Law of Agency

Topics: Agency, Agency law, Agent Pages: 8 (2281 words) Published: May 20, 2012
* Nature and Creation of an Agent
* Duties of an Agent to his Principal
* Duties of a Principal to his Agent
* Termination of Agency Contract
What is an agency?
Section 135 of Contract Act 1950:
“Agency is the relationship which subsists between the principal and the agent who has been authorized to act for him or represent him in dealings with others.”

There are two types of agency contracts:-
1. Contract between principal & agent
2.Contract between principal & third party through the medium of the agent.


Agency can be created through:- 
1. Express appointment
2. Implied appointment by principal
3. Ratification by principal
1. Express appointment

This happens when the principal expressly appoints a person to be his agent. This could be done in two ways: a) oral b) in writing

2. Implied appointment

Implied appointment may be created under three situations:-

a) When a person by his word or conduct holds out another person as having authority to act for him b) Relationship between husband & wife
c) Relationship between partners 

3. Ratification (Approval)

Agency by ratification can happen only if it falls under these two situations:-

a) Agent who has been appointed but has exceeded his authority when he entered into a contract with a third party. b) A person who has no authority to act for the principal but he acted as if he has the authority to enter into a contract with third party.

According to Section 149 of Contract Act, if either one of these two situations involve, the principal has two choices i.e.: to reject the contract or to accept the contract. When he accepts the contract, it is known as ‘ratification’.

Conditions of a Valid Ratification
a) The contract done by agent was without authority or exceeding authority. b) The contract recognized by law.
c) The agent must act as agent for the principal not in his own name. d) The principal must actually exist when the contract was made. e) The principal must have contractual capacity.
f) The principal must have knowledge of all material facts. g) The principal must ratify the whole contract.
h) Ratification must be made within a reasonable time
CASES: Metropolitan Asylum Board v Kingham & Sons
Grover & Grover v Mathew
i) Ratification must not injure or affect the interest of a third person.

4. Agency by Necessity

According to Section 142 of Contract Act, a person may become an agent although he is not appointed. When this situation happens, that person is known as agent by necessity. Therefore, an agency by necessity can be created by three conditions where:-  a) It is impossible to get the principal’s instructions. b) The agent action is necessary to prevent loss to the principal. This happen when the principal put the agent to be in charge of the goods. c) The agent has acted in a good faith. 

5. Agency by Estoppel

Section 190 of the Contracts Act 1950:
a) It happens when the principal allows a third party to believe that a person is the agent of the principal. b) The principal can make a third party to believe so through his conduct or word. c) When this happen, the principal is estopped from refusing to accept that a person is his agent.

Example: Ahmad tells Ali, in the presence of Mina that Ahmad is Mina’s agent and Mina does not deny this statement. Mina cannot later refuse to accept Ahmad as her agent if Ali sells goods to Ahmad believing hi, to be her agent and later claims price from Mina.  


The duties of an agent to his principal are governed by Sections 164 to 178 of the Contracts Act 1978. Their duties are:- 

1. To obey the principal’s instruction (Section 164)
An agent must follow...
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