Special Contracts · Indemnity, Guarantee, Bailment and Agency

Agency: Creation, Authority and Termination

Understand how agency is created, how actual and apparent authority bind a principal, how ratification operates and when authority ends.

7 min readReviewed by Advocate Aditya Sharma
Sections 182 to 208Sections 226 to 238

In one line

Agency allows an agent to create legal relations between the principal and third parties within actual or apparent authority.

After this note, you should be able to

  • Recognize the main modes of creating agency.
  • Distinguish actual authority from apparent authority and ratification.
  • Apply the statutory rules on termination.

Creation and authority

No consideration is necessary to create agency under Section 185.

Express authority
Authority is given through spoken or written words.
Implied authority
Authority is inferred from conduct, circumstances or the ordinary course of dealing.
Necessity
Limited authority may arise where urgent action is reasonably required to protect the principal's interests and instructions cannot be obtained.
Apparent authority
A principal whose words or conduct lead a third party reasonably to believe authority exists may be bound under Section 237.
Ratification
A principal may adopt an unauthorized act with material knowledge, ratifying the whole transaction without injuring third-party rights.

Termination of agency

Authority may end by party action or operation of law.

Revocation or renunciation
The principal may revoke and the agent may renounce, subject to the contract, reasonable notice and accrued consequences.
Completion
Agency ends when its business is completed or its agreed period expires.
Death, unsoundness or insolvency
Section 201 identifies events affecting authority, including death or unsoundness of principal or agent and insolvency of the principal.
Interest in subject matter
Under Section 202, agency coupled with the agent's interest cannot ordinarily be terminated to the prejudice of that interest.
Notice
Termination takes effect against the agent and third persons according to Section 208 when it becomes known to them.

Work through the facts

Illustration

Facts

A repeatedly allows B to order stock from C in A's name. A privately withdraws B's authority but does not inform C. B places another ordinary order with C.

Likely result

A may remain bound because C reasonably relied on the apparent authority A had created and had no notice of termination.

What to learn

Internal revocation and third-party effectiveness are separate questions.

Cases with a purpose

Landmark judgments

Learn the rule and where to use it. A case name without its legal function adds little to an answer.

Pannalal Jankidas v. Mohanlal

Further reading

AIR 1951 SC 144

Principle: An agent that fails to follow the principal's instructions and exercise proper skill can be liable for loss directly resulting from that breach of duty.

Use in an answer: Use it for the agent's duties and causation of loss.

Read primary judgment

Bolton Partners v. Lambert

Core case

(1889) 41 Ch D 295

Principle: Valid ratification generally relates back to the time of the unauthorized act, subject to statutory conditions and third-party rights.

Use in an answer: Use it to explain the retrospective effect of ratification.

For a 10-mark answer

Answer structure

  1. Identify the principal, agent, third party and relevant act.
  2. Classify authority as express, implied, apparent or ratified.
  3. Apply the scope of authority and any excess.
  4. If terminated, test Section 202 and notice under Section 208.

Common mistakes

  • Assuming agency always requires consideration.
  • Confusing an agent's actual instructions with apparent authority.
  • Treating private revocation as immediate notice to third parties.

Before you close the tab

Quick revision

  • Agency requires no consideration.
  • Authority may be express, implied, apparent or ratified.
  • Ratification adopts the whole transaction.
  • Agency coupled with interest receives special protection.
  • Termination must become known under Section 208.

Test yourself

  1. What creates apparent authority?
  2. What conditions limit ratification?
  3. When does termination affect a third party?

Short answers

Frequently asked questions

Does creating agency require consideration?

No. Section 185 states that consideration is not necessary to create an agency.

Can a principal be bound after privately revoking authority?

Yes, where a third party without notice reasonably relies on apparent authority previously created by the principal.

Primary sources

This is an educational study note. Read the bare provision and full judgment before relying on a proposition in research or practice.