sold just because they are inconvenient to the agent, then an agency of necessity does not arise. The agent who commits such act may be liable for tort for conversion since the agent does not own the goods. For instance, in Sachs v. Miklos[19], where the defendant sold the furniture to someone else after being unable to contact the owner. It was held that necessity, as opposed to inconvenience, had not arisen in this case.

iii. Act done out of bona fide intention- If the agent carries out any act in furtherance of protecting the interests of his principal during times of emergency, such action must be done with full bona fide intention and only for the welfare of the principal.

  1. Agency by Ratification

In cases where an agent does an act unauthorised by the principal but subsequently, ratifies (accords approval) it, the principal would be bound by it.[20] Effective ratification confers authority on the agent so that the transaction entered into by the agent becomes binding on the principal; the third party is then entitled to enforce it against the principal.

In Risbourg v. Bruckner[21], the court held that on ratification, a valid contract between the principal and the third person was created from the date when the agent had done the act, and hence, the agent could not be made personally liable.

Similarly, in Williams v. North China Insurance company[22], X insured Y’s goods without his consent but eventually, Y affirmed such insurance. Hence, this is valid ratification that now cannot be undone by Y. However, it is evident that ratification of an agent’s acts can only be done by a fully competent and existing principal who is apprised of all the facts about the concerned act of the agent.

Further, such ratified act should not be injurious to a third person and must be done within a reasonable time. In Savery v. King[23], an unauthorised mortgage was entered into by the agent which was subsequently ratified by the principal. But that mortgage was invalid and was unknown to the principal. Hence, the said ratification was held to be of no effect.

 

  1. Agency by Estoppel

Sometimes the agent does not have any kind of authorisation from the principal to act on his behalf, but due to the conduct of the principal, the third person comes under the impression that the agent has apparent or ostensible authority to do a particular act.[24]

For instance, A entrusts C with negotiable instruments endorsed in blank. B sells them to C in violation of private orders from A. The sale is good.[25] The House of Lords in Armadas Ltd. v. Mundogas SA[26], observed the criteria of ostensible authority:

  1. The principal by words or conduct made a representation to the third-party that the agent has the requisite authority to act for him although the agent does not in fact have such authority. The ‘conduct’ here denotes that any past dealing with the said agent which created an impression in the mind of the third party that he is the apparent authority;
  2. Due to such representation, the third party consented to deal with such agent;

iii. The third party has altered his position resulting from such reliance, for example, assuming obligations under a contract with the agent.

If all these conditions are fulfilled, the principal is estopped from claiming that the agent had no actual authority to enter into a certain transaction or do a particular act.

However, it must be noted that if the third party has even an inkling or to say any actual or constructive notice of any restriction on the agent’s ostensible authority, he cannot claim a remedy under this section since the law only helps those who help themselves[27].

 

Agent exceeding authority

In case, the acts of the agent which are unauthorised are mixed with the acts which are authorised and cannot be separated, the principal is not bound to recognise the transaction.[28] But if they are separable, then the principal is only bound by the authorised acts done by the agent.[29] Evidently, if the principal has authorised a false statement to be made, or knows that it is being made by the agent or keeps the real facts from the agent, the principal is liable.

 

Conclusion

Hence, it is apparent that an agent assumes numerous kinds of authority and power with respect to the acts done on behalf of the principal. However, in spite of such wide authority, he is rarely made accountable to the third party for his acts which in most scenarios were unauthorised.

The justification that can be made out regarding this position of law is that since the principal generally is financially stable and competent to give damages and can face other penalties, it is rather reasonable and prudent to make the principal liable for the acts done by the agent as his representative and for his dealings.

And for the hardships faced by the principal for the mistakes of the agent, the law makes the agent responsible to the principal i.e., he will have to compensate the principal for expenses he gave to the third party or incurred due to the mistakes of the agent.

Also, 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. Therefore, the law is proportionate towards the rights of the third party, agent as well as principal.

 About the Author: Jagrati Gupta is a 2nd year student at Faculty of Law, Banaras Hindu University, Varanasi.

Note: The views in this article are personal only.

 References

  1. RK Bangia, Indian Contract Act, 14th Edition, Haryana: Allahabad Law Agency, 2009, pp. 404-446.
  2. JO Fabunmi, SCOPE OF AGENTS AUTHORITY AND POWER, Journal of Indian Law Institute, July-September 1980, 22(3), pp. 414-430.
  3. Floyd R. Mechem, The Nature and Extent of an Agent’s Authority, The Michigan Law Review Association, April 1906, 4(6), pp. 433-463 [Online] Available from: https://www.jstor.org/stable/pdf/1272350.pdf (Accessed April 30, 2022).
  4. Sankalp Shankar Srivastava, Review of the Doctrine of Agency by Necessity, Academike, November 17, 2015 [Online] Available from: https://www.lawctopus.com/academike/review-doctrine-agency-necessity/ (Accessed April 30, 2022).
  5. LawTeacher, Agency by Necessity Law, LawTeacher, November 2013, [Online] Available from: https://www.lawteacher.net/free-law-essays/contract-law/an-agency-may-arise-by-necessity-contract-law-essay.php?vref=1 (Accessed 4 May 2022).

End Notes

[1] Dr. RK Bangia, Law of Torts, 24th Edition, Allahabad Law Agency, 2019 (Accessed April 28, 2022).

[2] Loon Karan v. John & Co., AIR 1967 All 308, 311.

[3] Section 188 of the Indian Contract Act, 1872.

[4] Palestar Electronics Private Limited v. Additional Commissioner, (1978) 1 SCC 636.

[5] Montrose, J.L. Actual and Apparent Authority, (1938).

[6] Section 237 of the Indian Contract Act, 1872.

[7] Section 186 of the Indian Contract Act, 1872.

[8] Amusan & Ors. v. Bentworth Finance Ltd., 1965 ALR Comm. 601 at 602.

[9] Bowstead on Agency, 12th Edition, 1959, pp. 62.

[10] Section 208.

[11] Illustration from Section 187.

[12] Howard v. Sheward, (1886) LR 2 CP 148.

[13] Dingle v. Hare, (1859) 7 CB (NS) 145.

[14] Syed Abdul Khader v. Rami Reddy, AIR 1979 SC 553.

[15] (1827) 7 B&C 278.

[16] Section 189 of the Indian Contract Act, 1872.

[17] (1874) LR 9 Exch 132.

[18] [1921] 1 KB 257.

[19] [1948] 2 KB 23.

[20] Section 196.

[21] (1858) 3 CBNS 812.

[22] (1876) 1 CPD 757.

[23] (1856) HLC 627.

[24] Section 237.

[25] Illustration (b) of Section 237.

[26] (1986) AC 717.

[27] Sarshar Ali v. Roberts Cotton Association (1963) 1 SC 244 (Pak).

[28] Section 228 of the Indian Contract Act, 1872.

[29] Section 227 of the Indian Contract Act, 1872.


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