Extent of Agent’s Authority: Indian Contract Act

The legal connection between the agent and its principal is established by an agency agreement. It serves to foster mutual knowledge that the agent shall bind the principal for his activities done within his area of power by ensuring that both parties understand their roles and duties in a contract. Along with outlining the legal positions of the agent, the principal, and any other parties involved, the contract of agency also defines the rights and obligations of an agent in a contract of agency and the situations in which the agent will be held personally accountable for his actions on behalf of the principal.

Geeky Takeaways:

• A contract of agency is easily witnessed in business since companies use agencies to help them focus on their core competencies while simultaneously expanding their operations.
• The principal is the person who is represented, while the agent is the representative who is so hired.
• A few instances include employing a stockbroker or designating a human resource specialist to recruit people or lawyers for legal representation.
• Sections 182 to 238 of the Indian Contract Act, 1872, include the laws on the contract of agency.

Extent of the Agent’s Authority

In the legal sense, agency refers to the relationship that arises when one individual possesses the power or authority to establish a legal relationship between primary and third parties. An agent’s role is to negotiate contracts with third parties on behalf of his principal. Contracts entered into through agents and the liabilities resulting from their actions can be enforced and will be subject to the same legal consequences as if the principal had performed the actions themselves. An agent’s ability to influence his primary position by acting on his behalf is known as his authority. One can have the following kinds of authority:

1. Actual Authority: The legal connection established by a voluntary agreement to which only the principal and agent are parties is known as an Actual Authority.

2. Apparent Authority: Another name for apparent authority is ostensible authority. The authority of the agent that is visible to others is known as Apparent or Ostensible authority.

The connection between the primary and the third parties is virtually the exclusive domain for the concept of perceived authority. The idea that there is no authority at all is central to the notion of seeming authority. According to this theory, the main pretends to the third party that the other has the power. In such a case, the other person’s actions will bind the principal against the third party.

3. Authority in an Emergency: In an emergency, an agent is authorized to take whatever action would be taken by a person using ordinary caution in a similar situation to safeguard his principal from loss. For example, A appoints B as his agent to transport tomatoes from Pune to Jaipur. However, due to unprecedented weather, tomatoes started rotting. Acting prudently, B sold the tomatoes in the market urgently before reaching Jaipur.

Sub Agent under Indian Contract Act

Section 191 defines a “sub-agent” person employed by, and acting under the control of, the original agent in the business of the agency. As a result, the original agent appoints the subagent and gives them supervision. The original agent may, in extraordinary cases, appoint the subagent:

• Work kind
• Trade customs
• Ministerial duties
• Unexpected emergencies
• Given the principal’s approval

According to Section 194, if an agent has designated another person to act on behalf of the principal in the agency’s business and has the express or implicit authority to do so, that person is not a sub-agent but rather the principal’s agent for the portion of the agency’s business that is assigned to him.

For example, Aman, a carrier, agreed to carry 60 bags of cotton waste from Mumbai to Bhubaneshwar by a truck. Aman asked Bhuvan, another carrier, to carry the goods. The goods were damaged in transit. Held, Aman was liable even though it was proved that Bhuvan was the carrier.

Substituted Agent under Indian Contract Act

According to Section 194 of the Indian Contract Act, 1872, a substituted agent is an individual designated by the original agent to manage a certain aspect of the agency’s operations with the principal’s knowledge and approval. The agent must fulfill two requirements before designating a replacement agent.

First and foremost, the original agent needed to acquire express or tacit permission from the principal to make this kind of appointment. Second, in that specific area of the agency’s operations, the original agent had to appoint someone to represent the principal. The agent is only serving as a channel for the direct power that the principal has given them when they make such an appointment.

The Indian Contract Act, 1872, specifies the agent’s responsibility to choose a substitute agent under Section 195. When choosing a replacement agent, the agent is required under this section to use the same degree of caution as a reasonable and ordinary person would use in a comparable circumstance. Should the agent take such precautions, they won’t be accountable to the principal for any carelessness or acts taken by the replacement agent.

For example, Anil authorizes Bishu, a merchant in Calcutta, to recover the moneys due to Anil from Chinu & Co. Bishu instructs Dhwan, a solicitor, to take legal proceedings against Chinu & Co. for the recovery of the money. Dhawan is not a sub-agent, but is solicitor for Anil.

Conclusion

An important component of contractual agreements is the authority granted to an agent by the Indian Contract Act 1872. Agents may be in positions of actual or seeming power; the latter is determined by how other people view the agent in question. The notion of seeming power was emphasized in the 1921 decision of Lloyd v. Grace, Smith and Co., which also made the principal accountable for the agent’s dishonest behavior. Agents are authorized to perform required actions that arise outside of their primary duties, both explicitly and implicitly. The principle is only obligated by activities that are distinguishable from illegal ones, even if an agent goes beyond their scope of power. A sub-agent is a person who works for the original agent and is managed by them while conducting business on behalf of the agency. Conversely, a substituted agent is an individual designated by the original agent, with the principal’s approval, to manage particular areas of the agency’s operations directly on the principal’s behalf.

Extent of Agent’s Authority: Indian Contract Act- FAQs

What is the test of agency?

If below two conditions are satisfied, test of agency is passed:

• Whether the person is in the capacity to bind the principal and the principal is answerable to the third party for his acts.
• Whether he can establish a privity of contract between the principal and third party.

Can the principal cancel the agent’s authority?

Yes, as long as it is done in accordance with the terms of the agency agreement or other relevant laws, the principal may withdraw or terminate the agent’s authorization at any time.

What happens if an agent exceeds their authority?

If an agent overreaches, the principal might not have to abide by the agreement the agent made. For any associated damages, the agent can also be held personally accountable.

What is the difference between sub agent and substituted agent on the basis of remuneration?

Through his pocket or share, the original agent gives the sub-agent his fee or compensation. The payment to the replacement agent is made by the principal.

Is there any privity of contract between sub agent-principal and substituted agent-principal?

The principal and the sub-agent do not have a contract with privity. The original agent has privity over the subagent. Privilege exists between the primary and the replaced agent, on the other hand. Both the principal and the replacement agent may be sued directly. With the exception of fraud and deliberate wrong, the principal cannot sue the sub-agent directly or be sued by the latter.