Appointment of Agents

Section 182: Definition of Agent and Principal

 An agent is a person employed to act on behalf of another (the principal) to create legal
relations with third parties.

 The principal is the person for whom the agent acts.

Illustration:
A appoints B to purchase goods on his behalf. B is A's agent, and A is the principal.

Section 183: Who May Employ an Agent

 Any person competent to contract may employ an agent.

Illustration:
A, a major, appoints B as his agent to sell his property. The appointment is valid. However, if A were a
minor, he could not validly appoint B as an agent.

Section 184: Who May Be an Agent

 Any person, even a minor or someone otherwise incompetent to contract, can act as an
agent. However, they cannot be held personally liable for acts done as an agent.

Illustration:
A minor, C, is appointed as an agent by D to purchase a painting. Although C cannot contract
personally, their acts as an agent bind D.

Section 185: Consideration Not Necessary

 No consideration is required to create an agency.

Illustration:
X appoints Y to sell his house and promises to pay a commission only after the sale. Y’s appointment
as an agent is valid, even though Y receives no upfront payment.

Section 186: Agent's Authority May Be Express or Implied

 The authority given to an agent can be expressed (written or verbal) or implied (arising from
the circumstances).

Illustration:
A asks B, a lawyer, to represent him in court. The authority to file documents is implied in B's role as
A's agent.
Section 187: Definitions of Express and Implied Authority

 Express authority: Clearly stated by words or writing.

 Implied authority: Derived from the conduct or situation of the parties.

Illustration:
Express: A writes to B, authorizing B to sell a car on his behalf.
Implied: A sends B to an auction with the keys to the car. B’s authority to sell is implied.

Section 188: Extent of Agent's Authority

 An agent's authority includes doing lawful acts necessary for executing the work assigned to
them.

Illustration:
A authorizes B to sell goods. B can also accept payment for the goods sold.

Section 189: Agent's Authority in Emergency

 An agent has the authority to take actions necessary to protect the principal's interests in
emergencies.

Illustration:
A consigns perishable goods to B for delivery. During transit, B finds the goods at risk of spoilage and
sells them to prevent loss. B's act is valid.

Sub Agents

Section 190: When Agent Cannot Delegate

 An agent cannot delegate their duties unless the principal permits or the delegation is
customary.

Illustration:
A authorizes B to paint his house. B cannot delegate this duty to C unless A consents.

Section 191: "Sub-Agent" Defined

 A sub-agent is a person employed by the original agent to assist in performing their duties.

Illustration:
A authorizes B to sell goods. B appoints C to assist. C is a sub-agent.

Section 192: Representation of Principal by Sub-Agent Properly Appointed

 The principal is bound by the acts of a properly appointed sub-agent.

Illustration:
If C, as B’s sub-agent, sells goods on A’s behalf, the sale binds A.
Section 193: Agent’s Responsibility for Sub-Agent Appointed Without Authority

 If an agent improperly appoints a sub-agent, the sub-agent’s acts do not bind the principal.

Illustration:
If B appoints C as a sub-agent without A's consent, A is not bound by C's acts.

Section 194: Substituted Agent

 When an agent has the authority to name another person to act in their stead, the person so
named is a substituted agent, and the principal is directly bound.

Illustration:
A authorizes B to appoint C to manage A’s estate. C is a substituted agent, and A is bound by C’s acts.

Section 195: Agent’s Duty in Naming Another Agent

 An agent must exercise due care while appointing another agent.

Illustration:
If B carelessly appoints C as a substituted agent, and C commits fraud, B is liable to A.

Ratification

Section 196: Right of Principal When Agent Exceeds Authority

 If an agent exceeds their authority, the principal can ratify the entire transaction or reject it
entirely. Partial ratification is not permitted.

Illustration:
A authorizes B to purchase 10 bags of rice. B purchases 15 bags. A can either ratify the purchase of
all 15 bags or reject the entire transaction.

Section 197: Ratification May Be Express or Implied

 Ratification can be expressed (clearly stated) or implied (inferred from the conduct of the
principal).

Illustration:
Express: A accepts B's unauthorized act in writing.
Implied: A accepts goods purchased by B without questioning the transaction, implying ratification.
Section 198: Knowledge Requisite for Valid Ratification

 Ratification is valid only if the principal had full knowledge of the material facts of the act
being ratified.

Illustration:
If B purchases goods on A’s behalf but conceals the price, A's ratification is invalid unless he knows
the actual price.

Section 199: Effect of Ratifying Unauthorized Act

Concept:

 Ratification of an unauthorized act is equivalent to prior authorization and binds the

Illustration:
B sells A’s property without authorization. A later ratifies the sale. It is treated as if B had prior
authority to sell.

Section 200: Ratification of Acts Done on Principal's Behalf

 Only acts done on behalf of the principal can be ratified.

Illustration:
If B buys goods for himself, A cannot later ratify the transaction as it was not done on A's behalf.

Section 201: Termination of Agency

 Agency is terminated by:

o Revocation by the principal.

o Renunciation by the agent.

o Death or insanity of the principal or agent.

o Completion of the business for which the agency was created.

Illustration:
A appoints B to sell his property. Once B completes the sale, the agency terminates.

Section 202: Termination Irrevocable When Authority Coupled with Interest

Concept:

 When the agent has an interest in the property subject to the agency, the principal cannot
revoke the agency to the agent’s prejudice.
Illustration:
A authorizes B to sell A’s property and repay himself from the proceeds of the sale. A cannot revoke
B's authority without repaying him first.

Section 203: When Principal May Revoke Agent's Authority

 The principal can revoke the agent's authority before the agent completes the act.

Illustration:
A appoints B to buy goods but revokes the authority before B places the order. The revocation is
valid.

Section 204: Revocation Where Authority Has Been Partly Exercised

 If an agent has partly exercised the authority, it cannot be revoked for acts already done.

Illustration:
A authorizes B to purchase 100 bags of wheat. B has already purchased 50 bags when A revokes the
authority. The revocation does not affect the purchase of the 50 bags.

Section 205: Compensation for Revocation Without Sufficient Cause

 If the principal revokes the agency without sufficient cause, they must compensate the agent
for any resulting loss.

Illustration:
A appoints B as his agent for a year but revokes the authority after two months without reason. A
must compensate B for the premature termination.

Section 206: Notice of Revocation or Renunciation

 Reasonable notice must be given for revocation of authority by the principal or renunciation
by the agent.

Illustration:
A revokes B's authority without informing B. B continues to act on A’s behalf, causing losses to third
parties. A is liable for failing to provide notice.

Section 207: Revocation and Renunciation to Be Reasonable

 Revocation or renunciation must occur at a reasonable time and place.

Illustration:
A revokes B’s agency in the middle of a crucial transaction, causing losses. The revocation is
unreasonable.
Section 208: When Termination Takes Effect as to Agent and Third Persons

 Termination is effective as to the agent when they learn of it and as to third parties when
they have reasonable notice.

Illustration:
A revokes B’s authority but does not inform third-party C. B enters into a contract with C. The
contract binds A unless C knew of the revocation.

Section 209: Agent’s Duty on Termination of Agency

 Upon termination, the agent must take all reasonable steps to protect and preserve the
principal’s interests.

Illustration:
A terminates B’s agency but requests B to hold unsold goods until a new agent is appointed. B must
comply.

Section 210: Termination of Sub-Agent’s Authority

 The termination of the agent's authority automatically terminates the sub-agent’s authority.

Illustration:
A revokes B’s authority to manage his property. B’s sub-agent, C, also loses authority.

Agent’s Duty to Principal

Section 211: Duty of Agent to Conduct Business

 The agent must conduct the principal's business according to the principal's directions. If no
specific directions are given, the agent should act in accordance with the customs of the
trade.

Illustration:
A instructs B to sell goods at a minimum price of ₹50 per unit. B sells at ₹45 per unit, violating A’s
instructions. B is liable for the loss.

Section 212: Skill and Diligence Required from an Agent

 The agent must act with reasonable skill, diligence, and care while conducting the principal's
business.

Illustration:
A appoints B, a stockbroker, to manage his investments. If B negligently invests in high-risk stocks
without A’s consent, B is liable for any resulting loss.
Section 213: Duty to Render Accounts

 The agent must keep proper accounts of the principal's business and render them upon
demand.

Illustration:
A appoints B to collect rents from tenants. B must maintain accurate records and provide an account
of the collections when asked.

Section 214: Duty to Communicate with the Principal

 The agent must inform the principal of any difficulties or extraordinary circumstances arising
during the course of the agency.

Illustration:
A authorizes B to purchase goods. B discovers that the market price is unusually high. B must inform
A before proceeding.

Section 215: Principal’s Right to Repudiate When Agent Deals on His Own Account

Concept:

 If the agent, without the principal's consent, deals in the principal's business for their own
benefit, the principal can repudiate the transaction unless the agent discloses all material
facts.

Illustration:
A instructs B to buy a piece of land. B, without informing A, buys the land in his own name. A can
repudiate the transaction.

Section 216: Principal’s Right to Claim Benefits Derived from an Agency

 If the agent derives any benefit from the agency without the principal's consent, the
principal can claim the benefit.

Illustration:
B, while managing A’s business, negotiates a secret commission from a supplier. A is entitled to
recover the commission.

Section 217: Agent’s Right of Retainer Out of Sums Received

 The agent may retain sums received on behalf of the principal for advances made or
expenses incurred during the course of the agency.

Illustration:
A owes B ₹1,000 as reimbursement for expenses. B collects ₹5,000 on A’s behalf and may retain
₹1,000.
Section 218: Agent’s Duty to Pay Sums Received

 The agent must promptly pay all sums received on behalf of the principal to the principal
after deducting amounts due.

Illustration:
B collects ₹10,000 on behalf of A. After deducting his commission of ₹1,000, B must pay ₹9,000 to A.

Section 219: Agent’s Right to Retain Commission

 The agent is entitled to the agreed commission or remuneration for services rendered.

Illustration:
A hires B as a broker, agreeing to pay a 2% commission on sales. B is entitled to this commission upon
completing the sale.

Section 220: When Agent Not Entitled to Compensation

 The agent is not entitled to remuneration for acts done improperly, negligently, or without
authority.

Illustration:
A instructs B to sell goods to C. B sells to D without A’s consent. B cannot claim a commission on this
sale.

Section 221: Agent’s Lien on Principal’s Property

 The agent has a lien on the principal’s property in their possession for any outstanding dues.

Illustration:
A owes B commission and expenses of ₹500. B, holding goods worth ₹2,000 belonging to A, can
retain them until paid.

Principal’s Duty to Agent

Section 222: Principal to Indemnify Agent Against Lawful Acts

 The principal must indemnify the agent for all lawful acts done in the course of the agency.

Illustration:
A instructs B to purchase goods. B incurs expenses for transportation. A must reimburse B for these
costs.
Section 223: Principal Liable for Consequences of Agent’s Acts

 The principal is liable for the acts of the agent, provided the acts are lawful and within the
agent’s authority.

Illustration:
B, acting on behalf of A, signs a valid contract with C. A is bound by the terms of the contract.

Section 224: Non-Liability of Principal for Criminal Acts

 The principal is not liable for criminal acts committed by the agent without the principal’s
knowledge or authorization.

Illustration:
If B, acting as A’s agent, commits fraud against a customer, A is not criminally liable unless he
authorized or knew of the fraud.

Section 225: Compensation for Agent’s Neglect

Concept:

 If the agent neglects their duties or fails to follow instructions, they must compensate the
principal for any resulting loss.

Illustration:
A instructs B to deliver goods to D. B delays delivery, causing D to cancel the order. B must
compensate A for the loss.

Effect on Agency on Contracts with third Person

Section 226: Contract Entered into Through Agent

 A contract made by an agent within the scope of their authority binds the principal as if the
principal had directly entered into it.

Illustration:
B signs a contract with C on A’s behalf. A is bound by the terms of the contract.

Section 227: Principal Liable for Misrepresentation or Fraud by Agent

 The principal is liable for any misrepresentation or fraud committed by the agent in the
course of the agency.

Illustration:
B, while selling goods on behalf of A, misrepresents their quality. A is liable for the
misrepresentation.
Section 228: Effect of Notice to Agent

 Any notice given to an agent, within their authority, is considered as given to the principal.

Illustration:
C informs B (A’s agent) about defects in goods. A is deemed to have knowledge of the defects.

Section 229: Consequences of Agent Acting Without Authority

 If an agent acts without authority, the principal is not bound unless the act is ratified.

Illustration:
B, without A’s authorization, purchases goods. A is not liable unless he later ratifies the purchase.

Section 230: Agent Cannot Personally Enforce Contract

 An agent cannot enforce or be held liable for a contract entered into on behalf of the
principal, except in specific cases like personal liability.

Illustration:
B signs a contract on A’s behalf with C. Only A and C are bound unless B personally undertook
liability.

Section 231: Right of Parties to a Contract Made by Agents Not Disclosed

Concept:

 When an agent does not disclose the principal, the agent is personally liable unless the third
party, upon discovering the principal, elects to hold the principal liable.

Illustration:
B, acting as A’s agent, enters into a contract with C but does not disclose A’s identity. If C later learns
about A, they can choose to hold either A or B liable.

Section 232: Performance of Contract with Agent Without Knowing Principal

 If the agent does not disclose the principal and the third party performs the contract with
the agent, the contract is deemed performed.

Illustration:
B, A’s agent, collects payment from C without disclosing A’s identity. This payment discharges C’s
liability to A.
Section 233: Rights of Person Dealing with Agent Personally Liable

 When an agent is personally liable, the third party may hold either the agent or the principal
accountable.

Illustration:
B, while acting on behalf of A, expressly agrees to be personally liable in a contract with C. C can sue
either A or B for breach.

Section 234: Consequences of Inducing Agent to Act on Principal's Behalf

 If a person induces an agent to act on behalf of a principal, they cannot later deny the
agent's authority.

Illustration:
C convinces B, A’s agent, to make a contract. Later, C cannot claim B was unauthorized to bind A.

Section 235: Liability of Pretended Agent

 A person who falsely represents themselves as an agent is personally liable for any resulting
loss.

Illustration:
B, falsely claiming to represent A, enters into a contract with C. When A disowns the contract, C can
sue B for damages.

Section 236: Person Inducing Belief in Agency Relationship

 If a person allows another to act as their agent, they are bound by the acts of that person as
if they were an authorized agent.

Illustration:
A knowingly permits B to act as his agent before C. A cannot later deny B’s authority if C relies on it.

Section 237: Liability of Principal for Acts of Agent Exceeding Authority

 If an agent exceeds their authority but the third party has no reason to suspect this, the
principal is bound by the act.

Illustration:
B, A’s agent, was authorized to buy 10 units of goods but bought 20 units from C. If C was unaware of
B’s limited authority, A is bound to pay for all 20 units.
Section 238: Termination of Agent’s Authority

 An agent’s authority is terminated by:

o The principal revoking the authority.

o The completion of the business.

o The death, insanity, or insolvency of the principal or agent.

Illustration:
A appoints B as his agent to sell a house. Once the house is sold, B’s authority is automatically
terminated. If A dies before the sale, B’s authority ends immediately.

Case 1: Syed Abdul Khader v. Rami Reddy (AIR 1979 SC 553)

Facts:
The plaintiff (principal) had entrusted the defendant (agent) with the task of purchasing land on their
behalf. The agent purchased the land but registered it in his own name. The principal filed a suit
claiming ownership of the property, arguing that the agent acted on their behalf and breached
fiduciary duties.

Judgment:
The Supreme Court held that the agent was in a fiduciary relationship with the principal and could
not use their position to gain personal advantage. The court directed the agent to transfer the
property to the principal.

Case 2: Watteau v. Fenwick (1893 1 QB 346)

Facts:
The defendant owned a pub but allowed the manager to run it without disclosing that the manager
was merely an agent. The manager, acting beyond the authority granted by the principal, purchased
goods on credit. The supplier sued the undisclosed principal for payment.

Judgment:
The court held that the principal was liable for the acts of the agent even though the agent exceeded
their authority, as the third party had no knowledge of the principal-agent relationship.