Law of Agency: Creation, Authority, Liability and Termination
This domain tests creation and termination of agency, the scope of authority, and the principal's liability to third parties.
Creation
Agency arises by express appointment, implication from conduct, estoppel or holding out, ratification, or necessity (s.189, Indian Contract Act). The agent acts on the principal's behalf and binds the principal to third parties. The principal must be competent to contract; the agent may even be a minor.
Authority
Actual authority may be express or implied; section 188 covers all lawful things incidental to the authority. Apparent or ostensible authority protects third parties dealing with an agent held out. Ratification (ss.196-200) must cover the whole transaction, be by a person with knowledge of the facts and capacity at the time of contracting, and the act must be ratifiable - a void act cannot be ratified.
Duties and rights
Duties: follow instructions, exercise reasonable skill and diligence, account, avoid secret profit, do not delegate. Rights: remuneration, indemnity (s.222) and lien (s.221). A sub-agent (s.191) works under the agent's control; a substituted agent (s.194) is directly responsible to the principal.
Liability to third parties
With a disclosed principal, the third party's normal recourse is against the principal. With an undisclosed principal, the principal may intervene subject to the contract and equities. An agent is personally liable where he contracts personally, exceeds authority without ratification, or acts for a fictitious principal.
Termination
Revocation, renunciation, completion, death or insanity (ss.201-206). Agency becomes irrevocable where the agent has an interest in the subject matter (s.202).
Worked example
An agent buys goods without authority in the principal's name, and the principal later accepts the benefit. Ratification binds the principal retrospectively, but only if he knew all material facts and the third party had not already withdrawn.
Traps
Ratification cannot validate a void act; an agent cannot delegate without authority; merely recommending a purchase does not create agency.