Express and implied authority
Creation of Agency – Express and Implied Authority under the Indian Contract Act, 1872:
Under the Indian Contract Act, 1872, the creation of agency involves the grant of authority by a principal to an agent to act on their behalf. This authority can be explicitly granted (express authority) or inferred from the circumstances and conduct of the parties (implied authority).
- Express Authority (Section 184):
- Definition: Express authority is authority that is explicitly granted by the principal to the agent, either verbally or in writing.
- Section 184 of the Indian Contract Act: This section explicitly recognizes express authority, stating that the agent must act within the limits of the authority expressly given to them by the principal.
- Written or Oral Agreement: The authority can be conveyed through a written agreement or a verbal understanding between the principal and the agent.
- Requirements for Express Authority:
- Clear Communication: The principal must clearly communicate the extent of the authority granted to the agent.
- Limits and Scope: The agent is bound by the specific terms and limits of the express authority.
- Example of Express Authority:
- If a principal explicitly tells their real estate agent to sell a specific property on their behalf, the real estate agent has express authority to act in the sale of that particular property.
- Implied Authority (Section 186):
- Definition: Implied authority is authority that is not explicitly stated but is reasonably inferred from the circumstances, the nature of the agency, or the parties’ conduct.
- Section 186 of the Indian Contract Act: This section recognizes that an agent has authority to do every lawful thing that is necessary to carry out the expressly delegated authority, and any act necessary for such delegation.
- Basis for Implied Authority:
- Nature of the Agency: Implied authority may arise from the nature of the agency relationship, where certain powers are implied as necessary for the agent to fulfill their express duties.
- Custom or Trade Practice: Implied authority may be inferred based on customs or trade practices applicable to the specific type of agency.
- Example of Implied Authority:
- If a principal appoints an agent as a manager of their business, the agent may have implied authority to hire employees, purchase necessary supplies, and enter into contracts on behalf of the principal, as these actions are reasonably necessary for the management of the business.
- Limits on Implied Authority:
- Reasonable and Necessary Acts: Implied authority extends only to acts that are reasonable and necessary for the performance of the agent’s duties.
- Contrary Express Instructions: Implied authority cannot contradict express instructions given by the principal.
- Combined Authority:
- Both Express and Implied Authority: In many agency relationships, express and implied authority coexist. The express authority sets the specific boundaries, while implied authority covers acts reasonably necessary to carry out the express authority.
- Termination of Authority:
- Terminated with Agency: Both express and implied authority terminate when the agency relationship is terminated, either by agreement, completion of purpose, or other means specified in the Indian Contract Act.
- Importance of Clarity:
- Avoiding Ambiguity: To avoid misunderstandings and potential conflicts, it is crucial for principals to clearly communicate the extent of the authority granted to agents, whether express or implied.
In conclusion, the Indian Contract Act, 1872, recognizes both express and implied authority in the creation of agency relationships. Express authority is explicitly granted by the principal, while implied authority arises from the circumstances and is reasonably necessary for the agent to carry out their duties. The combination of express and implied authority provides a comprehensive framework for agents to act on behalf of their principals within the bounds of the law and the specific terms of the agency relationship.
Agency by ratification
Agency by Ratification – Indian Contract Act, 1872:
In the context of the Indian Contract Act, 1872, agency by ratification refers to a situation where a person (the principal) approves and adopts an act performed on their behalf by another person (the agent) without prior authority. The act may have been done without the principal’s consent or even in violation of the principal’s instructions. The act becomes binding on the principal when they subsequently ratify it. Here’s a detailed explanation of agency by ratification under the Indian Contract Act:
- Definition (Section 196):
- Section 196 of the Indian Contract Act: Ratification is the subsequent adoption or approval by a person of an act that was done on their behalf by another person who assumed, without authority, to act as their agent.
- Essential Elements of Agency by Ratification:
- Unauthorized Act: The agent performs an act on behalf of the principal without the principal’s prior authorization.
- Subsequent Approval: The principal, after becoming aware of the unauthorized act, chooses to ratify and approve it.
- Legal Competence: The principal must be legally competent to ratify the act.
- Conditions for Ratification:
- Full Disclosure: The principal must have full knowledge of the material facts related to the unauthorized act before ratifying it.
- Entire Act: Ratification applies to the entire act and not just specific parts of it.
- Modes of Ratification:
- Express Ratification: The principal explicitly and clearly communicates their approval of the unauthorized act.
- Implied Ratification: The principal’s conduct implies their intention to ratify the act, such as accepting benefits from the act.
- Ratification Through Conduct (Section 197):
- Section 197 of the Indian Contract Act: Ratification may be expressed or may be inferred by the conduct of the principal.
- Effect of Ratification (Section 199):
- Section 199 of the Indian Contract Act: Upon ratification, the act becomes as valid and binding on the principal as if it had been done with the principal’s authority from the beginning.
- Ratification Curing Defects (Section 202):
- Section 202 of the Indian Contract Act: Ratification has the effect of curing any defect or irregularity in the agent’s authority or in the execution of the act.
- Time Limit for Ratification:
- Reasonable Time: Ratification must occur within a reasonable time after the principal becomes aware of the unauthorized act.
- No Unreasonable Delay: Excessive delay may make ratification invalid.
- Effect of Principal’s Ignorance (Section 200):
- Section 200 of the Indian Contract Act: If the principal is ignorant of the material facts when ratifying the act, the ratification may be voidable.
- Void Acts and Ratification (Section 203):
- Section 203 of the Indian Contract Act: Ratification cannot validate acts that were originally void or illegal.
- Example of Agency by Ratification:
- If an agent, without prior authorization, enters into a contract on behalf of the principal, and the principal later learns about it, the principal may choose to ratify the contract by expressly approving it or by accepting benefits from the contract.
- Termination of Ratification:
- Irrevocable: Once ratified, the principal generally cannot revoke the ratification.
- Voidable: Ratification may be voidable if the principal was ignorant of material facts or if there was undue influence.
In summary, agency by ratification in the Indian Contract Act, 1872, allows a principal to adopt and approve an act performed on their behalf by an agent without prior authorization. The ratification must be done with full knowledge of the material facts, within a reasonable time, and can be either express or implied. Upon ratification, the act becomes binding on the principal, curing any defects in the agent’s authority or the execution of the act. However, ratification cannot validate originally void or illegal acts.
Agency by necessity
Agency by Necessity – Indian Contract Act, 1872:
Under the Indian Contract Act, 1872, agency by necessity refers to a situation where an individual (the agent) assumes authority to act on behalf of another person (the principal) in an emergency or a situation of necessity, even without the principal’s express authorization. This type of agency is recognized and justified based on the urgent need to protect the interests of the principal. Here’s a detailed explanation of agency by necessity:
- Definition (Section 189):
- Section 189 of the Indian Contract Act: Agency by necessity is recognized when an agent acts on behalf of the principal in situations where it is impossible to communicate with the principal, and the agent’s actions are necessary to prevent irreparable harm or loss to the principal’s property or interests.
- Essential Elements of Agency by Necessity:
- Impossibility to Communicate: There must be an impossibility or extreme difficulty in communicating with the principal.
- Necessity for Action: The agent’s action must be necessary to prevent irreparable harm or loss to the principal’s property or interests.
- Acting in the Principal’s Interest: The agent must act in the best interests of the principal.
- Nature of Acts Performed:
- Emergency Situations: Agency by necessity typically arises in emergency situations where quick decisions are required to prevent harm.
- Property Protection: Commonly, this type of agency involves protecting the principal’s property or interests.
- Example of Agency by Necessity:
- If a ship captain, in the absence of the ship owner, faces a sudden storm and needs to make urgent decisions to save the ship and cargo, the captain may act as an agent by necessity to protect the owner’s interests.
- Scope of Authority (Section 190):
- Section 190 of the Indian Contract Act: An agent by necessity has the authority to do all those things that are necessary for the purpose of protecting the interests of the principal.
- Reasonable Actions: The agent’s actions must be reasonable and proportionate to the emergency.
- Liability and Rights of the Agent:
- No Personal Liability: An agent by necessity is generally not personally liable for acts done in the course of protecting the principal’s interests.
- Right to be Reimbursed: The agent has the right to be reimbursed by the principal for expenses incurred during the emergency.
- Termination of Agency by Necessity (Section 191):
- Section 191 of the Indian Contract Act: Agency by necessity terminates once the emergency situation ceases.
- Notice to Principal: If possible, the agent should inform the principal about the actions taken as soon as communication becomes feasible.
- Limits on Agency by Necessity:
- No Inconsistent Acts: The agent cannot perform acts inconsistent with the necessity or extend the agency beyond what is reasonable for the emergency.
- Comparison with Other Forms of Agency:
- Distinguishing Factor: Unlike other forms of agency, agency by necessity arises from the urgency of a situation, and the agent is motivated by the need to prevent harm rather than explicit authority from the principal.
- Legal Justification:
- Public Policy Considerations: Recognizing agency by necessity aligns with public policy considerations, as it allows for prompt action in situations where waiting for the principal’s approval could lead to significant harm.
In summary, agency by necessity under the Indian Contract Act, 1872, is a form of agency that arises in emergency situations where immediate action is necessary to protect the interests of the principal. The agent, facing impossibility in communicating with the principal, is justified in taking reasonable actions to prevent irreparable harm. The authority granted to the agent is limited to the necessities of the emergency, and the agency terminates once the emergency situation ceases. The agent is generally not personally liable for their actions, and they have the right to be reimbursed by the principal for expenses incurred during the emergency.