Agency By Estoppel Under The Indian Contract Act: An Overview
In India, the law of agency is governed by the Indian Contract Act, 1872. Under this Act, an agency relationship may be created by express or implied agreement between the principal and the agent. However, in certain cases, the law recognises an agency relationship even when there is no express or implied agreement between the parties. This is known as agency by estoppel.
What Is Agency By Estoppel?
Agency by estoppel is a legal concept that arises when a person (the principal) leads another person (the third party) to believe that a third person (the agent) has authority to act on their behalf. The third party relies on this representation and enters into a contract with the agent. If the principal does not have a valid agency relationship with the agent, the principal can still be bound by the contract under agency by estoppel.
For example, suppose A owns a shop and B manages it. C, a customer, comes to the shop and asks B if a particular item is available. B tells C that the item is available and quotes a price. C decides to buy the item and pays the price to B. Later, A refuses to deliver the item to C, saying that B had no authority to make the sale. In this case, A may be bound by the contract under agency by estoppel, as C reasonably believed that B had the authority to make the sale.
Conditions For Agency By Estoppel
For agency by estoppel to arise, the following conditions must be met:
1. Representation: The principal must represent to the third party that the agent has the authority to act on their behalf. This representation may be express or implied.
2. Reliance: The third party must rely on the representation and enter into a contract with the agent.
3. Change in position: The third party must have changed their position in some way as a result of their reliance on the representation. This change in position may be financial or non-financial.
4. Lack of knowledge: The third party should not have known that the representation was false or that the agent did not have the authority to act on behalf of the principal.
Rights and Liabilities of the Parties
Under agency by estoppel, the third party acquires the right to enforce the contract against the principal, as if the agent had the actual authority to enter into the contract on behalf of the principal. The agent is also not liable for any breach of contract, as they acted in good faith and relied on the representation of the principal.
On the other hand, the principal is bound by the contract and is liable to the third party for any breach of contract. The principal may, however, have a claim against the agent for any loss or damage caused by the agent`s unauthorized act.
Agency by estoppel is an important legal concept that protects the rights of third parties who enter into contracts with agents. It ensures that principals are held responsible for the actions of their agents, even in cases where there is no actual agency relationship. It is, therefore, essential for both principals and agents to be aware of the conditions under which agency by estoppel may arise, in order to avoid any potential legal disputes.