Implied Agency Under the Indian Contract Act, 1872

Implied agency under Indian law: understand Section 187, implied authority, examples, legal principles and the difference between express and implied agency.

Introduction

Implied agency is an important concept under the Indian Contract Act, 1872, through which one person may acquire authority to act on behalf of another without an express appointment in spoken or written words. The relationship is inferred from the circumstances, conduct of the parties and their ordinary course of dealings.

In business, an owner may allow a manager to order goods, negotiate with suppliers or supervise daily operations without issuing separate written instructions for every transaction. Depending on the circumstances, these actions may establish implied authority.

The principal provisions governing implied agency are Sections 182, 186, 187 and 188 of the Indian Contract Act, 1872. These provisions define the relationship between principal and agent, recognise implied authority and explain the extent of an agent’s powers.

Meaning of Implied Agency

Implied agency arises when the authority of an agent is inferred from the circumstances rather than directly communicated through express words of appointment.

Section 187 of the Indian Contract Act, 1872, provides that authority is implied when it is inferred from the circumstances of the case. Things spoken or written, as well as the ordinary course of dealing, may be considered when determining whether such authority exists.

Example: A owns a retail shop but lives in another city. B manages the shop and regularly purchases stock from suppliers in A’s name, using A’s funds with A’s knowledge. These circumstances may establish B’s implied authority to purchase goods for the business.

The essential point is that implied agency depends on the reasonable inference of authority from the relevant facts. Mere friendship, family relationships or possession of another person’s property does not automatically establish agency.

Legal Provisions

Section 182: Agent and Principal

Section 182 defines an agent as a person employed to do an act for another or to represent another in dealings with third persons. The person for whom the act is done or who is represented is called the principal.

In implied agency, the principal-agent relationship is established through the circumstances and conduct of the parties rather than a direct verbal or written appointment.

Example: A business owner allows B to manage a warehouse, deal with suppliers and arrange routine purchases for the business. If the circumstances establish that B is authorised to act on A’s behalf, B may be an implied agent for those activities.

Section 186: Express or Implied Authority

Section 186 provides that an agent’s authority may be expressed or implied.

Express authority is directly granted through spoken or written words. Implied authority is inferred from the surrounding circumstances and conduct of the parties.

This section establishes the statutory basis for recognising both forms of authority.

Section 187: Definition of Implied Authority

Section 187 is the principal provision concerning implied agency. It explains that implied authority may be inferred from the circumstances of the case, including things spoken or written and the ordinary course of dealing.

The section includes an illustration involving a shop owner who lives in Calcutta and occasionally visits a shop in Serampore. The shop is managed by B, who regularly orders goods from C in the owner’s name and pays for them from the owner’s funds with the owner’s knowledge.

The illustration states that B has implied authority to order goods from C for the purposes of the shop.

This statutory illustration demonstrates that authority may arise from an established course of conduct even when no separate express instruction has been given for each transaction.

Section 188: Extent of Agent’s Authority

Section 188 explains the extent of an agent’s authority. An agent authorised to perform an act has authority to do every lawful thing necessary to perform that act. Where an agent is authorised to carry on a business, the authority extends to lawful acts necessary for that purpose or usually performed in conducting the business.

Also Read: Creation of Agency Under the Indian Contract Act, 1872

This provision is particularly relevant to implied agency because routine powers may be inferred from the nature of the business entrusted to the agent.

Example: A appoints B to manage A’s furniture business. B may ordinarily purchase timber, arrange necessary supplies and hire workers where these acts are lawful and necessary for conducting the business, subject to the scope of the authority and any relevant restrictions.

Section 188 does not give an agent unlimited powers. The authority extends only as far as the provision and the circumstances justify.

How Is Implied Agency Created?

Implied agency is not established by a single formal procedure. It is generally inferred from the facts and circumstances surrounding the relationship.

1. By Conduct of the Parties

The conduct of the principal and the alleged agent may indicate that authority has been granted.

Example: A repeatedly permits B to negotiate routine supply contracts on A’s behalf, accepts the benefits of those transactions and conducts business on that basis. This pattern of conduct may support an inference that B has implied authority to negotiate similar transactions.

However, conduct must be assessed carefully. Accepting a benefit from a single transaction does not automatically prove that the person had general authority to act as an agent.

2. By Ordinary Course of Dealing

An established pattern of business dealings may demonstrate the existence and scope of implied authority.

Example: A company regularly allows its purchasing manager to place orders with approved suppliers. The company accepts deliveries and pays invoices generated through this established process. The manager may have implied authority to place routine orders within the usual scope of the role.

The nature, frequency and consistency of the dealings are relevant when determining the scope of authority.

3. By the Nature of the Assigned Role

The responsibilities assigned to a person may support an inference that the person has authority to undertake acts ordinarily necessary to perform those responsibilities.

Example: A appoints B to manage a restaurant. Depending on the circumstances, B may have implied authority to order ingredients, arrange routine maintenance and coordinate ordinary business operations.

However, the authority to manage a restaurant does not automatically include the power to sell the restaurant’s property or borrow substantial sums in the owner’s name. Such actions may fall outside the ordinary scope of the role.

4. By Necessary Incidental Authority

Where a person is authorised to perform a particular act or conduct a business, the law may recognise authority to undertake lawful acts necessary or ordinarily incidental to carrying out that responsibility.

Section 188 is particularly relevant to this principle.

Example: A authorises B to arrange the transportation of goods to a customer. B may have authority to book the necessary transport and complete routine arrangements required to carry out that assignment, subject to the terms of the authority.

The implied power must be connected to the authorised task; it cannot be used to justify unrelated transactions.

Important Case Law

Chairman, Life Insurance Corporation of India v. Rajiv Kumar Bhasker

Citation: (2005) 6 SCC 188.

The Supreme Court considered the relationship between the Life Insurance Corporation of India and persons involved in collecting premiums under a salary savings scheme.

Also Read: Creation of Agency Under the Indian Contract Act, 1872

The case examined the legal arrangement between the parties and the circumstances in which obligations could arise through an agency relationship. It is relevant to understanding that the existence and scope of agency must be determined from the actual arrangement and surrounding circumstances rather than merely from the labels used by the parties.

The decision is useful when analysing whether a person acts as an agent and whether the principal may be legally responsible for acts performed within the relevant authority.

Legal principle: The existence and scope of an agency relationship depend on the legal arrangement and the facts of the case. Agency authority must be established rather than assumed merely because a person performs a function connected with another’s business.

Difference Between Express and Implied Agency

Basis	Express Agency	Implied Agency
Creation	Authority is granted through spoken or written words	Authority is inferred from circumstances and conduct
Relevant provision	Sections 186–187	Sections 186–187
Evidence	Oral instructions, written appointment or other express communication	Course of dealings, conduct, role and surrounding circumstances
Nature of authority	Directly communicated	Inferred from the available facts
Example	A expressly authorises B in writing to sell a vehicle	A allows B to manage a shop and routinely order stock in A’s name
Scope	Determined by the express grant and applicable law	Determined by reasonable inferences and applicable law

Implied Agency vs Agency by Estoppel

Implied agency and agency by estoppel are related concepts, but they are not identical.

Implied authority under Section 187 is inferred from the circumstances of the case, including conduct and ordinary dealings. It concerns whether authority can reasonably be understood to exist from the relationship between the parties.

Agency by estoppel is associated with Section 237, which addresses situations where a principal, by words or conduct, induces third persons to believe that an agent’s unauthorised acts fall within the agent’s authority.

For example, if a business owner repeatedly allows a manager to place routine orders, the circumstances may establish implied authority. If the owner also represents to suppliers that the manager can conclude contracts, the owner’s conduct may prevent the owner from denying that authority to a supplier who relies on the representation, where Section 237 applies.

The distinction matters because implied authority concerns the inference of authority, whereas estoppel concerns the legal consequences of the principal’s representation or conduct towards third parties.

Limitations of Implied Agency

Implied agency does not mean that every act performed by a person on behalf of another is legally binding on that person.

• Authority must be established: The circumstances must support a reasonable inference that the person was authorised to act.
• Scope matters: Authority to conduct routine business does not automatically include extraordinary transactions.
• Personal relationships are insufficient by themselves: A spouse, relative or friend does not automatically have authority to enter into contracts on another person’s behalf.
• Restrictions may be relevant: Express limitations known to the relevant parties may affect the scope of authority.
• Third-party reliance requires separate analysis: If the agent acts beyond actual authority, the principal may nevertheless be bound in appropriate circumstances under Section 237 or other applicable legal principles.

The question is therefore not simply whether a person acted on behalf of another, but whether the facts establish authority for the particular act.

Key Points for Law Students

• Section 182 defines an agent and principal.
• Section 186 provides that an agent’s authority may be express or implied.
• Section 187 defines implied authority and identifies circumstances from which it may be inferred.
• Section 188 governs the extent of an agent’s authority.
• Section 189 deals separately with an agent’s authority in an emergency.
• Implied authority may be inferred from conduct, the ordinary course of dealing and the nature of the assigned role.
• Agency is not automatically established by friendship, marriage, family relationship or possession of property.
• Section 237 addresses certain cases where the principal’s conduct induces third parties to believe that an agent has authority.
• The statutory illustration to Section 187 is a direct example of implied authority arising from the ordinary course of business dealings.

Conclusion

Implied agency enables a person to act on behalf of another where authority can reasonably be inferred from the circumstances, conduct of the parties or ordinary course of dealing. Sections 186 and 187 of the Indian Contract Act, 1872, provide the principal statutory foundation, while Section 188 explains the extent of authority that may arise from an assigned act or business.

The doctrine is particularly important in commercial relationships, where principals and agents may carry out regular transactions without issuing separate instructions for each act. Nevertheless, implied authority is not unlimited. Its existence and scope must be determined from the facts, the nature of the transaction and the applicable legal provisions.

For examinations, Section 187 and its statutory illustration involving the shop manager are especially important for explaining how implied authority arises in practice.

Frequently Asked Questions (FAQs)

1. What is implied agency?

Implied agency arises when authority to act on behalf of another person is inferred from the circumstances, conduct of the parties or ordinary course of dealing rather than directly communicated through spoken or written words.

2. Which section governs implied agency?

Section 187 of the Indian Contract Act, 1872, defines implied authority. Section 186 recognises express and implied authority, while Section 188 explains the extent of an agent’s authority.

3. Can implied agency arise without a written agreement?

Yes. Implied agency may arise from the circumstances and conduct of the parties even without a written appointment, provided the facts establish the existence and scope of authority.

4. What is the statutory example of implied agency?

Section 187 illustrates a shop owner who allows a manager to order goods in the owner’s name and pay for them from the owner’s funds with the owner’s knowledge. The manager has implied authority to order goods for the shop.

5. Is implied agency the same as agency by estoppel?

No. Implied agency involves inferring authority from the circumstances. Agency by estoppel, associated with Section 237, concerns the consequences where the principal induces third parties to believe that an agent’s acts are authorised.

6. Can an implied agent bind the principal?

Yes, where the agent acts within the implied authority established by the circumstances and applicable law. If the agent exceeds that authority, the principal’s liability depends on the facts and any other applicable legal principles.

7. Which case is relevant to implied agency?

Chairman, Life Insurance Corporation of India v. Rajiv Kumar Bhasker, (2005) 6 SCC 188, is relevant to analysing agency relationships and determining the legal consequences of the arrangement between the parties.