SIDDHARTH LAW COLLEGE

INDIAN PARTNERSHIP ACT

1932
AND
INDIAN CONTRACT ACT
1872

NAME : FREYA P MISTRY

SYLLB SEMESTER IV
ROLL NO 153
INDEX
INDIAN PARTNERSHIPACT 1932
 INTRODUCTION
 FEATURES OF PARTNERSHIP
 CASELAW : COX VS HICKMAN
 TYPES OF PARTNERSHIP
 CASELAW K JAGGAIAH VS KOKUMANU
 DIFFERENT TYPES OF PARTNERS
 RIGHTS OF PARTNERS
 DUTIES AND LIABILITIES OF PARTNER

INDIAN CONTRACT ACT 1872

 CONTRACT OF AGENCY
 INTRODUCTION
 DUTIES OF AGENT
 DUTIES OF PRINCIPAL
 RIGHTS OF AGENT
 RIGHTS OF PRINCIPAL
 FEATURES OD AGENCY
 DIFFERENCE BETWEEN AGENT AND SERVANT
 DIFFERENCE BETWEEN AGENCY AND DEALERSHIP
 QUI FACIT PER ALIUM FACIT PER SE
 METHODS OF CREATING AGENCY
 DIFFERENT TYPES OF AGENT
 EXCEPTIONS TO AGENCY
 BIBLIOGRAPHY
INTRODUCTION
The Indian Partnership Act 1932 defines the term partnership as under
"Partnership" is the relation between persons who have agreed to share the profits of a business carried on
by all or any of them acting for all.

Persons who have entered into partnership with one another are called individually “partners” and
collectively a “firm”, and the name under which their business is carried on is called the “firm name”.
In a partnership firm, two or more people come together to carry out a business for the purpose of
earning profit and sharing those profits.The partners combine the resources and knowledge and skill
they have and work jointly to carry on the business. The business they carry out must be legal and not
be of such kind which abuses the provisions of law .

The essential features of partbnership as per Indian Partnership Act 1932 are as
follows
Agreement between Partners:
 It is an association of two or more individuals, and a partnership arises from an agreement or a contract. The
foundation of partnership is an agreement. .The agreement becomes the basis of the association between the
partners. Such an agreement can be in written form , oral or implied .In order to avoid controversies, it is
always good, if the partners have a copy of the written agreement. Section 5 clearly states that partnership is
not created by status – the relationship of partnership can arise only out of a contract. Thus, if a Hindu
Undivided Family is carrying on a family business, it is not a partnership. Similarly, a husband and wife
carrying business are not partners in such business.
The partnership agreement must fulfil all the requirements of a valid contract. There should be free consent,
competency of the parties, lawful consideration and object. The agreement to create partnership may be
express or implied. The agreement can also be inferred from the conduct of the parties. The agreement need
not be in writing except where required under the Income Tax Act or if the partners wish to get the firm
registered.
Partnership does not arise by mere joint acquisition of property like in the case of co-ownership. If a wife
entrusts her stridhan to her husband, it is not an agreement of partnership even if the husband uses the
property for business.

Two or More Persons: 

In order to manifest a partnership, there should be at least two (2) persons possessing a common goal. To put
it in other words, the minimal number of partners in an enterprise can be two .
Section 11 of the Companies Act, 1956 provides that number of partners cannot exceed 10 persons in case of
banking business and 20 in other businesses. If the number of partners exceeds the limit, the partnership
becomes an illegal association. Similarly, if the number falls below two, the partnership is deemed
dissolved.
The people who are partners in a firm must be competent to contract. If all partners are minors or if there is
only one adult partner, it is not a partnership at all.

Sharing of Profit: 
Another significant component of the partnership is, the accord between partners has to share gains and
losses of a trading concern. The purpose of a partnership is to carry on business. Thus, it is obvious that the
partners have an interest in sharing the profits so earned from the business of the firm. Here, profits include
losses as well. Division of profits is an important element in a partnership. There was a time when sharing of
profits was used as a test to determine whether a partnership existed or not. If a person shared the profits and
incurred liabilities too, he was deemed a partner as held in Grace vs. Smith [1775 2 WM Blacks 998]
However, in the present day, a person does not become a partner merely because he shares the profits of the
business. Similarly, sharing of losses is not a must for a partnership. Sharing profits and contributing to
losses are indications or prima facie evidence of a partnership but not the conclusive test of partnership. It is
possible that a partner may be paid salary or a fixed sum periodically in lieu of profits.
In Cox vs. Hickman  [1860 8 HL Cas 268], it was held that the conclusive test for partnership is mutual
agency because it is possible that every man who gets a share in the profits might not be liable for the losses
of the firm or might not be a partner.
For example, a servant or agent may receive a share of profits instead of his salary or as a bonus. Similarly, a
person who sells his business and goodwill may be given a share of profits as consideration for sale. An
employee of the firm may loan some money to the firm. But these persons do not ipso facto become partners
in the firm due to such participation.
In the case of Mollow vs. Court of Wards [1872 LR 4 PC 419], a Hindu Raja loaned some money to a
company. In return, he was given a certain percentage of profit and also allowed to exercise control on some
aspects of the business. But the Raja was not empowered to direct the transactions of the company. It was
held that although sharing of profits is a very strong test, the relationship of partnership depends on the real
intention and conduct of the parties.
The partners can decide the ratio or proportion of share in profits and losses through an agreement between
them. A partner may get more percentage of the profits than the other(s) based on factors like contribution of
capital, special skills or taking a more active part in the daily functioning of the firm.

Business Motive:
 It is important for a firm to carry some kind of business and should have a profit gaining motive. The
partnership must have been created to carry on business. It is not necessary that all the partners actively
participate in the conduct of the business. For example, one partner may contribute skill or experience while
another may contribute capital for the firm. The business may be permanent or temporary, trading or non
trading.

Section 2(b) of the Indian Partnership Act, 1932 says that ‘Business’ includes every trade, occupation and
business. Thus, a partnership does not exist between members of a religious association and the like.
Services rendered jointly also constitute a partnership. For example, if two advocates may agree to jointly
plead a case and divide the fees, they are partners in respect to that case. But an agreement to carry on
business in the future is not a partnership.

Unlimited Liability: 
Every partner in a partnership has unlimited liability.The partners can be held liable jointly for the debts or
liabilities of the firm. This is considered as one of the biggest disadvantage of partnership . The private
assets or properties of the partners can be attached in case the firm;s assets are not enough to settle the
liabilities. That’s the reason for the rise of limited liability partnership .

Cox v. Hickman
Facts

Benjamin Smith and Josiah Timmis Smith carried on business as iron workers and corn merchants under the
name of B Smith & Son. They owed a lot of money to the creditors and a meeting took place, amongst
whom were Cox and Wheatcroft. A deed of arrangement was executed by more than six-sevenths in number
and value of the creditors. The trusts were enumerated and the lease was fixed at 21 years. They were to
carry on business under the name of “The Stanton Iron Company”. The deed also contained a clause which
prevented them from suing the Smiths for existing debts. Cox never acted as trustee, and Wheatcroft
resigned after six weeks after which no trustee was appointed.

The goods for the business were provided by Hickman who drew 3 bills of exchange, which the business
accepted but did not honour.
The suit was first tried in front of Lord Jervis who ruled in favour of the defendants. The action was then
taken to the Exchequer Chamber wherein three judges wanted to uphold the judgement and the other three
were for reversing it.

Issues

Whether there is a partnership between the traders who were in essence the creditors of the firm.

The counsel for Wheatcroft contended that:

There was no action against the appellant, as if Hickman had heard that Cox and Wheatcroft were the
trustees, he would have realized that Cox had never been a trustee and Wheatcroft had resigned.
The ownership of the partnership never changed and was still owned by the Smiths.
A qualified benefit derived from a trade does not make a person a partner in it. Here, unless the profits are
taken, there exists no partnership.
The counsel for Cox contended that:

The defendant can be held liable only if:

 He put his name on the bill

 Authorised someone else to put their name on the bill

 Held himself to have given the authority

As to the first and third points he is not liable. As far as the second is concerned, the defendant cannot be
held liable unless an agency is proved.
It is up to the defendant to show that the plaintiff is a partner.
The counsel for Hickman contended that:
There was a contract of partnership under which business was to be carried out for the benefit of creditors
The scheduled creditors are allowed to participate in the profits of the firm thereby making them partners
Any one of the partners may bind all the others by the acceptance of the bills in the regular course of
business

Judgement

The deed gave special powers to the creditors. They were given the choice by majority regarding whether or
not the trade should be continued and making rules and regulations as to the carrying out of that trade, which
are the powers that partners have.

The creditors, however, did not carry out the business of the trade when they could have but let the trustees
do the same. By this act f theirs, they did not make themselves partners of the trade. If they had carried out
they business they could have made sure none of the trustees accepted the bill of exchange as they would be
the principals.

The deed in this case is merely an arrangement between the creditors and the Smiths, to repay the creditors
out of existing and future profits. This relationship between the creditors and debtors is not enough to
constitute a relationship between a principal and agent. Trustees are liable as they are the agent by the
contract but the creditors are not the principals of the trustees.

Held
The decision of the Court of Common Pleas was reversed and the defendant’s were not held liable.

Types of Partnership
The Indian Partnership Act, 1932 gives two specific types of partnerships on the basis of duration:
  Partnership at will

 Particular Partnership

Partnership at will:
Section 7 says “where no provision is made by contract between the partners for the duration of their
partnership or for the determination of their partnership, the partnership is Partnership at Will”.

The survival of such partnership depends on the willingness of the partners. It can be dissolved at any time
by any of the partners by giving a notice to the other partners. The partnership at will dissolves from the date
of notice of termination. If a partnership constituted for a particular time period is still carried on after the
expiry of the time, it will be presumed that the limitation is no longer applicable.

For example, if two people decide to sell ice cream at two ends on a particular street without having any
contract or without specifying when will the partnership come to an end, it is a partnership at will. It will
exist only as long as both the parties want the partnership to last.

But if the partnership deed provides of termination only by mutual agreement, a mere notice to the other
partners will not dissolve the partnership firm. Also, a partnership at will dissolves immediately upon the
death or insanity of a partner.

Particular Partnership:
Section 8 states that “a person may become a partner with another person in particular adventures or
undertakings.” Such a partnership ends on the completion of the task. A partner cannot retire from such a
partnership – half way through the project for which partnership was entered into – without the other
partners.

When two people enter into a partnership for a particular construction project, this is particular partnership.
A person can still carry on his usual business or work while he in a particular partnership; he is not required
to give up his other professional pursuits. For example, partnership between two advocates or doctors for a
particular case does not take away their freedom to attend to their other cases. Two auditors engaged in a
particular audit might be regarded as partners in that audit.

It does not matter whether the business is of temporary or permanent nature. A single venture can amount to
carrying on of business.

In the case of K Jaggaiah vs. Kokumanu [AIR 1984 AP 149], three people got together and managed a
contract for road maintenance. It was a partnership for building roads. The activity of the partnership arose
from a single contract but was spread over a particular period and various aspects. The employment of
workers, supervision, getting sanctions and approvals was just a part ‘carrying on of business’ under Section
4.

Based on Partnership Registration Status:

The Partnership Act does not mandate the registration of partnership firm. Both, registered and unregistered
firms are valid and recognised under law.

Unregistered Partnership Firm:

An unregistered firm is established by execution of an agreement by the partners. The unregistered
partnership firm allows the Partners to carry on the business in manner stated and provided in the agreement.

Registered Partnership Firm:

The Partnership Firm is to be registered with the Registrar of Firm (RoF) having jurisdiction over the place
of business of the Firm. The registration application involved payment of registration fee to RoF, varied
from state to state according to the State Law. The registered partnership firm is preferred in many cases due
to the benefits offered by a registered partnership firm.

According to Tenure
Partnership for a Fixed Term
In such a type of partnership, the partnership is for a fixed period of time say 5 years, 2 years or any
specified duration of time. The partnership automatically comes to an end after the expiration of the said
period.

Flexible Partnership
Partnerships which are neither for a fixed duration of time nor for any particular venture are called flexible
partnerships.

Different types of Partners

Active or working partner:
An active partner is the one who contributes capital and also takes an active part in the management of the
firm. He bears unlimited liability for the firm’s debts. Active partners take actual part in carrying out the
business of the firm on behalf of other partners.

Sleeping or dormant partner:

Partners who just contribute the capital and do not take part in the day to day activities of the business are
called sleeping Partners. He shares in the profits or losses of the firm. His liability for the firm’s debt is
unlimited.

Limited partner:
The liability of a limited partner is limited to the extent of his share in the capital and profits of the firm. He
is not entitled to take an active part in the management of the firm’s business.

Secret Partner:
A secret partner is the one whose association with the firm is not known to the outside world. Other than this
one feature all the other aspects are as it is like other partners. He contributes the capital and takes an active
part in the management of the firm’s business. He shares in the profits and losses of the firm and his liability
is unlimited.

Partner in Profits only:

He shares in the profits of the firm but not in the losses, but his liability for the firm’s debts is unlimited. He
is not allowed to take part in the management of the firm.

Minor as a partner:
A minor is a person who has completed 18 yrs. of age. A minor cannot become a partner because he is not
qualified to enter into a contract, but he may be admitted to the benefits of a partnership with the mutual
consent of all the partners. He cannot take an active part in the firm’s management. His liability is limited to
the extent of his share in the capital and profits of the firm. He cannot file a suit against the firm or its
partners to get his share except when he wants to disassociate himself from the firm.
After becoming a major, the minor must give public notice within six months if he wants to break off his
connections with the partnership firm. If he does not give any notice within six months or if he decides to
remain in the firm, he becomes liable to the unlimited liability of the firm from the date he was admitted to
the benefits of a partnership. He also becomes entitled to take an active part in the management of the firm’s
business.

Sub partner:
Sub partner is a third person with whom a partner agrees to share his profits desired from the firm. He does
not take any part in the management of the firm and he is also not liable for the firm’s debts.
Rights of Partners
 Every partner has a right to take part in the conduct and management of the firm’s business, all
partners have the right to participate in the conduct of business himself, regardless of the fact that the
right is duly exercised or not.
 Every partner has a right to be consulted and express his opinion on any matter related to the firm. In
case of difference of opinion, the decision has ordinarily to be taken by a majority.
 But vital issues like admission of a new partner, change in the firm’s business, alteration of profit-
sharing ratio, etc., must be resolved by unanimous consent of all the partners.
 Every partner has a right to have access to inspect and copy any books of accounts and records of the
firm.
 Every partner has the right to an equal share in the profits of the firm, unless otherwise agreed by the
partners.
 Every partner has the right to receive interest on loans and advances made by him to the firm. The
rate of interest should be 6 per cent unless otherwise agreed by the partners.
 Every partner has the right to be indemnified for the expenses incurred and losses sustained by him
in the ordinary conduct of the firm’s business.
 7. Every partner has a right to continue in the firm unless expelled in accordance with the terms of
the partnership agreement.
 8. Every partner has a right to retire in accordance with the terms of the partnership agreement or
with the consent of other partners.

Duties and Liabilities of Partners

 Every partner must act diligently and honestly in the discharge of his duties to the maximum
advantage of all the partners.
 Every partner must act in a just and faithful manner towards each other.
 Every partner must act within the scope of the authority entrusted to him.
 Every partner is bound to share the losses of the firm equally unless otherwise agreed.
 Every partner must indemnify the firm against losses sustained due to his willful negligence in the
ordinary course of business.
 No partner can transfer or assign his interest in the firm to others without the consent of others
partners.
 Every partner must maintain and render true and correct accounts relating to the firm’s business.
 No partner must engage himself in a business in competition with the firm; otherwise he will be
liable for any loss suffered by the firm. He will have to surrender private profits to the firm.
 Every partner should use the firm’s property only for the firm’s business and interest.
 No partner should make secret profits by way of commission or otherwise from the firm’s business.
He is liable to account for and pay to the firm any private profit from the transactions of the firm or
from the use of its property or goodwill.
 Every partner is liable jointly with all the other partners and also severally for all the debts of the
firm. The liability of a partner to third parties is unlimited.
Contract of Agency
INTRODUCTION
Agency can be defined as the relationship between two persons, wherein a person has the authority to act on
behalf of another, bind him/her into a legal relationship with the third party. There are two parties in a
contract of agency – principal and agent
Contract of Agency is based on the fact that one person cannot perform all the transactions and so he can
appoint another person to perform or act on his behalf.
Principal
Any person who employs another person to perform an act and who is being represented by another person
in dealing with the third party is the Principal.

Agent
A person employed by the Principal, to act on his behalf, represent him in the dealings with the third party
and also to bring him into a contractual relationship with the third party, is called an Agent.
An agent in its essence is an individual who, acting at his discretion and judgment, has the ability to make
the principal directly liable to third parties, i.e., enable the principal to sue or be sued by any third party
directly.

The agent may or may not always be directly employed by the principal himself, i.e., the relationship
between the principal and the agent may not always arise out of a contractual relationship, there might be
different situations that give rise to the contract of agency, situations like a necessity, through an obligation
attributed upon a person by law or otherwise.

Duties and Rights of Agent and Principal

Duties of an agent
 It is the duty of an agent to execute the mandate of his principal.
 It is the duty of an agent to take reasonable care of the property of the principal and not to destroy the
sale.
 An agent is bound to render proper accounts to his principal on demand.
 In case of difficulty, the agent must inform the principal and get instruction from him before taking
any steps in facing the difficulty or emergency.
 It is the duty of agent not to deal on his own account.
 An agent should not make any secret profit out of his agency or agency agreement.
 An agent must not delegate his authority to a different person, but perform the work of agency
himself.

Duties of Principal
 The principal is bound to indemnify the agent against the consequences of lawful acts done by such
agent in exercise of the authority conferred upon him.
 The principal must make compensation to his agent in respect of injury caused to such agent by the
principal’s neglect or want of skill.

Rights of Agent
 Every agent is entitled to receive agreed remuneration, or if there is no agreement, a reasonable
remuneration.
 An agent has the right to retain all money in respect of his remuneration, advances or reasonable
expenses incurred by him in conducting the business.
  An agent has to be indemnified against the consequences of all lawful acts done by him in the
exercise of the authority conferred upon him.
 It is the right of an agent to stop the goods in transit to the principal like an unpaid seller if he has
bought goods with his own money and the principal has become insolvent.

Rights of Principal
 If the principal suffers any loss, he has a right to recover from his agent if it occurs due to the
following reasons;
 Not any action of the agent according to the directions of his principal.
 No following the customs of trade in the absence of directions.
 No performing of his duties with skill, care or diligence.
 If the agent without the knowledge and consent of the principal makes any secret profiles out of the
agency, the principal has a right to recover them from the agent.
 If the principal shows that the agent has acted as a principal himself and not merely as an agent, he
has a right to refuse to indemnify the agent against loss suffered by the agent in such transaction.

Features

 Legal Binding: The main element of contract of agency is that the principal is legally
bound by the acts performed by the agent.
 Consideration is not mandatory: There is no legal requirement of consideration, to
support the relationship between the principal and agent.
 Capacity of Principal: One who is legally competent to contract is eligible to employ an
agent, i.e. he should have attained the age of 18 years and of sound mind.
 Authority to contract: Authority to contract is the basic requirement to become an agent.
So a minor can also act as an agent, though he is not having the capacity, however, he can
have the authority to act as agent.

Difference between an Agent & Servant

 Authority to create contractual relationship: Apart from acting on behalf of his/her

principal, an agent has the authority to create contractual relations between the
principal and a third party. A servant ordinarily, has no such authority.

 Control and Supervision: A servant is bound to work under direct control and
supervision of his employer. A ‘principal’ directs the agent as to what is to be done,
but a master or employer of a servant not only has that right, but also the right to
direct how it is to be done.
 Number of Masters: A servant usually serves only one master, but an agent may work for
several principals at the same time.

 Remuneration: The mode of remuneration is usually different. Remuneration for a servant is

paid by way of salary or wages, whereas an agent generally gets his remuneration in terms
of commission calculated on the basis of the amount of business transacted.

 Duty Assignment: A servant in certain cases to some extent may be assigned the duties of
an agent, and may act as one. For example, the secretary of a company is regarded as the
servant of the company, but in respect of the matters that come under his/her domain
he/she becomes an agent in their dealings with third persons. An agent as such never
occupies the position of a servant because whenever he acts, he acts on behalf of his
principal and binds him/her (principal) to third parties.
  Liability: A principal is liable on contracts made by his agent within scope of authority. But a
master is answerable for any wrongful act of his servant if it is committed in the course of
the servant’s employment.

Difference Between Agency And Dealership

 In the law of agency, the relationship that matters the most between an agent and the
principal is the legal relationship. A person cannot become an agent of another merely
because he gives advice to the other. Any person acting on behalf of the other cannot be an
agent for another until there is an implied or explicit agreement between them, which leads to
a legal relationship between them. Also not all those who describe themselves as agents will,
in law, be considered as agents. The dealer of a particular make of cars, e.g. Mercedes, may
be called as an agent, but the dealer in law is not an agent for the manufacturer. This is
because, in practice, the dealer purchases vehicles from the manufactures and sell them on the
dealer’s own account.

 No privity of contract exists between the manufacturer and the buyer. This example
highlights the difference between agency and dealership. An agent markets his principal’s
products for a fixed commission, which can be determined according to the contracts. But, a
dealer buys the product of a company directly from its manufacturer on its own name. So,
rather than matching up the principal and the third party, the dealer acts as a principal and
buys or sells stock for the dealer’s own inventory. An agent acts as an intermediary and
receives a commission for its services. But, a dealer acts on behalf of the firm rather than
acting as an intermediary. As mentioned in the above car example, no contract exists between
the dealer and the manufacturer, thus, there is no legal relationship, which is the most
important thing in the law of agency.

Qui facit per alium facit per se

Qui facit per alium facit per se is a Latin legal term that means, “He who acts through another does the act
himself.” It is a fundamental legal maxim of the law of agency. It is a maxim often stated in discussing the
liability of employer for the act of employee in terms of vicarious liability.
According to this maxim, if in the nature of things, the master is obliged to perform the duties by employing
servants, he is responsible for their act in the same way that he is responsible for his own acts. The maxim is
a shortened form of the fuller 18th-century formulation: qui facit per alium, est perinde ac si facit per se
ipsum: “whoever acts through another acts as if he were doing it himself. “Indirectly, the principle is in
action or present in the duty that has been represented by the agent so the duty performed will be seen as the
performance of the agent himself. Whatever a principal can do for himself, can be done through an agent.
The exception to this maxim would be acts of personal nature.

Methods of Creation of Agency

 By Express Agreement ◦
 By Implied Agreement ◦
 By operation of law ◦
 By ratification
Express agreement
An agency by express authority arises when an express authority is given to the agent by spoken or written
words. For Ex: Thomas appoints Jacob to manage one of his business by executing a power of attorney in
Jacob: s favour. Here, the relationship of Principal and agent has been created between Thomas and Jacob
by an express authority.
Implied agency
Implied agency arises when there is any conduct, the situation of parties or is necessary for the case. The
meaning implied is when proposal or acceptance is made otherwise than in words, the promise is said to be
implied. It made only through gestures or actions. Section 187 of Indian Contract Act 1872 talks about
implied authority and says “an authority is said to be implied:

 When it is to be inferred from the circumstances of the case

 Things spoken or written

 The ordinary course of dealing, may be accounted circumstances of the case.”

For example, A owns a Tailor shop in Punjab and he lives in Himachal. The shop is managed by B in
absence of A. B order raw material for the shop from C in the name of A. Here, B has an implied authority
from A to purchase raw material from C.

Implied Agency by estoppel

The concept of agency by estoppel is given under section 237 of ICA[9] . It is the situation where a principal
by his act voluntarily placed an agent in such a situation that a person of ordinary prudence will presume
that such agent has authority to perform a particular and therefore deals with the agent, the principal is
estoppel against such third person from denying the agents work[10]. For example, A is the owner and he
took his servant B along with him for shopping and the shopkeeper will presume that B is acting on behalf
of A. Here, a person simply by his gestures or actions acts like another person, his agent and principal
cannot deny or revert himself from the fact which was represented as a fact earlier by him. Thus, the
relationship created between A and B is Implied agency by estoppel. In order to create such estoppel, the
duty to speak arises where “silence would create an erroneous impression which leads the prospective
represented to alter his position for the worse”[11]

Implied Agency by Necessity

The implied agency also arises in case of emergency and necessity. Under section 189, agent is empowered
to do acts that protects his principal from any type loss and section 188, gives authority to agent do anything
which is lawful and beneficial for his principal.
In Great Northern Railways Co. v. Swaffield[12], A (principal) sent a horse by railways to his agent B. B,
went for some other work and could not receive him. Thus, there was no one to receive horse on its arrival at
destination. Railway station master received him and was bound to take reasonable steps to keep the horse
alive, he was an agent of the necessity on behalf of A and A has the responsibility to pay amount spend by
railway company to keep horse alive.

Agency by Ratification Agency of ratification is discussed under section 169-200 of ICA. An agency
by ratification arises, where a person not having any authority act as agent, or act beyond its authority, then
the principal is not bound by the contract with the agent. But the principal can ratify the agent’s transaction
and accept his liability. Section 169 of ICA provides for Rights of the Person as to the acts done for him
without his authority. Agency by ratification is an ex post facto agency established after the completion of
the task required and after ratification, the contract becomes binding on principal as if the agent had been
authorized before and can be expressed or implied. For example, X, without Y’s authority, lends Y’s money
to Z. Afterwards Y accepts interest on the money from Z. Y’s conduct implies agency by ratification.
Rules governing agency by ratification

The following are the rules governing the agency by ratification.

 An act will be regarded as a ratification only if the principal had a free choice whether to do it or not.
 The agent must purport (intend to seem) to act as an agent. A principal can only ratify acts, which the
agent purported to do on his behalf. This rule follows that if the agent purports to act on his own
behalf the principal cannot ratify.
 The person ratifying must have contractual capacity. This implies that the principal must be
competent to contract not only at the time when the agent exceeded his authority, but also when he
ratified such act-of the agent.
 Ratification may be express or it may be implied in the conduct of the person on whose behalf the
acts are done. For instance, without A’s authority, his brother B, lent his house to C. Later on C pays
the rent for the house and A accepts the same. By this conduct B shall be deemed to have ratified the
act of A.
 The principal must exist when the act is done. Hence, a company cannot ratify per-incorporation
agreements.
 The principal at the time of ratification must have the full knowledge of the material facts.
 The principal must ratify the whole of the transaction. This implies that he cannot ratify at his sweet
will a part of the transaction and repudiate the rest. For example, A, without B’s authority, lends B’s
money to C on the term that C will repay the same in four equal yearly installments along with an
interest at the rate of 12 per cent to be calculated on yearly reducing balance. Afterwards B accepts
the first installment and it amounts to the ratification of the whole transaction.
 The act must be ratified in time. A contract cannot be ratified after the time fixed for its performance.
If no such time is fixed, it must be ratified within a reasonable period of time, from the principal’s
acquiring notice of the unauthorized act.
 Ratification cannot be made when it affects the rights and interest of a third party. For example, A,
not being authorized thereto by B, demands, on behalf of B, the delivery of a chattel which is the
property of B, from C who is in the possession of it. This demand cannot be ratified by B so as to
make C liable for his refusal to deliver.
 The ratification should relate back to the actual date of the formation of the contract between the
agent and the third party. In other words, it should have retrospective effect and not prospective. For
example, if A without being authorized thereto lends B’s money to C and afterwards B ratifies the
transaction. The contract will be deemed to have been ratified by B on the date on which A lent B’s
money to C.
 Although ratification is not confined to lawful acts, an act, which is simply void in law, cannot be
validated by ratification. In other words, only lawful acts can be ratified.

Different Types of agents

General agent
The principal appoints a general agent to do anything within his authority in all transactions or in all
transactions relating to a specific trade, business or matter. The principal grants the authority to the agent to
act on his behalf.
It may be assumed by the third party that such an agent has the authority to do all that is usual for a general
agent to do. Any private restrictions on the agent’s authority do not affect the third party.
Special Agent:
He is the one who is appointed or employed to do or perform only a specific act, task or function. Outside of
this special act, task or function, he has no authority or power. In this case, the third party cannot assume
that the agent has unlimited authority. Thus, any act of the agent outside his authority cannot bind the
principal.

Mercantile Agent:
As per section 2(9) of the Sale of goods act, 1930, a mercantile agent is a person who in the
customary course of business has an agent’s authority either to sell or consign the goods for
the purpose of sale or to buy goods or to raise money on the security of goods. Thus, this
definition covers the following:

 Factors:
A factor is a person who is appointed to sell goods which are put in his possession or to buy
goods for his principal. He is the evident owner of the goods in his custody and can thus sell
them in his own name and receive payment for them.
He also has an insurable interest in the goods in his custody and a general lien regarding any
claim that he may have to arise out of the agency.

 Brokers:
A broker is a person whose business is to make contracts with the other parties for the sale
and purchase of goods or securities for brokerage.
He does not have the possession of the goods and acts in the name of the principal. Also, he
has no lien over goods because he has no possession of goods.

 Del Credere Agent:

A del credere agent is a person who ensures or guarantees his principal that the creditors of
goods will pay for the goods they buy for extra remuneration. In the case of failure to pay by
the third party, he needs to pay the due amount to his principal.

 Auctioneers:
An auctioneer is a person who sells the goods by auction. An auction is a process by which
goods are sold to the highest bidder in a public competition. He cannot warrant his
principal’s title to the goods.
He is the agent of the seller until the goods are auctioned or knocked down. However, after
the knockdown, he becomes the agent of the buyer. Also, he is evidence that the sale took
place.

Co Agent
When the principal appoints two or more persons as agents to act as agent to act as such jointly or severally
Then such agents are known as co agents. They are required to concur in the exercise of their authority and
therefore they are jointly responsible even though a co agent is named by the agent under express and
implied authority from the principal to act for the principal ,such agent is not sub agent but he is the agent of
the principal.

Sub Agent
A sub agent is such an agent who performs or does his work under the control of the original agent .There is
therefore no contractual relation between him and the principal . The sub agent therefore cannot sue the
principal for default of payment of his remuneration.

Substituted Agent
   A Substituted agent is a person who is named by the Agent for performing such part of the business of the
agency as is entrusted to him. Substituted agents are not sub agents. They are agents of the principal. Where
the principal appoints an agent and if that agent identifies another person to carry out the acts ordered by
principal, than the second person is not to be treated as a sub agent but only as an agent of the original
principal.
For example, ‘A’ directs ‘B’ his solicitor to sell his property by auction and ‘B’ appoints ‘C’ an auctioneer.
In this regard, ‘C’ is an agent of ‘A’ and not a sub agent.
While selecting a “substituted agent” the agent is bound to exercise same amount of diligence as a man of
ordinary prudence and if he does so he will not be responsible for acts or negligence of the substituted agent.
For example ‘X’ consigns goods to ‘Y’ a merchant for sale. ‘Y’ in due course employs an auctioneer in
goods to sell goods of ‘X’ and also allows him to receive the proceeds of sale. The auctioneer becomes
insolvent afterwards without handing over the proceeds. Here ‘Y’ will not be responsible to ‘X’ as he has
discharged his duties as a man of ordinary prudence and diligence.

Exceptions, i.e. Agent personally as well as Joint & Severally Liable

The Agent is personally liable in the following cases –

 Foreign Principal [Sec.230] : Where the contract is made by an Agent for the sale or purchase of
goods for a merchant resident abroad.
 Undisclosed Principal [Sec.230]: Where the Agent does not disclose the name of his Principal.
 Principal cannot be sued [Sec.230]: Where the Principal, though disclosed, cannot be sued, e.g.
Principal becoming of unsound mind, subsequent to appointment of agent.

 Acting for a Principal not in existence: Where the Agent acts for a Principal who is not in existence
at the time of making contracts, he shall be personally held liable e.g. contracts entered into by
Promoters before incorporation of a Company are made in their personal capacity and hence
personally liable.
 Agency coupled with interest [Sec.202] : Where the Agent has an interest in the subject matter of
agency.
 Agent guilty of Fraud [Sec.238] : Where an Agent is guilty of fraud or misrepresentation in matters
that are outside the scope of his authority, he is personally liable, and do not affect his Principal.
 Agent exceeds authority & act not ratified: Where an Agent acts either without any authority or
exceeds his authority, he shall be held personally liable when the principal does not ratify his acts.
 Agent receives or pays money: Where an Agent receives or pays money by mistake or fraud to a
third party, he shall be personally liable to such third party. Also ha can personally sue the third party
if the fraud or mistake is accountable to such third party.
 Express Agreement for personal liability: Where an Agent expressly aggress to be personally bound.
 Execution of Contract in his own name: Where an Agent executes a contract in his own name,
without disclosing that he is acting as Agent for a Principal, he shall be personally liable, e.g. An
Agent signs a Negotiable Instrument without making it clear that he is signing it as an Agent only, he
 shall be held personally liable on the same. He would be personally liable as Maker of P/N, even
though he may be described as Agent.
 Trade custom or usage: Where trade usage or custom makes an Agent personally liable.
 Agent with special interest: An Agent with special interest or with a beneficial interest, e.g. a Factor
or Auctioneer, can sue and be sued personally. [Subramanya vs Narayana]
 Action against Agent or Principal [Sec 233] : Where the Agent is personally liable, a person dealing
with him may hold – (a) either him or (b) his Principal or (c) both of them liable. The liability of
Principal and Agent is “joint and several”.
 Exclusive liability [Sec. 234]
 Where a person has made a contract with an Agent and –
 Induces such Agent to act upon it in the belief that only his principal would be held liable,
 Induces the principal to act upon it in the belief that only his Agent would be held liable.
 Such Third person cannot later on, shift the liability on to –
 The Agent, or
 The principal, respectively.

BIBLIOGRAPHY
MANUPATRA
CASEMINE.COM
INDIAN KANOON.COM
N. H .JHABWALA