Law of Agency

1. Contract which creates the relationship of
‘principal’ and ‘agent’

2. Agency – The Contract Act 1872

A contact which creates the relationship of
‘principal’ and ‘agent’.
Agent- is a person employed to do any act for
another or to represent another in dealings
with third persons.
Principal- the person for whom such act is
done or who is represented by the agent.

3. General rules of Agency

 Whatever a person competent to contract may do by
himself, he may do so through agent, except for acts
involving personal skill and qualification;
 The acts of the agent are, for all legal purposes, the
acts of the principal.
Section 226- ‘contracts entered into through an agent,
and obligations arising from acts done by an agent,
may be enforced in the same manner, and will have
the same legal consequences, as if the contracts had
been entered into and the acts done by the principal
in person.

4. Test of Agency

Agency exists ‘whenever a person has the
authority to act on behalf of the other and to
create contractual relations between the
other and the third persons’

5. Agent and servant

 Servants act under the authority of the master or
employer and has to act according to the orders of
the employer. He cannot create relations between
the employer and the third party
 Agent is not subject to the direct control and
supervision of the principal; has large discretion to
act within the scope of his authority

6. Agent and independent
contractor

 Independent contractor is one who is employed to
perform certain specified work but the manner and
means of performance are entirely left to his
discretion; he does not represent his employer to
other person to make the employer responsible for
his acts
 The agent acts within the authority determined by the
principal and any act done within his authority binds
his principal too

7. Creation of Agency

 By express agreement: generally oral or written
expression. But execution of a deed of sale or
purchase of land requires a formal power of attorney
on stamped paper;
 By implied Agreement- where existence of agency is
inferred from the circumstances of the case, or from
the conduct of parties or from relationship between
parties
 Agency by ratification

8. Agency by implied agreement

By estoppel: when an agent does an act or
incurs any obligation on behalf of the
principal and the principal by his words or
behavior induces such third party to believe
that such acts or obligations are within the
scope of his authority, the principal becomes
bound by such obligation or acts

9. Agency by implied agreement

Agency by holding out : in this case the
principal does some affirmative or positive
act or conduct to establish agency
subsequently.
Agency by necessity: Where there is a real
necessity for acting on behalf of the principal;
it is impossible to communicate with the
principal within time available; the agent acts
bonafide in the interests of the principal

10. Agency by ratification

Ratification means subsequent adoption and
acceptance of an act originally done without
instructions or authority.
Section 196- where act 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 effects will follow as if they had been
performed by his authority

11. Sharing of obligations between the
agent and the principal

 Anything done by an agent within his express or
implied authority binds the principal
 The principal is not responsible for an act done by
any person other than the agent under a delegated
authority from the agent provided that delegation is
not permitted by the principal.

12. Agent’s authority

 Actual authority: to do all acts which have been
assigned to him either expressly or impliedly.
 Ostensible or apparent authority: An agent
authorized to do some act has the authority to do
every lawful thing which is necessary to do such act.
 Anything done in excess of agent’s actual authority
binds the principal if it is within his apparent authority,
provided the third parties act bonafide.

13. Delegation of authority

An agent cannot lawfully delegate his
authority without express authority of the
principal.
Exceptions
- With express or implied authority of the
principal;
- Unforeseen emergencies;
- Nature of agency makes it necessary
- Custom

14. Duties of Agent

- To follow the principal’s direction or customs
- To carry out the work with reasonable skill and
diligence
- To render accounts
- To communicate
- Not to deal on his own account
- Not to make any profit out of his agency
- Not to delegate authority
- Not to set up adverse title
- Not to use information against principal

15. Termination of agency
By the act of the parties
- Agreement
- Revocation by the principal
- Renunciation by the agent
 By operation of law
- Completion of the business of agency
- Death of the either party
- Insanity
- Insolvency of the principal
- Destruction of the subject-matter
- Dissolution of company

16. Law of insurance

A cooperative device to spread the loss
caused by a particular risk over a number of
persons who are exposed to it and who agree
to insure themselves against the risk
Def- is a contract whereby one party
undertakes, in return of a consideration called
premium, to pay to the other party a certain
sum of money on the happening of a certain
event or to indemnify the other party against a
loss arising from the risk insured.

17. Parties

The party which promises to pay a certain
sum of money to, or to indemnify, the other
party is called the insurer (or assurer,
undertaker); and
The party to whom this protection is given in
exchange of premium is called the insured
(or assured; or policy holder);
The document containing the terms and
conditions of the contract of insurance is
called a policy

18. characteristics

Utmost good faith
Indemnity
Insurable interest
Causa proxima (liability is limited to the
losses which have been proximately caused
by the peril insured against.)
Doctrine of subrogation (in case of fire and
marine insurance)