Contract of Agency

CONTRACT OF AGENCY

BY: Bishrant Khatiwada, SLS Pune

Email: bishrantkhatiwada0@gmail.com

Agency is an agreement by which a relation based upon an expressed or implied. There is one person the agent, who is authorized to act under the control of and for another, principal in negotiating and making contract with third person. 

According to section 182 of Indian Contract Act, 1872, an "agent" is a person employed to do any act for another, who is so in dealings with third persons. The person for whom such act is done, or represented, is called the "principal". 

furthermore section 182 of Indian Contract act, 1872 states,” Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.” Whereas, Section 184 of Indian contract Act, 1872 lays down who can 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 sound mind can become an agent, so as to be responsible to the principal according to the provisions in that behalf herein contained.  

The modes of creation of agency are:

• By Express Authority

• By Implied Authority

• By Ratification

Agency Classification

1. Express agency: Section 186 of Indian contract act, 1872, states, a person maybe appointed agent either by words of mouth or by writing. No particular form is required for appointing an agent

2. Implied agency: Section 187 of Indian Contract Act, 1872, states that an agency which arises from the conduct, situation or relation of parties. When a person has by conduct or statement induced others to believe that a certain person is his agent, he is estoppel from subsequently denying it. It is known as agency by estoppel. Though part of the law of estoppel, some affirmative conduct by holding out. A implies agency can be created by necessity. This arises where there is no express or implied appointment of a person as agent for another but he is forced to act on behalf of a particular person.

3. By ratification: Section 197 of Indian Contract Act, 1872, states that Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done. E.g.: A, without authority, buys goods, for B. Afterwards B sells them to C on his own account; B's conduct implies a ratification of the purchase made for him by A.. Or A, without B's authority, lends B's money to C. Afterwards B accepts interest on the money from C. B's conduct implies a ratification of the loan.

In a famous case of 1998, l made an offer to X, managing director of a company. X accepted the offer though he had no authority to do so. L Subsequently withdrew the offer, but the company ratified X’s acceptance. It was held that, L was bound. That ratification related back to the time X accepted the offer. Thus, rendering the revocation of the offer inoperative. An offer once accepted cannot be withdrawn. Ratification is the method by which a vital reflectively approves a particular act of his specialist, which was unapproved at the time of the act. Koenigsblatt v Sweet (1923) summarized the convention as being ‘equivalent to predecessor authority’ for an operator. In spite of the fact that, not all acts can be approved. A central will as a rule wish to approve an act for money related pick up.

Rectifiable Act: The primary prerequisite to approval is the requirement that the operator must have performed the unapproved act on sake of his vital. As such, concurring to Tolerate v Tolerate (1871), imitations cannot be confirmed. In guideline, unlawful acts are too not rectifiable, but Bedford Protections Co v Instituto de Resseguros do Brazil, notes that there are diverse sorts of illegality; if allowing approval isn't hostile to open arrangement, it'll be permitted. 

Ascertainable principal: For a principal to ratify an act, the third party need not have known who the principal was at the time, but the principal must have been rectifiable. Only a principal may ratify, according to Jones v Hope (1880). If this were not the case, third parties would never know if they were bound by the contracts they had agreed to or not. An undisclosed principal cannot ratify as he cannot be identified, according to Keighley, Maxted & Co v Durant (1901)

Competent Principal: If the principal would not have had the capacity to enter into the agent’s assertion at the time of the assertion, approval will not be allowed. This was outlined by Boston Deepsea Angling Co v Farnham ,where the foremost was an outsider at the time. Be that as it may, there are two exemptions to this run the show. In case open approach isn't encroached upon, children may approve once they reach the age of majority, and there's no reason why a company cannot confirm acts carried out by its ‘agents’ pending its joining.

Knowledgeable principal: According to Suncorp Insurance & Finance v Milano Assicurazioni [1993], a principal may only ratify if he is aware of the material facts and circumstances surrounding the unauthorized act; he need not know about the law on ratification.

Methods of ratification: Ocean Emerald v Prominvestbank [2008] affirmed that acts may be approved by a one-sided sign of the will of the foremost, meaning that confirmation can be suggested. Confirmation was suggested in Suncorp Protections & Back v Milano Assicurazioni , where the vital approved by coming up short to work out rights to the opposite. This case moreover affirmed that an entire understanding must be confirmed; an assertion cannot be approved in portion, unless there are severable commitments. In Forman v The Liddesdale, the principal’s acknowledgment of his transport, which had been repaired without authorization, did not constitute confirmation as the central had no choice but to confirm.

Limits of ratification: The potential cruelty of approval was outlined by Bolton Accomplices v Lambert (1889), in which any specialist acknowledged to purchase products from a third party. The third party in this way pull back their offer as the acknowledgment was unapproved. The principal’s afterward approval made the agent’s acknowledgment authoritative and the contract enforceable. Stricter impediments on the limits of approval have been indicated.

Consequences of ratification: Allowed approval reflectively makes rights and commitments between central and third party. These rights cannot be at that point taken absent. Essentially, in case a foremost shows his expectation not to approve, he cannot afterward confirm, agreeing to McEvoy v Belfast Managing an account Co [1935]. Confirmation moreover invalidates any breach of a guarantee by a specialist. As the agent’s act is treated as approved post-ratification, it was affirmed in Verschures Creameries v Body and Netherlands Steamship Co [1921] that a specialist is entitled to compensation for confirmed acts. The as it were address which seem challenge the results of confirmation is what happens in case the foremost is constrained to approve to avoid harm being caused to his commercial notoriety. It is submitted that the central ought to at that point have plan of action against his specialist.