The concept of Agency is governed by Sections 182 to 238 of the Indian Contract Act, 1872. It refers to a legal relationship in which one person, called the agent, is authorized to act on behalf of another person, known as the principal, to create contractual obligations with third parties. The principal is bound by the acts done by the agent within the scope of authority. Agency is based on trust, confidence, and mutual consent, allowing business and personal dealings to occur even in the principal’s absence. The law of agency facilitates trade, commerce, and professional transactions by extending a person’s legal capacity through an authorized representative, ensuring efficiency and continuity in business operations.
Creation of Agency:
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Agency by Express Agreement (Section 186–187)
An agency is created expressly when the principal appoints an agent through written or spoken words. The agreement clearly defines the scope, duties, and authority of the agent.
Example: A signs a written contract authorizing B to sell his car on his behalf.
Such express appointment ensures mutual understanding and avoids disputes regarding authority. Express agency is common in business, real estate, and financial dealings where clarity and documentation are essential. The authority granted may be general (for broad activities) or special (for specific acts).
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Agency by Implied Agreement (Section 187)
An agency may arise by implication from the conduct, relationship, or circumstances of the parties, even without express words. The law infers agency when one person acts on behalf of another and the latter accepts such acts.
Example: A regularly sends goods to B for sale and allows B to collect payment — B is an implied agent.
Implied agency often occurs in employment or family relationships where actions naturally indicate authorization or consent.
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Agency by Ratification (Sections 196–200)
When a person acts without authority or beyond authority on behalf of another, and the latter subsequently approves or ratifies the act, an agency by ratification is created. The principal becomes bound by the agent’s act as if it was originally authorized.
Example: A sells goods belonging to B without authority; later B accepts the sale — agency is ratified.
Ratification must be with full knowledge of facts, cover the entire transaction, and be made within a reasonable time.
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Agency by Necessity
Agency by necessity arises when a person, without prior authority, acts on behalf of another to protect their interests during an emergency. It is recognized when immediate action is required and communication with the principal is impossible.
Example: A ship captain sells perishable goods to prevent loss when communication with the owner is not possible.
Such an agency is valid only if the act is done in good faith, is necessary, and protects the principal’s property or interest.
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Agency by Estoppel (Section 237)
An agency by estoppel arises when the principal’s conduct leads a third party to believe that a person is their authorized agent, even if no actual authority exists. The principal is then estopped (prevented) from denying the agency.
Example: A allows B to act as his agent before others; C deals with B believing him to be A’s agent — A is bound by B’s acts.
This type of agency protects third parties who rely on appearances created by the principal’s behavior.
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Agency by Operation of Law
In certain situations, the law itself creates an agency relationship even without any agreement or consent between parties.
Example: Partners in a firm are agents of one another under Section 18 of the Indian Partnership Act, 1932.
Similarly, a wife may act as her husband’s agent in cases of necessity.
This agency ensures fairness and justice where the relationship or legal status implies mutual representation, protecting the rights of third parties.
Classification of Agents:
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Special Agent
A Special Agent is appointed to perform a specific act or transaction on behalf of the principal. Their authority is limited to that act alone and ends once it is completed.
Example: A authorizes B to sell his car — B is a special agent.
Such agents cannot bind the principal beyond their assigned duty. If they exceed authority, the principal is not liable for their acts. Special agents are often appointed for isolated business or property transactions.
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General Agent
A General Agent is authorized to perform all acts related to a particular trade, business, or profession of the principal. Their authority is continuous and covers all usual activities within that scope.
Example: A appoints B as the manager of his shop — B is a general agent.
The principal is bound by the acts of a general agent done in the ordinary course of business, even if specific instructions were not given each time.
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Universal Agent
A Universal Agent has the widest authority to act on behalf of the principal in all matters that can be lawfully delegated.
Example: A, going abroad, appoints B through a power of attorney to manage all his affairs — B is a universal agent.
This agent can sign documents, collect payments, sell property, and represent the principal in any legal or financial dealings. Universal agency is rare and requires written authorization, usually through a general power of attorney.
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Sub-Agent (Section 191)
A Sub-Agent is appointed by the original agent to assist in the business of agency with the principal’s authority. The sub-agent works under the control of the main agent.
Example: A, an agent for B, appoints C to help in sales with B’s approval — C is a sub-agent.
The principal is bound by the acts of a properly appointed sub-agent, but if appointed without consent, the main agent alone is liable.
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Substituted Agent (Section 194)
A Substituted Agent is a person named by the original agent, under the principal’s authority, to act directly for the principal. Unlike a sub-agent, the substituted agent becomes an independent agent of the principal.
Example: A, an agent, is asked by B to appoint a lawyer to represent B — the lawyer becomes a substituted agent.
The main agent is not responsible for the substituted agent’s acts if they were appointed with proper care and authority.
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Co-Agent
Co-Agents are two or more agents appointed together to perform a common duty jointly on behalf of the principal.
Example: A appoints B and C jointly to sell his property — they are co-agents.
They must act together unless the principal allows otherwise. One co-agent cannot bind the other without consent. If one dies or becomes incapable, the authority of all co-agents may end, as their duties are interdependent and require mutual action.