Unit III: Contract of Agency

Section 182-238, The Indian Contract Act, 1872

Dr. Nikhila Shankar Tigadi

 Concept of Agency
▪ Contract of agency is a contract wherein an ‘agent’ is appointed or employed, by the principal, to do an act or to
represent him in dealings with third person.

▪ The contract is actually between the principal and the third party and hence the agent is not liable for any
contractual obligations.

- Whether domestic servant renders to his master a personal service, is a contract of agency?

- A person may till another’s field, is a contract of agency?

- Where a person work in a shop or factory or mine, is a contract of agency?

▪ The concept of ‘agency’ was explained by Ramaswamy J. of Madras High Court in P. Krishna Bhatta v.
Mundila Ganapathi Bhatta (1955)
“…every person who acts for another is not an agent. A domestic servant renders to his master a
personal service; a person may till another’s field or tend his flocks or work in his shop or factory or mine
or may be employed upon his roads or ways; one may act for another in aiding in the performance of his
legal or contractual obligations of third persons… In none of these capacities he is an agent and he is not
acting for another in dealings with third persons. It is only when he acts as a representative of other in
business negotiations, that is to say, in the creation, modification or termination of contractual
obligations, between that other and third persons, that he is an agent… Representative character and
derivative authority may briefly be said to be the distinguishing feature of an agent.”

▪ J. Dhawan in Loon Karan Sohan Lal v. John & Co. (1967) deliberated on the test for determining the
existence of agency in the following words:
“ …Agency depends on true nature of relationship and the functions and responsibilities of the alleged
agent…”.
▪ Law of Agency is based on the Maxim, ‘Qui facit per alium facit per se’ which means he who does an act through
another does it by himself.

▪ Need for Contract of Agency

- Owing to the complexity of the modern business, it is not possible for an individual to carry on the business
singly.

- One person has to delegate some of his powers to another.

- Then the former is called the ‘Principal’

- And the latter is called an ‘Agent’

- The contract which creates the relationship of principal and agent is called ‘Agency’

▪ Under English Law, Contract of Agency is defined as the employment of one person by the another, in order to
bring the latter into legal relation with a third person
Under Indian Law ▪ In a contract of agency, the principal employs agent
on his own behalf to represent him before a third
▪ Section 182 of the Contract Act,1872 defines the
person with or without the consideration to the
term Agent and Principal as;
agent.
“An Agent is a person
▪ It is also important that the agent shall act as per
- employed to do any act for another or
the directions of the principal.
- to represent another in dealings with third
▪ The act done by the agent against the directions
persons.
and instruction of the principal, the principal shall
▪ The person for whom such act is done, or who is not be responsible for such an act.
so represented, is known as the Principal.”
 Essentials of Agency
1. Principal must be competent to contract
▪ Sec. 183 provides that, Any person who is of the age of majority according to the law to which he is subject,
and who is of sound mind, may employ an agent."
▪ A minor cannot appoint an agent to act for himself and the appointment of an agent by a minor will be void.
▪ Thus, an agent may be appointed only by a person who is competent to Contract.
▪ “An infant cannot appoint an agent to act for him neither by means of a power of attorney, nor by any other
means. If he purports to appoint an agent, not only is the appointment itself void, but everything done by the
agent on behalf of the infant is also void and incapable of ratification.”- Shepard v. Cartwright (1953)
2. Agent need not be competent
▪ Sec. 184 clearly provides that, as between the principal and the third party any person may become an agent
regardless of his age or soundness of his mind.
• It prescribes that any person, including a minor and an unsound person, may become an agent.
• As an agent incurs no personal liability, while contracting for his principal and therefore it is not necessary that
he should be competent to contract.
[Link] consideration is necessary to create an agency
▪ Sec. 185 provides that“ no consideration is necessary to create agency.”
▪ However, an agent is generally remunerated by way of commission for services rendered.
▪ No consideration is immediately necessary at the time of his appointment.
4. Intention to act on behalf of the principal
▪ There shall be an intention on the part of the agent to act on behalf of the principal.
▪ Agent should act in representative capacity
▪ When the agent enters into a contract for agent himself, then the principal will not be liable.
General Rules of agency
▪ The law of agency is based on the following two general rules:
✓ The principal is bound by the acts of his agent and can get the benefit of such acts as if he had done them
himself. The acts of the agent shall, for all legal purposes, be considered to be the acts of the principal.
✓ Whatever a person can lawfully do himself, he may also do the same through an agent except in case of
contracts involving personal services such as painting, singing etc.
 Difference between Agent & Servant
▪ Lakshminarayan Ram Gopal & Sons Ltd v. Government of Hyderabad (1954)

Agent Servant
An agent has the authority to act on behalf of his Servant does not enjoy this power.
principal and to create contractual relations between
the principal and a third party.
Principal has right to direct what the agent has to do While, a master has not only the right to say how the
agent has to act, but also has the right to say how it has
to be done.
An agent is paid commission on the basis of work done. A servant is paid by way of a salary or wages.
A principal is liable for his agent’s wrong done within A master is liable for a wrongful act of his servant if it is
the ‘scope of authority’. committed in the course of the servant’s employment.
An agent may work for several principals at the same A servant usually serves only one master
time
 Creation of Agency
▪ The relation of agency arises whenever one person called the agent has the authority to act on behalf of
another called the principal and consents so to act- Syed Abdul Khader v. Rami Reddy (1979)

▪ The following are the different modes of creation of agency.

1) Agency by express agreement

2) Agency by operation of law

3) Agency by ratification

4) Agency by implied authority

1) Agency by Express agreement

▪ Any person who is competent to contract and who is of sound mind may appoint an agent.

▪ A contract of agency can be made orally or in writing

▪ Number of agency contracts come into force under this method.

▪ Example of a written contract of agency is the Power of Attorney that gives a right to an agent to act on behalf
of his principal in accordance with the terms and conditions therein

2) Agency by Operation of law

▪ At times, contract of agency comes into operation by virtue of law.

▪ For Instance: According to Partnership Act, every partner is the agent of the firm. It is implied agency.
3) Agency by Ratification (EX post facto Agency)

• Ratification means subsequent adoption or approval of an activity.

• Soon after ratification, principal – agent relations will come into operation.

• The person who has done the activity will become agent and the person who has given ratification will become
principal.

Section 196 :- Right of person as to acts done for him without his authority. Effect of ratification.

• Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect
to ratify or to disown such acts.

• If he ratifies them, the same effects will follow as if they had been performed by his authority
▪ Agents have the authority to act on someone else’s behalf.
Contract of Agency
▪ Typically, an agent acts with express authority from the very beginning to act on
behalf of someone else.
▪ An agency by ratification is different.
▪ Illustration (typical agency relationship)
▪ Let’s say Mr. Rich does not want to attend an art auction because he’s too busy. Mr. Rich
▪ He instructed his agent, Annie, to go to the auction for him and bid on the art.
▪ He’ll probably give Annie some instructions and then Annie, the agent, will have
authority to bid at the auction on behalf of Mr. Rich (Mr. Rich is called the
principal).
Ms. Annie
▪ If she bids successfully, Mr. Rich will have to purchase the art because Annie
(Authorised)
acted with authority on his behalf.
▪ This is a typical agency relationship where Annie acted as an agent on behalf of
Mr. Rich.
An Agency by Ratification Occurs
Agency by Ratification
• When Someone without Express Authority, acts on another’s behalf but if such
act is ratified later, i.e., such act is Adopted or Approved later.

Illustration
Mr. Rich
• let’s say Annie goes to an art auction and bids on some art without speaking to Mr.
Rich first. Or, let’s say she signs a contract as “Annie, agent of Mr. Rich”, to
purchase an art work from a gallery.
Ms. Annie (not
• She had no authority to do either of these things at the time since Mr. Rich does
authorized but later
not want to purchase the art. Annie did not have authority from Mr. Rich to approved)
purchase art work on his behalf.

• However, what if Mr. Rich looks at the art and thinks that Annie got a good deal!!
• Mr. Rich then goes ahead and accepts the art, pays the money that he approves of what Annie did. Even
though Annie was not acting as an agent at the time she bid, the law says that Annie has become an agent by
ratification.

• Mr. Rich ratified what Annie did by approving her actions on his behalf

• Because of an agency relationship by ratification, Public will think and say that Annie was acting as an agent at
the time she bid on or purchased the art.

• Mr. Rich’s approval of Annie’s transaction with the third party (the art auction or art gallery) created a
relationship of agency by ratification between Mr. Rich and Annie.
 Requisites of valid Ratification
1. Act done on behalf of another person (Sec 196)
• One person has to act on behalf of another person, who seeks to ratify the same.
• If an agent acts on his own behalf, the same cannot be ratified by another person. – Keighly, Maxsted & Co.
v. Durant (1901)
2. The Principal must be in existence and competent to contract
▪ As the validity of the act relates back to the time of doing of the act by the agent, therefore, the Principal
must be in existence and also competent to contract.
▪ Suppose, the Principal is not in existence at the time of the contract, the same cannot be ratified by the
principal after coming into existence. – Kelner v. Baxter (1866)
3. Ratification may be express or implied (Sec 197)
▪ The ratification may be express or implied in the conduct of the person on whose behalf the acts are done.
▪ For Instance: A buys goods for B without authority. B later sells the same to C, on his own account. B’s
conduct implies a ratification of the purchase made for him by A.
4. Ratification must be with full knowledge of facts (Sec 198)
▪ As a general rule, the Principal must have the complete knowledge of the terms, conditions and any other facts related to the
contract.
▪ To bind the purported principal by ratification, it must be shown that the ratification had been made by him with complete
knowledge of all material facts connected with the transaction to which it relates.
▪ If the Principal after complete knowledge of all the material facts, ratifies the contract, then he is bound by the contract
▪ However, if a default occurred in the disclosure of facts, the principal can repudiate the transaction.
5. Ratification of the whole transaction (Sec 199)
▪ A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of which the act formed a part.
▪ No Principal can ratify only those pats of the transaction which are favorable to him, and disown others. If he makes a ratification, it
is deemed to be the ratification of the whole of the act.
6. Ratification must not be injurious to a third person (Sec 200)
▪ Ratification cannot be effective where its effect is to subject a third person to damage or injury, or terminate any right or interest of a
third person.
▪ For example: An agent on behalf of Principal, demands the third person to delivers his goods, which are in his possession. The
Principal need not ratify them, as it would be loss to the third person.
7. Ratification within a reasonable time
▪ The ratification must be made within a reasonable time, as delay in the ratification can prejudice the interest of the third person.
 Effect of Ratification: The Doctrine of Relating Back
▪ The effects of ratification are to put all the parties involved i.e. principal, agent, and the third party in a position
that agent had been authorized from the beginning. It refers to the retrospective authorization of the agent.
Risbourg v. Bruckner “…A valid contract between the principal and the third person was created from the date
(1858) when the agent had done the act, and therefore the agent could not be made personally
liable because the agent’s position had become the same as in the case of a previously
authorized act…”
Badri Prasad v State - Auction sale of timber- 24 December, 1956.
of Madhya Pradesh - A made a highest bid and his bid was accepted by the Divisional Forest Officer. The
(1966) payment was agreed to be paid in 4 installment. B gave the surety for the next three
instalment, while first instalment was paid.
- The auction sale was ratified by the Chief Conservator of Forests, and the sale deed was
signed by him on 3rd May, 1957. However, a week before the contract was ratified, fire
broke out and goods purchased by A was destroyed.
- B (Surety) filed a suit for declaration that he was not liable to pay 2, 3 and 4 instalments.
No contract regarding the subject matter. Held: B was liable to pay the remaining
instalments.
4) Agency by implied authority
▪ This type of agency comes into force by virtue of relationship between parties or by conduct of parties.
▪ An agency is said to be implied when it is to be inferred from the circumstances of the case.
▪ An implied agency does not arise out of a contract, but is implied from the acts of the parties, or the
ordinary course of dealing, usage or custom of the trade etc.
▪ The agent is deemed to be acting on behalf of the principal.
Example
▪ A owns a shop in Meerut and he himself lives in Delhi.
▪ A visits his shop occasionally.
▪ The shop is managed by B who is in the habit of ordering goods from C in the name of A for the purpose of
the shop and pay for them out of A’s funds and with A’s knowledge.
▪ B has an implied authority from A to order goods in the name of A for the purpose of the shop.
▪ Agency by implied authority is of three types as shown below;
a) Agency by Necessity
b) Agency by Estoppel
c) Agency by Holding out
1) Agency by Necessity
• Sometimes, owing to the exigencies of circumstances, the law confers agency on some persons to act as an agent
of another person without waiting for the consent of that person.
• However, before an agency of necessity can be inferred, the following conditions have to be satisfied:
(i) There should be an actual and definite necessity for acting on behalf of the principal;
(ii) within the available time it should be impossible to obtain the principal's instructions;
(iii) the person acting as an agent must have acted bona fide. In such situations, the principal is bound by the acts
of the agent.
For example:

1. Some quantity of milk was consigned from Bombay to Delhi. The tanker carrying the milk met with an

accident. The milk being perishable was sold by the transporter. The sale is binding upon the principal.

In this case, the transporter became an agent by necessity.

2. A’ has handed over 100 quintals of butter, for transportation, through a road transport company.

Assume that in the transit all vehicles has got stopped where it takes one week for further movement.

So the transport company authorities have sold away the butter in nearby villages. There is an agency

by necessity.
b) Agency by Estoppel (Sec 237)
▪ The rule of estoppel says "where a person by his words or conduct has willfully led another person to believe that
certain set of circumstances or facts exists, and that other person has acted on that belief, then he is estopped or
precluded from denying the truth of such statements, although such a state of thing did not exist in fact.
▪ Thus, when a person, by his conduct or statement, willfully leads another person to believe that a certain person is
his agent, then he is estopped or prevented from denying the truth of agency.
Section 237 of the Act deals with agency by estoppel
▪ It says that when an agent has, without authority, done an act or incurred an obligation to third persons on behalf
of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such
third persons to believe that such acts and obligations were within the scope of agent's authority.
For example:
▪ A tells B in the presence of C that he (A) is C’s agent. C does not object to this statement and keeps quiet.
▪ Later on B enters into a transaction with A. A bonafidely, believes that A is C’s agent. C is bound by this transaction
and will be estopped from denying that A was his agent, even though A was not in reality his agent.
▪ It will be noticed from the above example that C by his conduct has willfully led B to believe that A is C’s agent. Now C
will be estopped from denying the truth of the statement that A is C’s agent.
▪ Hence C is liable, although in reality, A is not C’s agent.
c) Agency by Holding Out
▪ Agency by holding out is a type of agency by estoppel.

▪ Here, the alleged principal by 'his affirmative or positive conduct leads others to believe the that person
doing some act on his behalf is doing with, his authority.

▪ For example, A allows his Agent habitually to buy goods on credit from local dealer and pays for them. One
day he terminated the services of his Agent without any notice to the dealer. The Agent purchased goods
worth Rs. 100 on credit, as usual, after his termination. A is liable for the purchase made by his Agent

▪ Difference: In the case of agency by estoppel, the role of the principal is passive. While, in the case of agency
by holding out, the role of the principal is rather active and somewhat affirmative or positive.
 Kinds of Agents
▪ The agent, within the limit of authority, acts on behalf of the principal and binds him or brings the

principal in a contractual relation with third person.

▪ The principal is liable for the act of agent to the third persons.

▪ Agents can be classified into different types on the basis of the extent of their authority and the nature

of the work performed by them as follows : -

▪ On the Basis of Limit of Authority
a) Special Agent: - A special/specific agent is one who is appointed to perform a particular act or to represent
principal in some particular transactions.
▪ For example: An agent appointed for sale of particular house or an agent employed to sell a bike etc.
▪ If the special agent does anything outside his authority, the principal is not bound by it.
b) General Agent
• A General Agent is one who was employed to do all acts connected with particular business or employment or
they can perform all acts associated with the principal’s ongoing business
• For example:- A manager of a firm, Property Manager etc.
• The general agent can make contracts and do things for the principal within the scope of Agency
• They may do things which are normal in the ordinary course of that particular business of the principal.
• Principal is bound by the acts of General agent which fall within the scope or ordinary course of that business.
c) Universal agent

▪ A Universal agent is one who is authorized to do all the acts which the Principal can lawfully do and can
delegate.

▪ Universal agent is authorized to enter into transactions of every kind of business for the principal

▪ These are the superheroes of agency relationships, with full authority to act on behalf of a principal.

▪ Many times, universal agents will have a “power of attorney” to act on their principal's behalf.

▪ Universal agents can, in a sense, act like as they are the principal.

▪ They can even sign legal documents and purchase or sell property.

▪ Universal agents are more powerful than General Agents.

▪ On the Basis of Nature of Act/Business
❖ Mercantile Agent
▪ He is the agent appointed for performing mercantile or business activities. The business activities consist of trade
and commerce activities.
▪ There are different types of mercantile agent. They are as follows:-
a) Factor
The agent to whom goods are entrusted with his possession for the purpose of selling them. He can sell the goods
in his own name and can do such things as are usual and necessary in the course of such businesses.
b) Broker
▪ A broker is an agent who is employed to buy or sell goods on behalf of another.
▪ He is a connecting link between principal and third parties for the purchase or sale of goods.
▪ But he is not entrusted with the possession of goods and he can’t sell or purchase the goods in his name.
▪ He is appointed to bring about a contractual relation between principal and third parties
▪ His commission is called as the brokerage
c) Auctioneer
• An auctioneer is an agent appointed by a seller to sell his goods at public auction for commission.
• He sells goods at auction to the highest bidder in public competition.
d) Del Credere Agent
• He is one who in consideration of an extra commission, guarantees his Principal that the third person with whom he
enters into contracts on behalf of the principal, shall perform their financial obligations
• And if the buyer does not pay, he will pay.
• Thus he occupies the position of a surety as well as an Agent.
• Commission paid to Del credere agent is known as Del credere commission
e) Bankers
• The relation between a banker and a customer is basically that of a debtor and creditor.
• When a banker collects securities like cheque, dividends, interests, bills of exchange or promissory notes on behalf of his
customer, he becomes the agent of his customer
❖ Non-Mercantile Agent
• The agent who is unrelated with business activities.
• It includes estate agent, house agent, insurance agents, lawyers etc.
Wife as Agent

• Where a husband and wife are living together, we presume that the wife has her husband’s authority to
pledge in his name or avail credit for the purchase of necessaries of life suitable to their standard of
living.

• But the husband will not be liable on the following situations :-

(i) He had expressly warned the tradesman not to supply goods on credit to his wife; or

(ii) He had expressly forbidden his wife to use his name to avail credit ; or

(iii) He already sufficiently supplies his wife with the articles in question; or

(iv) He supplies his wife with sufficient money.

 DELEGATION OF AGENCY
▪ Delegatus Non-Potest Delegare is the general rule of law of agency which means a delegated authority cannot
again be delegated (A delegate cannot further delegate)

▪ An Agent being himself a delegate of his Principal, he cannot pass on that authority to someone else.

▪ The basic reason is that the authority given to an Agent is personal and cannot be exercised through another.

▪ The principal appoints an agent on the basis of his skill and experience. So the agent should not delegate his
duties to another.
Sec.190 :-When agent cannot delegate

• An agent cannot lawfully employ another to perform acts, which he has expressly or impliedly undertaken to
perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature of the
agency, a sub-agent must, be employed.
Under the following circumstances, an agent can appoint a sub-agent:-

1) When there is a custom of the trade to appoint a sub-agent.

2) Where the nature of the work is such that a sub-agent is necessary. (for ex: to file a suit, an agent may
engage an advocate)

3) Where the Principal expressly or impliedly allows the appointment of a sub-agent

4) Work to be done does not depend on the experience or skill of the Agent.(For ex: an agent is required to
transport the goods, he may appoint a sub-agent)

5) Where an unforeseen emergency arises.

191. 'Sub-agent' defined:-
▪ A 'sub-agent' is a person employed by, and acting under the control of, the original agent in
the business of the agency
▪ In simple words, sub-agent is the agent of the Agent.
▪ An agent is the Principal of the Sub-Agent.
▪ He really acts in the double capacity. He is an agent of the Principal and at the same time
principal of the sub-agent.
Effects where sub-agent is properly appointed [S. 192]
- Where a sub-agent is properly appointed, the principal is, so far as regards third persons,
represented by the sub-agent, and is bound by and responsible for his acts, as if he was an agent
originally appointed by the principal.
▪ Agent's responsibility for sub-agent(Sec.192)
- Agent is responsible to the principal for the acts of the sub-agent.
• Sub-agent's responsibility(Sec.192)
• The sub-agent is responsible for his acts to the agent, but not to the principal, except in cases of fraud or wilful
wrong.
• Points to remember when the sub-agent is properly appointed
(i) The Principal is represented by sub agent
(ii) The Principal is bound or liable to the third persons for the acts of sub agent
(iii) Original agent is responsible to the principal
(iv) Sub-agent is responsible for his acts to the original agent but not to the principal except in cases of fraud
or willful wrong.
Effects, where sub-agent is not properly appointed [S.193]
• Where an agent, without having authority to do so, has appointed a person to act as a sub-agent, the agent is
responsible for his acts both to the principal and to third persons;
• The principal is not responsible for the acts of the person so employed (Sub-agent)
• The original agent is responsible for the act of the sub agent both to the principal and to third person
Substituted Agent (Sec.194)
▪ In some cases, principal asks agent to appoint another person to do some particular work (which is
normally not done by the agent).
▪ In such case, the another person appointed by agent is not sub-agent, but is agent of the Principal itself.
▪ Such person may be called Substituted Agent.
▪ Section 194 states that, when an agent holding an express or implied authority to name another person to
act for the principal in the business of the agency, has named another person accordingly, such person is
not a sub-agent but an agent of the principal for such part of the business of the agency as is entrusted to
him.
Example :
• A directs B, his solicitor, to sell estate by auction and to employ an auctioneer for the purpose.
• B names C, an auctioneer, to conduct the sale.
• C is not sub -agent but is A’s agent for the conduct of the sale and C is the substituted agent of ‘A’
Section 195:- Agent’s duty in naming such person

• In selecting such agent for his principal, an agent is bound to exercise the same amount of discretion as a man

of ordinary prudence would exercise in his own case; and, if he takes due care, he is not responsible to the

principal for the acts or negligence of the agent so selected

Illustration :-

• A instructs B, a merchant, to buy a ship for him. B employs a ship-surveyor of good reputation to choose a ship

for A. The surveyor makes the choice negligently and the ship turns out to be unseaworthy and is lost. B is not,

but the surveyor is, responsible to A.

 Difference between Sub-agent & Substituted Agent
Sl. NATURE Sub-Agent Substituted Agent
No
1. Control A sub-agent is the agent of the original Substituted agent is the agent of the principal
agent, as he works under the control of the because he works under the control of the
agent principal
2. Responsibility A sub-agent is responsible for all the acts to Substituted agent is responsible to the
original agent and for the acts of fraud or Principal alone
willful wrong to the Principal

3. Contract There is no direct contract between the There is direct contract between the
sub-agent and the Principal substituted agent and the Principal

4. Appointment An agent appoints sub-agent only when he Substituted agent is appointed by the agent
finds it necessary as per the custom of trade when he has the authority to do so from the
or the nature of agency Principal
5. Liability Sub-agent is liable to the agent Substituted agent is liable to the
principal.

6. Remuneration to Agent pays remuneration or commission In case of substituted agent, the

agents to a sub-agent Principal makes such payments.

7. Responsibility towards The Principal is not responsible to the The Principal is bound by all the acts of
third party third parties for the acts committed by a substituted agent in the same way
the sub-agent provided he has not been and extent as he is liable to the acts of
appointed properly his agent
 Rights of Agent
There are number of rights which an agent has against his principal. Those are as follows:-

➢ Right to get remuneration (Sec 219 & 220)

- Agent has the right to receive reasonable remuneration or commission on the completion of his work from the
Principal, unless there is any contract to the contrary.

- An estate agent was engaged by Saraswati Devi and her husband to find a purchaser for their property. Estate
agent found a customer who was willing to pay 1, 27,000/- and paid an advance of 30,000/-. Subsequently, the
couple refused to sell the property to that customer, as he failed to pay the due purchase price. The Estate agent
filed a suit against the couple to recover 2,500/- as renumeration for finding the customer. Held: he was entitled
to recover, when he found the purchaser who was ready, willing to purchase the property. - Saraswati Devi v
Motilal (1982).
- An agent, who is guilty of misconduct, is not entitled to any renumeration or commission from the Principal. – Sec.
220.

- The principal underlying the rule is that, ‘a person is entitled to have an honest agent and it is only the honest
agent entitled to renumeration or commission’.

- For instance: A appoints B to recover 1,000 rupees from C. Due to B’s misconduct, the money is not recovered. B is
entitled to no renumeration and he must make good the loss.

➢ Right of Lien (Sec. 217)

- If agent is not paid with lawful charges or remuneration or expenses incurred on behalf of his principal, than, the
agent can retain the goods (if any) of principal until the lawful charges are paid by the principal. This right lasts till
the lawful charges are fully satisfied. – Sec. 221.

- For instance: An advocate can exercise a lien, if the cost incurred in the case is not paid to an advocate.
- Right to retain the sums received on account of the Principal in the business of the agency. For Ex: If an
agent sells his principal’s goods, he may retain the consideration so received until his renumerations
are paid. – Sec. 217.
- An agent can exercise these rights subject to certain conditions:
a) The agent should be lawfully entitled to receive from the Principal a sum of money by way of
commission.
b) The property over which the right of lien is exercised must belong to the Principal and the same
must have been received by the agent in his capacity.
c) The Property must be in the possession of an agent.
d) The agent has only a particular lien i.e., An agent can exercise the lien only in respect of the goods
that are in the possession of an agent under the contract of agency. No other property can be
retained.
- Effect: Agent can retain the goods till his dues are paid. But this doesn’t give an agent unrestricted
authority to deal with the property in any manner the agent may like. His right is limited in nature. So
agent cannot sell or dispose of the property without the consent of the owner.
- Termination of Right of lien:
a) If the lien being the possessory right, the right of lien is lost as soon as the possession is lost.
b) When the agent waives his right, right of lien is lost.
c) If there is any agreement contrary to the right of the agent to exercise the right of lien.
Right to get Indemnity (Sec 222-225)
- Indemnity for Lawful acts: The employer of an agent is bound to indemnify him against the consequences
of all lawful acts done by such agent in exercise of the authority conferred on him. –Sec.222.
- - A does not send the good to B.
- C sues B for breach of contract
A C (enters contract - B informs A about the suit and
B (Calcutta)
(Singapore) to deliver goods) A authorizes B to defend the
suit and B incurs some
expenses. A is liable to
compensate for the loss.
- Indemnity for the acts done in good faith: The agent is also entitled to indemnity against the consequences
of an act done in good faith, even though the act causes an injury to the rights of third person.- (Sec. 223)

- For ex: Sale of goods under good faith by the agent.

- No indemnity in case of Criminal Offence: If an agent commits a crime at the instance of the Principal, the
agent cannot claim indemnity from the Principal against the consequences of the crime, even though the
principal has expressly or impliedly promised to indemnify him. -(Sec 224)

- Right to compensation for damages due to Principal’s neglect: The agent is entitled to claim compensation
for the loss or injury caused due to the Principal's neglect. – (Sec 225)
 Duties of Agent
➢ Duty to follow instructions/directions:-The first and foremost duty of an agent is to act strictly within the scope
of the authority conferred upon him and to carry out the instructions of the principal.
- If a Principal instructs the agent to make an insurance. The agent charges his principal, as if it was made, if he
never in fact made that insurance, he is considered as the insurer himself.- Tichel v. Short (1750)
- A commission agent purchased the goods for his principal and stored them in a godown pending their dispatch.
The agent was under instruction to insure them. He actually charged the premium for insurance, but failed to
insure the goods. The goods were lost in an expulsion in the Bombay harbour. Held: The agent is liable to
compensate the Principal. – Pannalal Jankidas v. Mohanlal (1951)
➢ To act as per the terms of the contract:- An agent is obliged to perform according to each and every terms and
conditions mentioned in the contract.
➢ Not to delegate his authority(Sec 190):- An agent must not delegate his authority to any other person
improperly. As much as possible, agent himself should perform on behalf of the principal.
➢ Duty not to make secret profits from agency:-An agent’s duty is to be loyal to his principal.
• If an agent makes secret profit from its agency, the Principal can demand the agent to handover all the profits.
➢ Duty to follow customs (Sec 211):- Where, the principal has not given any instruction, it is the duty of agent to follow the customs prevailing in the
same kind of business at the place where the agent conducts his business.

- For ex: If selling the goods on credit is not the custom of the agent, he cannot sells the goods of Principal on credit. If sells on credit, agent can be made
liable.

➢ Duty to carry out the work with reasonable care, skill and diligence (Sec 212):- Agent is always bound to act with reasonable care, skill and diligence
and he must make compensation to his principal in respect of any loss which is the direct consequences of his neglect or misconduct.

- For ex: If the agent is authorized to sell the goods on credit, A sells the goods, without making the proper and usual enquiries as to the solvency of
buyer. A will be made liable to pay compensation, if the buyer was insolvent on the date of the sale.

➢ Duty to maintain accounts (Sec. 213):- An agent must keep the money and property of the principal separately. He must keep true, correct and proper
accounts of his all transactions on behalf of his principal and to be prepared all times to produce them to his principal.

➢ Duty to act with good faith:- An agent must act in good faith while representing the Principal. Agent should not have any intention to cause harm to the
Principal.

➢ Not to disclose confidential information:- Though the agent may have authority from his principal to deal on his accounts, agents are not allowed to
disclose or leak the confidential information of the Principal. It is the duty of agent to maintain privacy and secrecy of such confidential information of
the Principal

➢ Duty to pay sums received for Principal:- Agent has to pay to his principal all sums received by him on Principal’s account.
Extent of agent's authority (Sec. 188)
➢ An agent, having an authority to do an act, has authority to do every lawful thing which is necessary in order to do
such act.
➢ An agent having an authority to carry on a business, has authority to do every lawful thing necessary for the purpose,
or usually done in the course, of conducting such business.
Illustrations
- A is employed by B, residing in London, to recover at Bombay a debt due to B. A may adopt any legal process
necessary for the purpose of recovering the debt, and may give a valid discharge for the same.
➢ The authority conferred may be express or implied (Sec. 186 & 187)
Agent's authority in an emergency (Sec.189)
• Sec.189 - An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from
loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.
Illustration
• A consigns provisions to B at Calcutta, with directions to send them immediately to C, at Cuttack. B may sell the
provisions at Calcutta, if they will not bear the journey to Cuttack without damaging.
Enforcement and consequences of agent’s contracts (Sec. 226)
• Contracts entered by the agent may be enforced in the same manner and will have same legal consequences, as if the
contracts had been entered into and the acts done by the principal in person.
Principal how far bound, when agent exceeds authority (Sec.227)
- When an agent does more than he is authorised to do, and when the part of what he does, which is within his
authority, can be separated from the part which is beyond his authority, so much only of what he does as is
within his authority is binding as between him and his principal.
- Where an agent exceeds his authority, and the work so performed is separable in nature, the principal is liable
only for the work so authorised and not for work which is performed without the authority.
- For instance: If the agent is authorised to insure a ship, where the agent insures the ship and the goods
separately in a policy. The principal is bound only for the policy on the ship and not for the goods.
Principal not bound when excess of agents’ authority is not separable (Sec. 228)
- Where the authorised work is inseparable from the rest, the principal may repudiate the whole of the
transaction.
- For ex: If an agent is authorised to buy 500 sheep. If the agent purchase 500 sheep and 200 lamb for 6000 Rs.,
the principal may repudiate the whole transaction.
Consequences of notice given to agent (Sec. 229)
- Any notice given to or information obtained by the agent, shall have the same legal consequence as if it had
been given to or obtained by the Principal, provided the information so obtained or notice so given to the
Principal, shall be within the course of business.
 Liability for agent’s Wrongful acts (Sec. 238)
- Section 238 fixes the vicarious liability on the Principal for the wrongs committed by the agent in the course of business.

- Misrepresentation or fraud by agents acting in the course of their business for their principals, will have the same effect as if it
is made by the Principal. However, the Principal will not be liable, if the agent commits such act outside the authority.
Induces C to buy by The contract is
B, agent for a misrepresentation voidable as
A C
Sale of goods between A and C,
at the option of C
- An agent, employed to collect evidence for his Principal in a pending law suit, offered to bribe a witness. Held: Principal liable.
Chicago City Rly. Co. v. McMohan (1882)
- Grace Smith & Co was a firm of solicitors. Mrs. Llyod consulted the firm for seeking the advice on how to increase the income of
her two cottages. Firms clerk advised her to dispose of the cottages and accordingly asked her to get the title deeds and
obtained her signature on two papers. He converted these papers to the sale deed to himself and disposed of the property and
misappropriated the funds. Held: firm was responsible for the fraud committed by their representative. - Lloyd v. Grace Smith &
Co. (1912)
 Rights and Liabilities of Undisclosed Principal
- The rights and liabilities of the Principal under contracts made by his agent depends upon whether:
a) the agent has disclosed existence and name of the principal.
b) the agent has disclosed the existence of principal but not his name.
c) Neither the existence or name is disclosed
- The existence and name of the principal is disclosed by the agent.
▪ According to Section 226, where the agent discloses the existence and the name of the principal, the acts of
the agent will have the same legal consequences as if, entered by the Principal in person.
- Where the agent discloses the existence of the principal but doesn’t disclose the name of his Principal
▪ As the agent has disclosed his representative character to the third party, the contract will be the contract of
the Principal.
- Where the agent neither discloses the existence or name of the principal
▪ As the agent has entered the contract in his own name, he will be made personally liable to the third party.
▪ But sometimes the Principal too has the right to intervene and assert his position as an undisclosed party to the
contract.
Section 231 of the Indian Contract Act, 1872
“If an agent makes a contract with a person who neither knows, nor has reason to suspect that he is an agent, his
principal may require the performance of the contract;…”
For Ex: The agent sells the principal’s property in his own name, and receives the price, the principal is entitled to
recover the same from the third party, if the agent becomes insolvent.
Limitations:
- The right of the principal to intervene and sue the third party is subject to the following two limitations:
a) If the Principal discloses himself to the buyer, before the contract is completed, that he himself is the principal
and if the third party fails to prove that he had no knowledge that the agent is not the principal and he was
aware that who was the actual principal, the principal can intervene and sue the third party. (Sec. 231)
b) The Principal can sue the third party subject to the rights and liabilities as existed between the Agent and the
third party. (Sec. 232) Sells 1000 Rs As ‘B’ has no knowledge nor
worth rice to B reasonable ground of suspicion
A borrowed 500 Rs. B that A is C’s agent, C cannot
compel B to take the rice
C (Principal) without allowing the setoff
 PERSONAL LIABILITY OF AN AGENT
▪ Ordinarily, in a contract of agency, an agent being a person employed to create relationship between his
Principal and the third party, the agent can neither enforce the contract personally nor he is personally liable
on the contract unless there is a contract to the contrary.
▪ In the absence of any contract to that effect, an agent cannot personally enforce contract entered into by him
on behalf of his principal, nor he is personally made liable.
▪ However, there are circumstances when the agent becomes personally liable.
These are as follows:-
1) When the Agent expressly agrees:
▪ Sometimes the agent may specifically stipulate that the agent will be personally liable if the contract is not
performed, in such a situation the agent will be personally liable.
▪ For example: A, an agent entered into an agreement with B to grant a lease of a house. In the lease deed it
was mentioned that A was acting as an agent of the owner of the house, C.
• However, in the subsequent portion of the lease deed it was provided that the agent would execute the lease.
• In this contract the agent will be personally liable if the contract is not performed, although the house
belonged to C.
2) When acting for a Foreign Principal
• Where an agent enters into a contract for a foreign principal (a merchant residing abroad), the presumption is
that the agent is personally liable for such contracts.
• This presumption came into existence because in earlier times it was difficult to sue foreign Principal, hence
it became customary practice that when the agent enters into a contract on behalf of a foreign principal, the
agent would be personally liable.
• But now, because of changed circumstances of international trade, although the rule still exists, but the agent
do not undertake personal liability and the contracts are entered manifestly laying that the liability would be
that of the principal if the contract is not performed.
3) When acting for an Undisclosed Principal
• When a contract is made by an agent for an undisclosed principal, the agent is personally liable.
• As the third party while making the contract, relied upon the credit of the known agent and consequently,
the agent becomes responsible for the transactions.
4) Where the Principal though Discovered cannot be Sued
• When the agent enters into a contract on behalf of a person who cannot be sued, as for example, where the
principal is an incompetent to enter into contract. The presumption is that the third party gave credit to the
agent, hence the agent is personally liable upon the contract.
5) When the Principal is a company which is yet to come into existence
• When the promoters of a company enter into any contract on behalf of a company, which is not yet
incorporated, the promoters are personally liable for the obligation they create by any contract with any one.
• The reason for this is that the company, being not in existence at the time of formation of contract, cannot be
sued.
6) When there is a Custom or Trade or Usage
• An agent may be held personally liable on contract entered by him, if there is some trade, usage or custom,
provided there is no contract to the contrary.
7) Money paid by Mistake or Fraud

• When a person untruly represents himself to be the authorized agent of another and thereby induces a third
party to deal with him as such agent,

• or the agent exceeds his authority, and the (alleged) principal does not ratify his acts,

• the alleged agent is personally liable to the third party and the third party may recover from him compensation
in respect of any loss or damage suffered by them (Section 235)

8) When an agent enters contract in his own name

• If an agent enters into contract with the third party in his own name i.e., without disclosing that he is contracting
as an agent.
 Termination of Agency
▪ The parties by an agreement can create a Contract of agency.

▪ Similarly, by an agreement they can terminate it. If agency is made for some specific purpose and for a fixed
time period the agency terminates when purposes are achieved or on the lapse of time.

▪ There are various modes in which the agency can be terminated:-

I] By the Act of the Parties

1) Mutual Agreement

2) Revocation by the principal

3) Renunciation by the agent

1) Mutual Agreement

The Contract of Agency can be terminated at any time by mutual agreement between the principal and agent.

2) Revocation by the principal

The Principal can revoke agency at any time by giving notice to the agent.

3)Renunciation by an agent

• Renunciation means withdrawing from the responsibility as Agent.

• Like Principal, Agent can also renounce the agency.

• According to Section 206 of the Indian Contract Act 1872, the agent must give to his Principal reasonable notice
of renunciation.

• Otherwise, he will be liable to make good for the damage caused to the principal for want of such notice.
II] By operation of law
1) By performance: - If agency is made for certain purpose, on accomplishing the purpose, the agency is
terminated.
2) By expiry of time fixed: - If time is fixed for the agency, the agency is terminated after expiry of time fixed.
3) Insanity of principal (unsound mind):- If the principal become insane, the contract can be terminated.
4) Death of either party: - The death of the principal or agent terminates the contract of agency.
5) Insolvency of principal: - After the insolvency or bankruptcy of principal, the contract of agency can be
terminated.
6) Destruction of the subject matter:- If the subject matter for which agency was created gets destroyed ,
contract of agency can be terminated.
7) By dissolution of company: - If the company dissolves, the agent will have no more authority provided by the
company or principal, and then contract of agency terminates.
8) By the happening of any event rendering the agency unlawful : - If subsequent to the contract, law changes
in such a way that it invalidates the transaction, then the agency also gets terminated. For Example:-
Subsequent to the contract, if principal and agent became alien enemy the contract of agency also
terminated.
THANK YOU!