AGENCY

Section 182 defines the terms “Agent” and “Principal” as follows:

An “agent” is a person employed to do any act for another or to represent another in dealings with the
third party. The person for whom such an act is done, or who is so represented, is called the “principal”.

In an agency one person(principal) employees another person(agent) to represent him or to act on his
behalf, in dealings with the third party. The act of the agent binds the principal in the same manner in
which he would be bound if he does that act himself. The agent may be expressly or impliedly
authorized to do an act on behalf of the principal. If I authorize my agent to sell my house to a third
party and if he does so, I become bound for the sale of the house to the third party in the same way as If
I myself contracted to sell the house to the third party. The agent is only a connecting link between the
principal and the third person. Contracts entered into through an agent or obligation arising from such
acts done by an agent, may be enforced in the same manner, and will have the same legal consequence,
as if the contract had been entered into and the acts done by the principal in person.

Different kinds of Agents:

Auctioneers: An auctioneer is an agent whose business is to sell goods or other property by auction, i.e.,
by open sale. The authority vested in him is to sell the goods only, and not to give warranties on behalf
of the seller, unless expressly authorized in that behalf. He is a mercantile agent within the meaning of
section 2(9) of the Sale of Goods Act. If the owner of the goods puts him in possession of the goods
although the authority to sell has not been conferred in him, a buyer in good faith from such an
auctioneer will get a good title in respect of the goods. Thus if he has been authorized to sell the goods
only subject to a reserved pricebut he sells the same to an innocent and bona fide buyer below the
reserved price, the buyer will get a good title in respect of such goods.

Factors: A factor is a mercantile agent who is entrusted with the possession of the goods for the
purpose of sale. He has also the power to sell goods on credit and also to receive the pricxe from the
buyer. If the owner has put a factor in possession of the goods or the document of title but without
authorising him to sell the goods, the sale of goods by him will convey a good title to a bona fide buyer.
According to section 171 of the Contract Act, a factor has right of general lien over the goods belonging
to his principal which are in his possession, for the general balance of account.

Brokers: A broker is an agent who has the authority to negotiate the sale or purchase of goods on behalf
of his principal, with the third person. Unlike a factor, he himself has no possession of the goods. He
merely makes the two parties to enter into a contract. He gets his commission whenever any
transactions materialises through his efforts.

Del Credere Agents: He is a mercantile agent, who , on payment of some extra commission, jnown as
del credere commission, gurantees the performance of the contract by the third person. If in such a case
of the third person, for instance, fails to pay for the goods supplied to him, the principal can bring an
action against the del credere agent for the same. The liability of the del credere agent, like that of a
surety, is secondary and the same arises if the third person fails to pay to the principal what is due under
the contract.

Some features of the contract of agency:

 Principal should be competent to contract (Sec 183).

 The agent may not be competent to contract (Sec 184).
 No consideration is necessary to create an agency (Sec 185).

Creation of Agency

In case of a relation between an agent and principal, the principal is bound by the acts of the agent, i.e.,
in such situations, the agent has the power to bind his principal:

(1) By the authority being conferred on the agent to act on behalf of the principal. Such authority
may be Express or Implied.
Extent of Agents Authority: An agent having the authority to do an act has authority to do every
lawful thing which is necessary to do such act. An agent having an authority to carry on business
has the authority to do every lawful thing necessary for the purpose, or usually done in course
of conducting such business.
(2) By agent’s authority to act on behalf of the principal in situation of an ‘Emergency’.
Agent’s authority in an emergency: An agent has authority in a emergency, to do all such acts
for the purpose of protecting his principal from loss as would be done by a person or ordinary
prudence in his own case, under similar circumstances.
(3) By the conduct of the principal, which creates an agency on the basis of the Law of Estoppel.
Sometimes the agent has neither express or implied authority to do an act on behalf of the
principal, but the principal by his conduct creates an impression in the minds of the third person
that the agent has an authority to act on his behalf. In this case the principal is liable to the third
person for the acts done by the agent,on the ground on the application of the law of estoppel.
The basis of the action is what appears to the third person to be an authority, i.e., apparent or
ostensile authority conferred on the agent. Section 237 contains the following provision in this
regard:
“237. Liability of principal inducing belief that agent’s unauthorised acts were authorised :
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
conduct induced such third persons to believe that such acts and obligations were within the
scopeof the agent’s authority.”
(4) By Ratification of the agent’s act by the principal, even though the same has been done without
the principal’s prior authority.
It has been noted that when an agent does an act for which he does not have an authority, the
principal is not bound for the same. To this there is an exception when the principal may be
bound even for acts done without an authority. If the principal ratifies, i.e., accords subsequent
 approval to an act done without his authority, but on his behalf, the principal would be bound in
respect of such act.

Ratification(Sec 196-200)

“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 ratifies them, the same effect will follow as if
they had been performed by his authority.”
The person on whose behalf the act is done has either tow options:
(1) To disown the act, or
(2) To ratify the same.

A person untruly representing himself to be the authorised agent of another, and thereby
inducing the third person to deal with him as such agent, is liable if his alleged employer does
not ratify his acts, to make compensation to the other in respect of any loss or damage which he
has incurred. If a person falsely represents that he is an agent of another, the principal may
ratify the act even though the same was done without his authority. On ratification, the
principal becomes bound by the act . if the principal does not ratify the act but disowns it, the
pretended agent is personally liable to the third person, who entered into the contract on the
basis of the misrepresentation made by the pretended agent.

Effects of Valid Ratification

 Act should be done on behalf of another person(Sec 196)
 The principal should be in existence, and competent to contract when the act is done:When the
principal ratifies an act, the validity of the act relates back to the time of doing of the act by the
agent. The act is as valid as if the same had been done without the prior authority of the
principal. So that ratification is valid, it becomes necessary that the principal must have been in
existence, and also competent to contract, at the time the act purported to be ratified was
done. Thus, if a contract is purpoted to be made on behalf of a company which has not yet been
formed, the company cannot ratify he contract after coming into existence.
 Ratification may be express or implied(Sec 197)
 Ratification should be with the full knowledge of the facts(Sec 198)
 Ratification should be of the whole transaction(Sec 199)
 Ratified acts should not be injurious to third person(Sec 200): An act done by one person on
behalf of another, without such other person’s authority, which if done with authority, would
have the effect of subjecting a third person to damages, or of terminating any right or interest of
a third person, cannot, by ratification be made to have such effect.
 Ratification should be made within a reasonable time.