Agency by Estoppel | Civil Law for Judiciary Exams PDF Download

Agency by Estoppel

• Agency by estoppel occurs when a person's actions lead another to believe that a third party has the authority to act on their behalf, resulting in that third party entering into a transaction.
• This principle is grounded in equity and natural justice, where a plaintiff can bind a principal in a legal agreement based on the promises, declarations, and representations of an agent.
• For instance, if party A instructs party B not to sell products below a certain price, but party C, unaware of the directive, strikes a deal with B at a lower price, A is bound by the agreement made by C.

Case Laws on Agency by Estoppel

• In the case of Kashinath Das v. Nisakar Rout (1962), A's actions led B to sell land on A's behalf, invoking estoppel when A later denied authorizing the sale.
• The Bombay High Court's ruling in Govt. of Goa v. Goa Urban Cooperative Bank (2010) showcased that a principal is accountable for an agent's negligence during employment, even if not expressly authorized.
• The liability of a principal for an agent's wrongful acts stems from the principal's selection of the agent and the risks associated with delegation of duties.

Understanding Agency by Estoppel

• Agency by estoppel is a unique form of agency with specific characteristics that differentiate it from other types of agency relationships.
• One key feature is that the principal's liability is restricted to losses resulting from the agent's errors, rather than anticipated damages.
• The principal's negligence can lead to liability for damages but does not convert an illegal agreement into a legally binding contract.
• Recovery under agency by estoppel is only feasible if the third party acted in good faith and relied on the agent's representation of being authorized by the principal.

Legal Precedents and Cases

• In the case of United India Periodicals Pvt. Ltd v. CMYK Printech Ltd. (2018), the Delhi High Court ruled that a principal can be held accountable for the actions of an agent if third parties reasonably believe that the agent has implicit authority to act on the principal's behalf.
• According to the court, this establishes an estoppel where the principal is bound by the agent's actions, even in the absence of actual authority. This assurance given to the third party is considered significant, preventing the principal from disavowing the granted authority.
• It is essential to note that estoppel operates unilaterally, meaning the principal cannot enforce the agreement against the third party. As stated in Rohtas Industries Ltd. v. Maharaja of Kasimbasar China Clays Mines (1951), the third party can claim damages from the principal unless the agreement is validated through ratification.

Application of Agency by Estoppel

• For agency by estoppel to be applicable, the third party must rely on the belief that the other party possesses the authority to act on behalf of the principal.
• In the case of Ahmednagar District Secondary Teachers Co-operative Credit Society v. General Secretary (1979), it was emphasized that if the third party genuinely believes in the authorization of the other party to act on behalf of the principal and engages in a transaction with them, the individual responsible for the transaction is held liable as if the third party had directly acted on behalf of the principal.

Difference between Agency by Ratification and Estoppel

Agency by ratification and agency by estoppel are two distinct types of agency relationships that involve the actions of an agent binding the principal. Let's delve into the key disparities between these two concepts:

Agency by Ratification

• Occurs when a principal approves an unauthorized act performed by an agent after it has been carried out.
• Requires the principal's awareness of the agent's actions before they are ratified.
• The agent lacks actual authority to act on behalf of the principal at the time of the action.
• The principal becomes obligated by the agent's actions once they are ratified.

Agency by Estoppel

• Arises when a principal leads a third party to believe that an agent possesses the authority to act on the principal's behalf, even if that authority does not truly exist.
• Does not necessitate the principal's actual knowledge of the agent's actions.
• The agent might have some legitimate authority to act for the principal, but not to the extent perceived by the third party.
• The principal is bound by the agent's actions only if the third party relied on the principal's behavior.

For instance, consider a scenario where a principal, without explicit authorization, ratifies a contract signed by an agent. This would be an example of agency by ratification. On the other hand, in agency by estoppel, if a principal's actions lead a supplier to believe that an agent can place orders on behalf of the company, even if the agent lacks that specific authority, the principal may be bound by the resulting contract.

Conclusion

• Agency by estoppel is a legal concept safeguarding the rights of third parties who have trusted the actions or statements of a principal or an agent, even if the agent lacked actual authority.
• It is grounded in principles of fairness and justice, aiming to prevent unfairness by holding the principal responsible for their agents' conduct.