CHAPTER FOURTEEN

CONTRACT OF AGENCY

Introduction
The complexities of business have given rise to the development.
of the
concept of agency. A business owner relies on an employee or
anothe
person to conduct a business on his behalf. Agency is concerned w
with
principal-agent relationship and this relationship is fiduciary in nahu
and the agent's action bind the principal towards the third
parties, Suh
relationship may be expressed or implied. The law relating to the agenr
is contained in
Chapter X under Sections 182 to 238 of Indian Contraxt
Act, 1872.
Section 182 of the Indian Contract Act defines
"an agent as
employed to do any act for another or to represent another in person
with third persons. The dealings
person for whom such act is done, or who is so
represented is called the "principal.
The
relationship between the Agent and Principal is called
The law of
agency is based upon two basic "Agency
fundamentals:-
1) whatever a
person can do
an agent.
personally, he can get it done throug"
2 He who does an
act
the acts of the
through another, does it by himselt. it means

agent are considered to be the act of the pru

Meaning of agent: An 'agent' is a yactfor
another; or represent another person employed to ao
in
dealings with third parties.
Meaning of principal: actis
done by the
agent; or who is
'Principal' is thee person for whom
person for wn
with third parties. represented by the agent in respa Aeaio dealing

Test of
agency: Where a
relations between the person has the capacity to Create contractua

own acts, there principal anda third party; crea byhs

exists a arty; bind the principa
bind the
relationship of pr
agency.
a n t r a co
t f
Agency

sentials o f a s

ls of a Contract of Agency 171

The
c o n t r a c toof agency is aspecies of the
which are discussed below: general contract
eatures with some
hotoeen the special
1.
Agreement
Principal and Agent:
rises from an
agreement between the Agency relationship
The relationshipoof principal and the agent.
agency may be created
implied. either by express or or

Competency of Principal: To
constitute a valid
rincipal must be competent to contact. contract the
the Act, 'Any person who is of According
the age of
to Sec. 183
of
dho law to which he is majority
subject, and who is of soundaccording to
employ an agent". mind, may
3 No Competency of Agent: Sec 184 states that "As
principal and the third persons any person may becomebetween the
Thus the law does not devoid a minor from agent".
an

becoming agent.
Anv person may become an agent. Even a minor
an
or a
person of
unsound mind can become an agent.
Example: P, a principal gives M, a minor, a jewel worth Rs. 100
and instructs to sell it on credit not less than Rs. 500. M
sells the
jewel on credit for Rs. 400. P cannot make him liable while he is
bound by the sale.
Contractual Relationship: In contract of agency, the agent brings
his principal into contractual relationship with the third parties. In
other words, the agent is a connecting link between the principal
and the third
parties.
5.
Kequirement of consideration: No consideration is necessary
of agency without
eaang an agency. Thus, the contract
Consideration is valid.
6 the legal
c1On of Legal Relations: An agent establishes
The principal
Detween the principal and the third parties.
i swerable for the acts of the agent to the third parties.
1.
Intent Intention of the person to act
t h e Person to Act:
on
behalf of som in a contract of agency.
is very important
*meone
he becomes
Where a
person intends to
act on behalf of another,
 172 Business L
absence of contract. But if aa n e r e
t if
an agent even in the person pretend
is an agent, no agency
can arise, if he intende Pretend
thathe
own behalf and not on the behalf of the alleged principal.
act on his

8. Principal is liablefor the acts of agent: The principal is liat

nd within
all the acts of an agent which are lawful and for
within the
scope
of agent's authority. The contracts entered into by the
behalf of the principal have the same legal consequences agent 0n
as if
these contracts were made by the principal himself,

Creation of Agency
An agency may arise in any of the following ways:

1. Agency by Express Agreement.

2. Agency by Implied Agreement.
a. Agency by Estoppels.
b. Agency by Holding out.
C. Agency by Necessity.
3. Agency by Ratification.
4. Agency by Operation of Law.

Agency by Express Authority:

The authority of any agency may be
expressed in words spoken or writen
A person
may employ another person as his agent by entering into a
express agreement with him. The agreement may be either oral or write
According to Sec. 187 of the Act, "An authority is said to be expressxd
when it is
given by words spoken or written". A contract of agency ca nbe
written by means of
power of attorney. (Ireland vs. Living Stone 1o)
1S an
instrument, which authorises agent to represent his act
on his behalf. principa
For example, A appoints B (advocate) as his agent through
power ot
attorney to appear on his behalf in a agencyas

Bis civil suit. This is an express "b

appointed by written agreement.
By Implied Authority:
According to
Sec.18, "An inferred

from agency is said to be

implied when itis
circumstances of the
case; and , o
or
te

things spoken oO r
written,
 cto
A fgency
173
Comract
o f dealing, may be accounted circumstances of the case."
deali
of
course
gency ike implied contract is not the result of a contract but
a r d i n a r y

Thus
innplie
and conduct, circunmstances or relationship of parties
and
act
the
arises
om
Vs. Furnishing Fabrics Ltd. (1971).
Ltd.
Panorama
l o AA livin
living in Bombay, owns a shop in Madras and he
example,

For visits it. B is managing the shop and is in the habit of ordering
allyvisitsit.
casior
of A for the purpose of the shop and of paying
Cin the name
ds outof A'sfunds with A's knowledge. B has an implied authority
sfrom

goods

othem order goods

from Cin the name of A for the purpose of the shop.
to
A
comprises the following forms.
from

Agency
The Implied
The 'doctrine of Estoppels' states that where
Agency by Estoppels:
a statement or conduct willfully allows another to
a verson by his
behalf, the acts of such person will be binding upon
act on his
him. In such cases parties are under the presumption that
the third
to bind the principal. Subsequently,
such person has the authority
the principal cannot deny from such authority of the agent.
his words or conduct) to
If person makes a representation (by
a

a third person that a

certain person is his agent; and the third
to be true, enters into a
party believing such representation
contract with the pretended agent. Then - the person making the
He
representation is prevented from denying the truth of agency.
may be held liable as a principal by such third party.
For example, A tells B in the presence and within the hearing of P
that he (A) is P's agent and P does not contradict this statement. B,
on the faith of this statement, subsequently enters into a contract

with A, taking him to be P's agent. P is bound by that contract

b)
8ency By Holding Out:Such an agency comes into existence when
third persons
PSonby his affirmative or positive conduct leads
with
e v e that person doing some act on his behalf is doing of
the
Ority. There is a prior positive or affirmative act on part
theprincipal which establishes the agency relationship. Agency
by stoppels may be distinguished from agency by holding out.
In the form case, the principal is passive, keeps silent and
permits another person to represent him. But in the latter case, the
principal imself holds out to the third parties that somebody
is
 No
174

his agent. In such case,

an
assertion or
Business L
by the principal. For instance, where a representation
servant to pledge his credit for certain master usuall
esentation is required
acts of the servant for work, he is h nds his
similar purposes
consent. though done by the
witho
Trueman vs. Loder (1840): P
some time the services of A
employed A as an agent
this effect was
were
terminated. But no and after
given P to theby no
third parties. to
purchased some goods Subsequen
credit from T on
behalf of P.uently
on
wasliable to pay the Held,p
price of goods because he did not
about termination of services of inform7
A.
c) Agency By Necessity: In certain
urgent
compelled to act as an agent for another circumstances,
without
a
personi
his consent,
an
agency is called as Such
agency by necessity.
The following Conditions must be satisfied for
necessity: agency by

) There was an actual and definite

behalf of the
necessity for acting on
principal.
(i) The agent was not in a
position to communicate with the
principal.
(ii) The act was done for the purpose of protecting the interest
of his principal.
(iV) The agent has exercised such reasonable care as a man o
ordinary prudence would have exercised in his own case
(v) The act was done bonafide.
For example, A horse taken
wasby rail. The owner haa 1 t tofeed
sent
delivery of the same at the destination. So, the station master
1t.
na cessity
It was held that the station master had become an agent oy
and was therefore entitled to recover the charges incurrea Dy him.

Agency by Ratification:
of an act
Katification means subsequent
adoption and acceptan that

agreement. Section 196, of the Indian lays down

Contract Act layhout

u t withouths
where acts are
done by one person on behalf of anotnesy
 175
(mtractfAsency

disown such acts. If

may elect to ratify
or to
knowledgeo r a u t h o r i n he
uthority,
effects will follow as if they had been performed
h e
r a t i l i

s
e st h e
e
m
he same
ty. Thus ratification relates back to the date of the original
h i sauthority. T h u

as if he has expressly authorized it. If a

the principal
amtract

is
a n d b i n d s

binds
behalf of another person (viz, the
retended agent) acts
on
raet
e s o n( V 1 Z , p r e t e n d e d

the of
principal)t h e p r e t e n d e arotended agent
acts without knowledge or consent

and afterwards,
; and afterwards, the principal accepts such act. Then agency
the
principal;.
existence.
into
comes
the acts ratified by
ratificatio

b The principal is bound by

ofratification: his authority. Ratification
Efects
had
acts hac
acts
been performed by
i f such done and not from thee
as
date of the act when it was
the ctual
hin

back
relates
ratified.
act is
when the
date
(Sec 196-200):
Valid Ratification
Essemtials of can be by made
of facts: No valid ratification
Full knowledge
whose knowledge of the
facts of the case is materially
a person
the principal must have full knowledge
defective. In other words,
valid
Sec 198 of the Act, states that no
of all the material facts.
whose knowledge of the
ratification made can abe by person
facts of the case materially defective.
Sec. 199 of the Act provides
Whole transaction must be ratified:
of law. It must be
that partial acceptance is not valid in the eyes
done for whole transaction. In fact,
ratification of the part of a

transaction as a ratification of the whole transaction.

operates
he act must have been done on behalf of the identifiable
agent) on
Prncipal: The acts done by a person (i.e. pretendedcan only be
of another person (i.e. pretended principal)
r but
duned. Where the person does not want to act as agent,
an

6es the impression that he is acting on his own behalt, such

whom the person really

Cannot be adopted by another for
intended to act.
v) The principal must be in existence: The principal must be in
existence at the time when the act was done in his name for the

ratification of an act trospectively.

Theprincipal must havecontractual capacity: The principal must
have contra
actual at the time of entering into the
capacity both
 76

contract and
of minors act
at the time of
ratification. There can ha. Business Ln
on
attaining maturity.
(vi) Ratification of lawful acts:
Only those
ratified. Void, illegal, or ultra -vires acts which are
ratification
acts cannot lawíful
to be ratified must be
valid and lawful. be
ratified
There cannot be
canbe
of illegal acts or
agreements which are void om the nact
pe raraification
(vii) Acts within from the begini
beginni
principal's
for such acts which power: Ratification can
be mad.
the acts of the director principal had the power to do. For ade only
which exam
ultra-vires, the company. cantample,
ratified by the
company. anot be
(vii) Communication to the third
communicated to the third party soparty: Ratification must
as to bind
him.
(ix) Ratification must be made within
reasonable time:
must be made within
reasonable tinme of the Ratification
act
ratified. Where the purported to be
principal ratifies the
reasonable time, it will not be effective.
act after the expiry of

Agency by Operation of Law:

Agency by operation of law arises where the law treats one
of person as an
agent another. There are certain cases when
arises
of law. For instance, the law treats agency by operation
the
promoters as agents in case of Joint
Stock Company and
partners as agents in case of the partnership firm.
For example, A and B are the
partners of the partnership firm carrying
on the business of furniture
manufacturing. A purchased certain quanty
of wood for the business of the firm in the ordinary course of busines. D
is bound by the act of A and the firm is liable to make the payment for e
purchase made by A.

Rights of an Agent
The rights of agent are the duties of the principal. The agent is entited
exercise the following rights
against the principal: y sus
1. Right to Retain (Sec.217: The agent may retain, outotany
agency

received on account of the principal in the business ofe

ances made
i)all sums due to himself in respect of advances mais b u s i n e s

expenses properly incurred by him in conducting suc

C o m t r a c t
o f
A s e

ncy
n c y
177

also such
remuneration as may be payable to him for
and ii)
agent.
as an
acting
.4 to Receive Remuneration (Sec.219): The agent is entitled
Right
or in the absence of an
remuneration
agreed agreement, to a
to
reasonab le remuneration provided he has not consented to act
gratuitously. If
ratuitously. there is
If the no special contract, the agent is entitled to
eive remuneration only on the completion of an act for which
Lo Was appointed. However an act is deemed to be complete
when the agent has done whatever he was required to do under

the contract.

A employs B to recover Rs. 1000 from C. But because

For example,
the money is not recovered. B is entitled to
of B's misconduct,
no

remuneration for his services and must make good the loss.

Right of Lien (Sec 221):- If there is no contract to the contrary,

3.
an agent is entitled to retain goods, papers and other property,
whether movable or immovable of the principal received by him,
until the amount due to himself for commission, disbursement
and services in respect of the same has been paid or accounted for
to him.

4. Right to be indemnified against consequences of Lawful Acts

(Sec. 222): This Section confers upon an agent the right to be
indemnified against consequences of all lawful acts done by him
in exercise of the authority delegated to him.

According to Sec.224, the agent has no right to be indemnified for

the acts, which are known to him to be unlawful or criminal.

For example, B at Singapore under instructions from A of Calcutta,

contracts with C to deliver goods. A does not send the goods to B
and Csues B for breach of contract. B informs A of the suit and A

auhorizes him to defend the suit. B defends and is compelled to

pay damages. A is liable for such
damages.
to B
6.
to be
t lndemnified against consequences ofActs done in Good
( e c . 223): The agent is entitled to be indemnified against
uences of acts done in good faith, though it may cause an
injury to the right of the third person (Adamson vs. Jarvis (1827).
When an agent acts in the employer must indemnify
good faith,
 178 Business La
him for the consequence
of that act, though it causes:
causes an
the rights of third parties.
injury t
For example, B, at the request of A, sells goods in the p
of A, but which A had no right to dispose of. B does not possessio
this and hands over the sale proceeds to A. Afterwards Cthe
true
owner sues B and recovers the value of goods and costs, A .
indemnify B for what he has paid and for B's own expenses
must

Right ofcompensation (Sec. 205 and225): The agent is entitled th

6.
compensated by the principal in the following two circumstances
nces:
i) Where in the course of conducting business of agency, an
injury is caused to the agent by the principal's negligence
lack of skill (Sec. 225).
For example, employs B as bricklayer in building a house
himself. The scaffolding is
and puts up the scaffolding
B is in consequence hurt. A must
unskillfully put up, and
make compensation to B.
that agency
contract
Where there is an express or implied
i) of time and if there is
should be continued for any period
without sufficient cause
revocation of the agency
premature
(Sec. 205) seler
like unpaid
in transit: The agent
Right of Stoppageofgoods to
of goods in transit subject
c a n exercise
the right of stoppage
following conditions:
a

with his own money or by incurring

i) He has bought goods
for the price.
personal liability
transit to the principal
i) The goods are in
insolvent.
ii) The principal has become

Duties of an Agent
The various duu
the rights of the principal.
u s s e d

The duties of the agent

are
down under the
Act are discu
towardsthe principal as laid
an agent
below: directions
or
CH
according to Principal's
to Act
1. Duty
Section 211 of the Act provides:

to
anfract of Agency

i) To conduct the
he
given by the business in
ii)
principal
In the absence
accordance with the 179

trade custom. structions, he must act directionions

When the
agent acts according to the
mustmake it good to otherwise,
his
if
any loss be
he must account
for it principal, sustained, he
[Lilley vs. and if any profit
Duty to Conduct the
2
The agent must business with SkillDoubleday (1881)] accrues,
accrues,
conduct the and
of skill as
generally business of
agency
Diligence ( Sec
212):
husiness, unless the possessed by persons with same degree
He must
conduct theprincipal has notice
business of of
engaged in similar
his
is
generally deficiency of skill
possessed by persons agency with much skill as
nless the
principal has notice of hisengaged in similar as
A having
authority to sell on credit, lack of skill. For business,
example,
enquiring about his solvency, B at sells
the time ofgoods B without
to
must make
good the loss. sale, is
bankrupt. A
3. Duty to Render
Proper Accounts
proper accounts to his (Sec. 213): The agent is bound
to render

proper account does not principal on demand.

should onlyRendering
mean that he
accounts with relevant
4 vouchers but should also produce
Duty to communicate with explain them.
214): This Section principal in case of
of provides that it is the duty of anDifficultyin (Sec.
difficulty, to use
all reasonable agent, cases
With his
principal and in diligence in
communicating
Where,
seeking to obtain his instructions.
in
extraordinary situation, the principal
Contacted, an agent must become cannot be
act an
agent of necessity and must
honestly for the
protection of interest of his
189). principal (Sec.
5.
Duty not to deal on his own account
not deal (Sec. 215): The agent must
on his own account unless all
disclosed to the principal and consenttheofmaterial facts have been
the principal has been
obtained. If the agent, without the
deal
eals in the of the
knowledge principal,
has the business of gency on his own account, the principal
following rights:
180

(a) He may repudiate the transaction, if

conceals any material facts or the
the Bus iness
agent dishomes l
to be disadvantageous to him. dealings of
of th
the
(b) He may claim from the
agent pro
agent the agency
the agreed remuneration. busine
ther tha
For example, A directs B, to sell
A's estate. But
himself in the name of C. A, on
estate for
discovering that purchas
himself, may repudiate the sale, if
Bhahas t
has
he
dishonestly concealed any material facts or can prove sughtte
been disadvantages to him. that thane sale ha
Armstrong vs. Jackson (1917): A employed P, a
some shares for him. P did not buy the shares broker
stock
in the
but sold him (A) the shares, which were open nma
owned by himselí. Hela
A was entitled to rescind the contract.
6. Duty not to make Secret
Profit (Sec. 21): There
is fiducian
relationshipbetween the principal and the
agent. Therefore, i
an agent without the
knowledge of his principal, deals in te
business of agency on his own account instead of
an account
of his principal, the principal is
entitled to claim from the
agent
benefit which may have resulted to him from the
transactions
For example, A directs B, his
agent to buy a certain house for him.
B tells A it cannot be bought; and buys the house for himself. A
may, on discovering that B has bought the house compel him b
sell it to A at the
price he gave for it.
1.
7. Duty to pay sums received for the principal (Sec. 218): The agent8
bound to pay to his principal all sums received on his account S
217of the Act laydown that the agent is entitled to deductthere nu
all moneys due to himself in
respect of advances made or expe o such
properly incurred by hinm in conducting such business andas
remuneration as may be payable to him for acting as agent
to Sec190
8. Duty not to Delegate Authority (Sec. 190): According d
perform acts whidh
an agent cannot lawfully employ another to pertorm
he has expressly or impliedly undertaken to perform persor
his au
In other words, an
agent cannot further delegate so, where
do
without the consent of his principal. But he can
a n do
ContractofAgency

181
the very nature of the business or custom of
delegation of authority. trade
requires the

9. Duty protect and preserve tlhe interest

deatlh or insanity (Sec. 209): When an of the principal on his
doath of principal or his agency is terminated on the
becoming
of unsound mind, the
o hound to take, on behalf of his agent
(late) principal, all reasonable
steps for the protection and
preservation of the interest entrusted
to him.

Conditions Under Which the Agent is Personally Liable

Accarding to Sec. 230, in the absence of contract
to
contrary, an
Agent
cannot

(a) Personally enforce contracts entered into by him, on behalf of his

Principal,
(b) Be held personally liable for them.
This is because the Agent merely acts on behalf of his Principal. Thus,
he enjoys immunity from being personally sued. Sec. 230, is subject to
certain exceptions. It may be noted that where the agent is personally
liable, the third party may sue either the agent or the principal or both of
them.
The Agent is personally liable in the following cases, in absence ot

contract to the contrary:

1. foreign Principal [Sec.230]: Where the contract is made by an

merchant resident
Agent for the sale or purchase of goods for a

abroad.
the Agent does not
2. Undisclosed Principal Sec.2301: Where
disclose the name of his Principal.
Where the Principal,
though
3. be sued [Sec.230:
ncipal cannot
of unsound
dis cannot be sued, e.g.
Principal becoming

und, subsequent to appointment

of agent
acts ror
existence: Where the Agent
a P r i n c ifor
Acting p a l awPrincipal not
h o is n o t in in
existence a t t h e time of m a
entered
k i n gcontracts,
into by

contracts
entered into by
he shall be personally held liable, eg.
n
are
a re
in their
made in
made their
of a Company
noters before incorporation are
personally
liable.

personal capacity and hence they

 interest in the subject matter of agency. thas an
6. Agent guilty of Fraud[Sec.238]: Where an Agentis guilty of
of fra
fraud
or misrepresentation in matters that are
outside the scope of
re outside the

affect his Principal.kis

authority, he is personally liable, and do not affect his Pin
7. Agent exceeds authority and the act is not ratified:
Agent acts either without any authority or exceeds Where am
his authoc
authorit,
he shall be held
personally liable when the principal
does
ratify his acts.
8. Agent receives or pays money: Where an
Agent receives or pays
money by mistake or fraud to a third
liable to such third
party, he shall be personallv
party. Also he can personally sue the
party if the fraud or mistake is accountable to such third
third party.
9. Express Agreement for personal
liability: Where an
Agent
expressly agrees to be personally bound.
10. Execution of Contract in his own
name: Where an
agent executes
a contract in his own name,without disclosing that he is
agent for actingg as
principal,
a
he shall be
personally liable, e.g. an agent
signs Negotiable Instrument
a
without making it clear that he is
signing it as an agent only, he shall
be held
the same. He
would be personally liable on
note. personally liable as Maker of promissory
11. Trade custom or
usage: Where
trade usage or custom
Agent personally liable. makesan
custom man
12.
Agent with special
with a beneficial interest: An Agent with erest or

be sued interest, e.g. a Factor or special inte Sueand

13. personally. [Subramanya vs Auctioneer, can

Action against Agent or Narayanal
personally liable, Principal [Sec 233:: Where
a Where the Agenti
him or (b) his person dealing with him ithe
either
Principal or (c) both of them may
1ay hold
hola - (a)
Principal and Agent hem liable.
liable. The
The
N ityof

14.
Exclusive liability is "joint and several". liabu
[Sec. 234
N

(outracto/Agenc. 183
ncy

mad
ea contract with an Such Third person cannot later on,
p e r s o n
has
shift the liability on to -
a
Where
A g e n ta" n d -

to a
to
act upon it in the | i) The Agent", or
c t up
Agent
such would be held
principal
Induces his
/ h e l i e tt h a t
only
l h a b l e ,o r

with a Principalt* and

The principal**, respectively.
it in the belief| ii)
contract

Has
made
a al to act upon
i) be held liable.
Induces
wouldi
that
o,

at only
his Agent
of an Agent
of A u t h o r i t y
Extent

ot an agent to bind the principal. The

the
Authority nmeans th capacity
rity means bind the principal by his acts may be of the
authority of an agent to

tollowing types:
or
authority delegated by the
Real Authority: t is the
Actual
1. either by way of writing or implied (Sec.
to his agent
principal all his acts performed
c a n bind the principal by
186). An agent
within the scope of
his express o r implied authority.
an authority to
do a n
According to Section 188, a n agent having
in
act has authority thing which is necessary
to do every lawful
on
an authority to carry
order to do such act. An agent having
for
lawful thing necessary
a business has authority to do every
done in the course, of conducting such
the purpose, or usually
business.
in London, to
For example, (i) A is employed by B, residing
debt due to B. A may adopt any
legal process
recover at Bombay a a
of recovering the debt, and may give
ECessary for the purpose to
A appoints B as his agent carry
valid
discharge for the s a m e . (ii) timber and
B may purchase
Dusiness of a ship-builder.
s for the purpose
ot caryug
uer
materials, and hire workmen,
on the business.
acts or
person by his
Authority: When
a
has
d 0e o r Apparent believe that
a n agent

statement willfully leads third party

to
acts
the faith on

uthority to act on his behalf and the third party

of the stateme known as
ostensible

agent is
Such authority of a n
nent.
or Pparent authority Fenwick (1893).
vs. (Watteau and
estate agent
B as an

instrutUKIngton (1959): A employed B did so and

property.
Sructed him to find a purchaser for
 stNe

184

accepted from the

prospective purchaser a Business Ln
the owner. Held,
although B was not given deposit as
deposit, had acted within the scope of
he
this authority agent ot
to accept
ostensi
3
and A was bound
by such authority. stensible authority
cce
Agent's authority in an enmergency (Sec
authority, in an emergency, to do all such acts 189): An
the n
gen
purposhasof
protecting his principal from loss as would be for the
ordinary prudence, in his own case, under done by a
For similar circmperson
example, (a) An agent for sale
may repair
necessary. (b) A consigns goods if it is
directions to send them provisions to B at Kolkata
sell the immediately to C, at Cuttack, Bnwith
provisions Kolkata, if
at
they
will not bear the jourmeumay
Cuttack without spoiling.
2y to
Delegation of Authority (Sec.190)
The general rule is that
which he has agent an cannot
lawfully employ another to ac
expressly or
impliedly undertakern to
This Section is based
upon the general principle "A
perform personally
further delegate". However delegate cannot
there are certain
following cases an agent can delegate his exceptions this rule. In
to the
appoint sub-agent and make the
a authority to another or he can
principal liable:
Exceptions
(a) Custom of
Trade:-There is
where the custom of trade
a custom or usage of trade to that effeu
permits the appointment sub-ag
of
(b) Conduct of the Parties: Where
be power of the agent to delega
inferred from the
conduct of the both the
agent. principal and the
(C)Implied Consent of Principal:-When the principal is ware o
intention of the
to it.
agent to appoint sub-agent and he does nottobject
(a)
Express Consent
of a ofPrincipal:Whenprinciple
sub-agent, and has expressly permitsa of.
authority. permitted delegati
the
(e) Nature of sub
Agency: 1f the nature of the
agent is necessary. s such
iis
agency su
that the
C o n t r a c to f A g e n c y 185

iuisterial Acts: Where the act to be done is purely ministerial

confidence or use of discretion.
not involving
TTeeforcseen Emergencics: Where delegation of authority has
ecome necessary due to unforeseen emergerncies, rendering

appointment of
a sub-agent necessary.

Relationship
Between the Principal and Sub-Agent and
Legal
192 and 193).
Agent (Sec.190,
According to Sec. 191 "A sub- agent is
person employed
a
Sub Agent:
the control of the original agent in the business of
acting under
by and of thesub-agent to the principal depends upon
The relationship
agency
is properly o r improperly appointed.
whether the sub-agent

1) If sub-agent is properly aPpointment:

An agent is said to be properly appointed when the appointment

exceptional mentioned under the

is made under any of the
cases

following manner:

Principal is bound to the third parties for the acts of sub-agent.

(a)
(b) The agent is responsible to the principal for the acts of sub-
agent.
to the agent for the acts done
The sub-agent is responsible
by him.
in
(d) The sub-agent is not responsible to the principal, except
case of fraud or willful wrong.

4 2) f sub -

agent is not properly appointed:

when the appointment
Anagentis said to be improperly appointed to
1s made without any authority or justification. According
cases are a follows:
ecion 193, the consequences in such
the acts of sub
(a) Principal
a) is not bound to the third parties for
agent.
to the principal and
third parties tor
n e agent is responsible
the acts of sub -

agent. done
for the acts
(c) ne sub -

agent is responsible to the agent

by him.
(d) The sub-agent is not responsible to the principal.
 dn agent
of the principal for such part of the business of the agency as
entrnt
him" (Sec. 194). usted to
Thus a substituted agent is the agent of the principal but
principal
agent. The person so appointed is in the nature of a substitute
not of
not.
the
substitute for the
original agent. The contract arises between the principal and the suhskt
and the substituted agent becomes responsible to the principal substitute
for tho
e due
discharge of the duties as if he is
appointed by the principal himself. Ha
directly responsible to the principal and privity of contract is
established
between him and the principal. According to Section 195, in the
selection
of substitute agent for his principal, an agent is bound to exercise
the samene
amount of discretion as a man of ordinary prudence would exercise in his
own and if he does so, he
case; is responsible to the principal for acts
or
negligence of the substituted agents so selected.
For example, A directs B, his solicitor to sell his estate by auction and
to employ an auctioneer for the purpose. B names C, an auctioneer, to
conduct the sale. C is not a sub-agent, but is A's agent for theconductof
the sale.

Liability of Principal to Third Parties for the Acts of Agent (Sec.

226 to 228)
The principal is liable for all the acts of an agent which are lawful and

within the scope of agent's authority. The contracts entered into by the
as if
"
agent on behalf of the
principal have the same legal consequences as
these contracts were made by the principal himself. The liability or the
ISsed

principal for the acts of the agent to the third parties may be discus
under the following three
headings:
1. Liability of the Named Principal.
2 Liability of the unnamed principal.
3 Liability of the undisclosed or concealed principal.
dealing

1. Liability of the Named Principal: Where an agent while entity

with the third parties disclosed the

existence as well as u
 187
( o n t r a c t
o A g e n c y

principal,
the principal is said to be named. The liability of
is as under:
of is explained
ctuch
principal
agent acts within the scope of his actual and
where an
(a)
apparent
authority (Sec 188 and 226): This Section lays
is ound for all acts of the agent
that the principal
down
of his actual and apparent authority.
done within the scope
acts of the agent,
is also bound for all such
The principal from the loss
tor protecting the principal
which is required
in a n e m e r g e n c y
(Sec 189).
acts in excess of 1is actual and apparent
Where an agent
(b)
authority:
of agent's authority is separablefrom
the
Where the excess
i) In this case, only those acts
authorised portion (Sec. 227):
is binding between him and
which is within his authority
is personally held liable for the act
the principal .The agent
which is beyond his authority.
is not separablefrom
ii) Where the excess of agent's authority
the authorised portion (Sec. 228): In this case, the principal
is not liable for the transactions. In such a case the principal
whole transaction and the agent shall
be
may repudiate the
held personally liable for the same.
For example, A, authorises B to buy 500 sheep for him. But, B buys 500
the whole
a n d 200 lambs for one s u m of Rs. 6,000. A may repudiate
transaction and B shall be held liable to pay Rs 6,000.
or
(c) Liability of the principal for the misrepresentation
liable for
jraud of the agent (Sec. 238): The principal is
the misrepresentation or fraud committed by his agent

within the scope of agent's actual

or
provided they are
within the
aPparent authority and must have been done
COurse of agency business. It may be noted that such

to
Srepresentation or fraud committed is considered
it is immaterial
C Deen committed by the principal and
or traud
the agent has committed misrepresentation
her
for his personal benefit or for the benefit of the principal.
However the principal is not liable for misrepresentatic or
188

fraud committed which do not fall

Business Law
within the
authority. scope of his
For example, A, being B's agent for the
sale of goods ind
Cto buy them by a
misrepresentation, which he
authorised by B to make. The contract between B and not
voidable at the option of C. Cis
For example, A, the captain ofB's ship, signs bills of
without having received on board the ladin
ading
goods mentioned
ned
therein. The bills of landing are void as between
B and th
pretended consignor.
(d) Principal is bound by the notice to the
agent (Sec. 229: The
principal is bound by the notice given to or information
obtained by the agent in the course of business of agency.
Knowledge of the agent is deemed to be the knowledge
of the principal provided it was obtained for the course of
business transacted by him for the principal.
For example, A employs B to buy certain goods from C
for which C is the apparent authority. B buys the goods
accordingly. In the course of the treaty for the sale B learns
that the goods actually belonged to D, but A is not aware
of that fact. A is not entitled to set-off a debt owing to him
from C against the price of the goods. Here knowledge of
the agent is deemed to be the knowledge of the principal as

it was obtained during the course of agency

e) Liability of the Principal inducing belief that the agent
unauthorized acts were authorised (Sec. 237): The lhaoiuy
The
under this Section is based on the principle of estoppels.
principal is bound by the unauthorised acts of the agel
the principal by his conduct has induced such third pary
believe that the agent has the authority to do those acts
him
For example, A consigns goods to B for sale
sale and gives
and 8v w a r e

instructions not to sell under a fixed price. C, beng

of A's B to buy
instructions, enters into a contract with d b y

goods at a price lower than the reserved price. A is Do

the contract.
 189
ContractofAgency

af Unamed Principal: Where an agent expressly

Liab.

contracts
disclosing the existence of his principal, but does not
his identity,
said to be unnamed. On being
the principalis
disclose
and obligations of the unnamed principal
cOvered, the right
scovered,

a s if the principal was named. The agent becomes

a r e
the same
liable where there is a trade custom to that effect and
rsonallyliable
nersonally
where the agent declines
to disclose the identity of the principal.
or Concealed Principal: Where neither
Liability for Undisclosed the
the existence nor the identity of the principal is disclosed,
undisclosed principal. In such a case, the
nrincipal is said to be
to the third party that he is contracting in
agent gives impressions
an independent capacity
although he has the authority in fact and
behalf of his principal.
in contracting o n
agent makes contract witha
i) Position of Agent: Where an a

person who
neither knows, nor has reason to suspect that he
liable to the third
is agent, the agent becomes personally
an

remains undisclosed, he
party. If the undisclosed principal
the contract and has the right to sue the
may be sued on

third party. As between the principal and agent, the agent

has every right of an agent against the principal.
Position of Undisclosed Principal [Sec 231(Para ) and
i)
232]: The principal has the right to intervene and enforce
the performance of the contract against the third party.
But he cannot exercise this right to the prejudice of the
third party with whom the agent has contracted in his own
name. According to the Sec. 232, if the principal requires the
performance of the contract, he can obtain such performance
Subject to the and obligations substituting between
rights
the agent and the third party to the contract.
ii) Position of the third
parties:
If an agent makes a contract with a person who neither knows, nor has
any reason to suspect, that he is an agent, his principal may require the
theperformane
the
of the contract, but the other contracting party has, as against
princip
had bee the same
rights as he would have against the agent if the agent
C principal. According t o Sec. 231, if the principal discloses
 190

himself before the completion of the contract, the other

Business Lano
ner ccontracting parky
may refuse to
show that he.
fulfill the contract, if he can show he
wouldn
entered into the contract, if he
the principal.
had known who the
principal not have
was or
the
agent w a s not
According to Sec. 232, the third partyisentitled to claim a righto
setol
against the agent. If the principal requires the performance of theof
he can obtain such pertormance subject to the rights and oh. ontract,
subsisting between the agent and the third parties to the contract. obligation
According to the Sec. 233, where the undisclosed principal
disclosed before the third party obtains any judgment against the s gets
he may sue either the principal or the agent or both. gent,

Termination of Contract of Agency

I) By the acts of parties:

(A) By Mutual Agreement: The principal and the agent may mutually
at anytime.
agree to terminate the agency
(B) By revocation

1. When the agency is coupled with interest, the principal

cannot revoke the agency to the prejudice of such interest

2. The principal can revoke the authority at any time before

the authority has been exercised so as to bind the principal.
3. The principal cannot revoke the authority given to his agent
3.
after the authority has beenpartly exercised.
make
4. When agency is for fixed period, the principal must
o0
revocation
Compensation to the agent for premature
agency without sufficient cause.
Kevocation may be expressed or implied from the condu
.
of the principal.

(C) By the agent is renunciation of the business of agency

duct

1. Kenunciation may be expressed or implied from the con

of the agent.
nake

st
2 When agency is for fixed period, the agent unciation

compensation to the principal for prenm a t u r e renun

of agency without sufficient cause.
 191
Contract ofAgeucy

of Law:
Operation

I By
terminates
an agency relationship in the following ways:

Completion of
business of agency (Sec. 201).
1.
ot the principal or agent (Sec. 209).
Death or insanity
2 the agent, being a company is dissolved.
Where the principal or
.
matter of agency.
Destruction of subject
insolvent (Sec. 201).
.
Principal becoming
where agency is for a fixed period.
6. Expiration of period
On the destruction
of the subject-matter.
.
alien
principal o r agent becoming
an
enemy.
8. On the

9. On termination of sub-agent's authority (Sec. 210).

far as the agentis concerned, the moment,
The termination takes effect so
as regards to third persons, the
moment
it becomes known to him and
it becomes known to them. So, if an knowing the termination of
agent
who are not a w a r e of the termination,
agency, contracts with third persons
contract binds the
he becomes liable to the principal for damages while the
principal and third persons.

An Agency Cannot be Terminated in the Following Cases:

(a) coupled with interest. For example, A,

When the agency is one,
out of the
gives B to sell A's land and to pay himself,
authority to
cannot revoke this
proceeds, the debts due to him (B) from A. A
or death.
duthority nor can it be terminated by his insanity

(b) When the agent has incurred personal liability and

() when the authority has been partly exercised by the agent.

Review Questions
1.
eine the term agent andprincipal. Discuss the principles upon
which the law of
agency is based upon.
2. ot a
What contract of agency? What are the essential features
Contract of agency?
3. Wh the meaning of agency? Explain the various modes of

creation of agency. (Delhi University, 2010)

192
Business Law
What is agency by ratification? State the
4.
requisites of
ratification. (Delhi University, 2001, 2004, 2006) valid
State briefly the duties of an agent towards his
his rights against the principal?
principal. Whatare
6 When is an agency irrevocable? State the
circumstances in l
the principal remain liable for agene's acts done even hich
even after
revocation of agene's
authority.
1. What do you mean by an "Agency coupled with
Interest". Wher
it can be revoked?

8. What do you mean by agency by

estoppels? In what way it is
different from agency by holding out?
9 What are the conditions which enable a
person to act as an
agent
of necessity? (Delhi University, 2007)
10. Discuss briefly the duties and
rights of an agent against the
principal as providedin the Indian Contract Act. (Delhi University,
2006)
11. Define the term sub-agent. When he can be appointed? State the
position of sub-agent in relation to the original agent, principal
and third party. (Delhi
University, 2001, 2007)
12. What do you mean by Agent's authority? What is the difference
between actual and ostensible authority? State the scope anu
extent of agene's
authority.
13. "Ratification tantamounts to prior authority". Comment anu
explain the essentials of a valid ratification.
14. What do you mean by termination of agency? Discuss brietly uhe
different modes in which the agency can be terminated. When
does the termination take effect?
(Delhi University, 2009