Agency law

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DEFINATION In law the agency that exists when one person or party engages another to act for him. In which the one party is principal and the other party is agency .The law of agency is an area of commercial dealing with a set of contractual or non contractual fiduciary relationships that involves a person called the “agent”. The law of agency governs the legal relationship in which the agent deal with the third party on behalf of the principal. The principal given the instruction of agent. In which the agent is bound to render proper accounts to his principal on demand . It is duty of an agent, in case of difficulty, to use all reasonable diligence in communicating with his principal, and seeking to obtain his instructions. E g., to do his work, to sell his goods, to manage his business. The competent agent is legally capable of acting for his principal the third party. In agency the concluding the contract through an agent involved two fold relationship. On the one hand, the law of agency is concerned with the external business relations of an economic unit and with the powers of the various representatives to affect the legal position of the principal. On the other hand, it rules the internal relationship between principal and agent as well, there by imposing certain duties on the agent. The two relationships need not be in conformity. that is authorized to act on behalf of another (called the principal) to create legal relations with a third party.[1] (

Thus, an agent ‘s effecting power in dealing with outsiders may extend to transactions that he is under a duty to his principal not to undertake, leading to a situation. It may be referred to as the equal relationship between the principal and the agent. In which principal may be expressely or implicitly , authorize the agent to work under his or her control and on his behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him or her and third parties into contractual relationship. In India, section 182 of the Contract Act 1872 defines Agent as “a person employed to do any act for another or to represent another in dealings with third persons”. However, this law only applies to contractual law in India.


When one party delegates some authority to another party whereby the latter performs his actions in a more or less independent fashion, on behalf of the first party, the relationship between them is called an agency. Agency can be express or implied. Chapter X of the Indian Contract Act, 1872 deals with the laws relating to Agency. It is important to know the law relating to agency because nearly all business transactions worldwide are carried out through agency. All corporations, big or small, carry their work out through agency. Therefore, laws relating to the agency are an important area of Business Law. Relationships relating to principal and agent involve three main parties: The Principal, the Agent, and a Third Party. An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such ct I done , or who is so represented, is called an principal. In which only the who person an agent who is the age of majority according to the law to which he is subject, and who is of sound mind, may be an agent. In according to the law of agency consideration is not required. The agent of authority may be express or implied. An authority is said to express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, an ordinary course of dealing, may be accounted circumstances of the case. Illustration; A owns a shop in serampor, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is the habit of ordering goods from C in the name of A’s for the purpose of the shop, and of paying for them out of A’s funds with A’s Knowledge. B has an implied authority from A to order goods from C in the name of A for the purposes of the shop. The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A business owner often relies on an employee or another person to conduct a business. In the case of a corporation, since a corporation can only act through Natural person agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency. [2] (

A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. It is not always cost effective to check whether someone who is represented as having the authority to act for another actually has such authority. If it is subsequently found that the alleged agent was acting without necessary authority, the agent will generally be held liable.


In India the law of agency is govern the legal relationship with agent deal with the third party . In law of agency is legally development between the common law legal system and civil law legal system. The concept of agency representation in the sense it is understood now emerged around the twelfth century (A.D) along with the salve and slave owner’s relations. Since the early time, salves were considered as a mere chattel without any rights. It was logical to hold the owner legally liable for the acts of his slave, especially if the acts of the slave were done based on the direction of the slave owner. Hence this slave and slave owner relationship paved a way for the creation and the concept of representation. And during this time, the responsibility of a principal for the acts of his agent or servant was commenced. The concept of agency developed independently in the civil and common law legal systems. However, the rudimentary rules of agency representation as it is understood today became visible in both legal systems around the end of the twelve-century and early thirteen centuries. Although, the concept of agency representation appeared around the end of the 12th century, its rules came to be arranged and significant, in order to facilitate commercial centers in the 19th century. Where business activities widely spread in most parts of the world especially in Europe commercial transaction was highly developed in volumes. Owing to this reason the rules of agency started to be organized and collected from the various fields over which they were distributed. (Law of agency, Am. J: comp. law vol.6 (1957) pp.165) In spite of its high development, the Roman law did not outgrow an overall theory of agency in their law of contract, and even ‘’it was utterly unknown in the early law of contracts and never in the entire history of the  Roman law did it reach the importance it has attained in the English law. During the time where the Romans were unaware about the theory of Agency, the English law of contract developed the theory in a complete manner and businessmen used to carry out their business activities through intermediaries or agents. One among the main reasons why the Romans failed to develop a complete theory of agency representation in their contract law as that of the English law was that ‘’ the Romans never acknowledged a general rule of their private law which declared that a person acting as an intermediary should be capable of creating valid contractual or commercial relations between the principal and the third party.’’(W.Muler-Freinfels, Legal Relations in the Law of Agency: Power of Agency and Commercial certainty Am. J: V.13 1964 pp.195) With respect to the importance of commercial activities in the Roman Empire and the distance between commercial centers and slow means of communication, the notion of agency representation was not well developed in their contracts law. Among the basic governing principles that was expressed in the roman contract law which has created the major obstacle for the rapid development of the modern concept of agency law was that “rights and liabilities were acquired or incurred only by the persons making the contract; third parties are not considered. To the old contracts like Manicipatio, cessio injure, and stipulatio, the doctrine of agency never applied. The formal ceremonious words employed to create such obligations bound only the persons who actually uttered them. It was the act of the individual, his solemn declaration that bound him, and according to the theory of the old Roman law one could not speak for another but only for oneself. (William L. Burdick, The principles of Roman Law and their relation to Modern Law, 1938, pp.424) While the Roman law of agency representation was in its lower stage, the English law of agency contract was found in a higher stage and it was well developed. In relation to this, in the English law of contracts, the doctrine of principals and agent was based upon three elemental propositions. These were: The creation by contract, express or implied of the relation, The non liability of the agent for contracts made in the name of his principal, and The liability of the principal for contracts made by his duly authorized agent. According to this, when it is compared with the English law of contracts, the Roman law of contracts never developed the theory of agency to such an extent as the English law of contracts had achieved. In order to have a broader concept on the genesis and development of the law of agency, let’s discuss the genesis and development of the law of agency in the following legal systems. Theories and Development of the Law of Agency under the Common Law Legal System Theories and Development of the Law of Agency under the Civil Law Legal System


An agent who acts within the scope of authority conferred by his or her principal binds the principal in the obligations he or she creates against third parties. There are essentially three kinds of authority recognized in the law: actual authority (whether express or implied), apparent authority, and ratified authority).

Actual authority

Actual authority can be of two kinds. Either the principal may have expressly conferred authority on the agent, or authority may be implied. Authority arises by consensual agreement, and whether it exists is a question of fact. An agent, as a general rule, is only entitled to indemnity from the principal if they have acted within the scope of their actual authority, and if they act outside of that authority they may be in breach of contract, and liable to a third party for breach of the implied warranty of authority.

Express actual authority

Express actual authority means an agent has been expressly told he or she may act on behalf of a principal.

Implied actual authority

Implied actual authority, also called "usual authority", is authority an agent has by virtue of being reasonably necessary to carry out his express authority. As such, it can be inferred by virtue of a position held by an agent. For example, partners have authority to bind the other partners in the firm, their liability being joint and several, and in a corporation, all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation. Other forms of implied actual authority include customary authority. This is where customs of a trade imply the agent to have certain powers. In wool buying industries it is customary for traders to purchase in their own names. Also incidental authority, where an agent is supposed to have any authority to complete other tasks which are necessary and incidental to completing the express actual authority. This must be no more than necessary[3] (


Liability of agent to third party

If the agent has actual or apparent authority, the agent will not be liable for acts performed within the scope of such authority, as long as the relationship of the agency and the identity of the principal have been disclosed. When the agency is undisclosed or partially disclosed, however, both the agent and the principal are liable. Where the principal is not bound because the agent has no actual or apparent authority, the purported agent is liable to the third party for breach of the implied warranty of authority.

Liability of agent to principal

If the agent has acted without actual authority, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to indemnify the principal for any resulting loss or damage.

Liability of principal to agent

If the agent has acted within the scope of the actual authority given, the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal's business.


An agent owes the principal a number of duties. These include: a duty to undertake the task or tasks specified by the terms of the agency; a duty to discharge his duties with care and due diligence; An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. An agent can represent the interests of more than one principal, conflicting or potentially conflicting, only after full disclosure and consent of the principal. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party. that the agent is authorized to negotiate.[4](