CONTRACT OF AGENCY

Section 182: Definition of Agency

Duty of Agent: To enter into legal relations on behalf of principal but himself does not become a party
to contract nor does he incur any liability under contract. If agent is within authority then principal
will be responsible for the acts of agents.

Competence of Parties to enter into a Contract of Agency:

Section 183/184: Sound Mind and not a minor. Principal must have the legal capacity to employ an
agent.
Section 185- Consideration not required for creation of contracts of agency

CREATION OF AGENCY:

1) Expressly (Section 187)

2) Impliedly (Section 187)
Partners, servants, wives are usually regarded as agents by implication because of their relationship.
Wife as an implied agent to her husband:
Where husband and wife are living together in a domestic establishment of their own, the wife shall
have an implied authority to pledge the credit of her husband for necessaries.

The implied authority can be challenged by husband only int he following circumstances:
a) The husband has expressly forbidden the wife from borrowing money or buying goods on credit
b) The articles purchased did not constitute necessities
c) Husband had given sufficient funds to the wife for purchasing the articles she needed to the
knowledge of the seller
d) The creditor had been expressly told not to give credit to the wife.

Where the wife lives apart from husband without any of her faultm she shall have an implied
authority to bind the husband for necessaries, if he does not provide for her maintenance.

3) Agency by Necessity (When a person maybe compelled to act as an agent without any implied or
express authority. Agent must act under pressing conditions and act for the benefit of principal)
4) Agency by Estoppel (Section 237) (When a person induces a third party to believe that a certain
person is his agent and such acts and obligations were within agent’s authority)
5) Agency by Ratification (Section 196-200):
Ratification means subsequent adoption or acceptance of an act by principal, originally doen by agent
without authority.
 Act done must be done in the name of the principal
 Principal must be in existence and competent to contract at the time when agent acted on
behalf as well as on date of ratification
 Act must be legal and principal must be competent to do it
 Ratification must be with full knowledge of all material facts (Section 198)
 Ratification must relate to the whole act and not to a part of it. Ratification of a part of the act
will not be valid. (Section 199)
 There can be no valid ratification of an act which is to the prejudice of a third person. (Section
200)
 Ratification must be done inreasonable time

EXTENT OF AGENT’S AUTHORITY: (SECTION 186-189)

Principal is responsible for the acts of agent done by him within scope of authority.
- Authority of an agent extends to performance of every lawful thing necessary to do an act for which
he is appointed (Section 188).
Section 189: Agent has authority in an emergency to do all such acts for purpose of protecting
principal form loss as would be done by a person of ordinary prudence in his own case under similar
circumstances. Emergency must be real and not permitting agent to communicate with the principal.

DELEGATION OF AGENT’S AUTHORITY: (SECTION 11-195)

Agents cannot delegate as they are delegatee themselves. However, an agent can employ a sub-agent
or a substituted agent.
Sub-Agent: Person employed by and acting under control of original agent in agency business (Section
191)

When can a sub-agent be appointed:

- When the ordinary custom of trade permits
- when not expressly forbidden
- When nature of an agency requires so
- When act to be done involves no discretion or confidence.
- When emergency arises

Principal will be bound by acts of sub-agents if such sub-agents have been properly appointed, but
not if improperly appointed.
Agent is responsible for the acts of sub-agents both to principal and to thrird parties. (Section 193)

Substituted Agent: (Section 194)

Where an agent holding an express or implied authority to name another person to act in the
business of agency, has named another person, who will be an agent for the part of work entrusted to
him. Such an agent so named will be a substituted agent.

Example- A asks B, his solicitor, to auction his goods. B appoints C, an auctioneer, to auction off the
goods. C is a subtituted agent.

Agent is not liable for acts of substituted agent if properly appointed.

RIGHTS OF AN AGENT:

1) Right to claim reimbursement for expenses (Section 217)

2) Right to receive remuneration (Section 219)
3) Right to indemnification against consequences of all lawful acts (Section 222)
4) Rights of indemnification against consequences of acts done in good faith (Section 223). However
he will not be entitled to any indemnification if the act done is criminal (Section 224)
5) Right of indemnification for injuries caused (Section 225)
6) Right of lien (Section 221)

DUTIES OF AN AGENT:

1) To follow instructions of his principal (Section 211)

2) Duty to act with skill and diligence (Section 212)
3) Duty to render accounts (Section 213)
4) Duty to communication with the principal (Section 214)
5) Duty not to deal on his own account (Section 215/216)
6) Duty not to delegate his authority
7) Duty to protect the interest of principal or his legal representatives in the even of principal’s
unsoundness of mind or his death (Section 209)
8) Duty not to pay sums received for principal (Section 218)

TERMINATION OF AGENCY:
1) By an agreemnet between principal and agent- Tobe inferred from the contract
2) By revocation of agency by the principal (Section 207)
But Irrevocable when:
- Where agency is coupled with interest
- Where authority has been partly exercised by the agent (Section 204)
- Where agent has incurred a personal liability

3) By renunciation of business by the agent (when agent wants to leave)

4) By insolvency of the principal
5) Destruction of the subject mater of contract of agency or when principal has ceased all powers and
interests on subject matter of agency
6) Principal becomes an alien enemy
7) When termination of agent’s authority takes effect as to agent and as to third party (Section 208)
8) Termination of sub-agent’s authority (Section 210)

CONTRACT OF PLEDGE

WHO MAY PLEDGE:

1) Owner, or his authorised agent
2) One of the several co-owners, who is in sole possession of goods with the consent of other owners
3) A mercantile agent, who is in possession of goods with the consent of real owner
4) A seller, who is in possession of goods after sale or a buyer who has obtained possession before
sale
5) Person who has a limited interest in property.

Rights of a Pledgee:
1) Right of Retainer (Section 173/ 174)
2) Right to Extraodinary Expenses (Section 175)
3) RIght of Sale (Section 176)
4) Right against the true owner of goods (Section 178 A)

Duties of Pledgee:
1) Duty to take reasonable care of pledged goods
2) Duty not ot make unauthorised use of goods pledged
3) Duty to return the goods when the debt has been repaid or the promise has been performed
4) Duty not to mix his own goods with goods pledged
5) Duty not to do any act which is inconsistemt with the terms of pledge
6) Duty to deliver accretion to goods pledged

Duties of Pledgor:
1) Duty to comply with terms of pledge and repay debt or perform promise at stipulated time
2) To compensate pledgee for extraordinary expenses incurred for preserving pledged goods