AGENCY

• Sec 182- ‘Agent’ and ‘principal’ defined: An ‘agent’ is a person employed

to do any act for another, or to represent another in dealings with third
person. The person for whom such act is done, or who is so represented, is
called the ‘principal’.
• Sec 183- Who may employ agent—Any person who is of the age of
majority according to the law to which he is subject, and who is of sound
mind, may employ an agent.
• Act of agent binds the principal.
• Who may be an Agent? - Section 184 lays down in this regard that "as
between the principal and third persons any person may become an
agent." Thus even a minor or a person of unsound mind can be appointed
as agent. It is so because the act of the agent is the act of the principal and
therefore the principal is liable to third parties for the acts of a minor
agent. Of course, in appointing a minor or a person of unsound mind as an
agent, the principal runs a great risk because he cannot hold such an
agent liable for his misconduct or negligence.
• “No consideration is necessary to create an agency" (Sec. 185). The
fact that the principal has agreed to be represented by the agent is
a sufficient 'detriment' to the principal to support the contract of
agency, i.e., to support the promise by the agent to act in that
capacity. It is to be noted, however, that a gratuitous agent is not
bound to do the work entrusted to him by his principal. But once he
begins the work, he is bound to complete it. Usually an agent is paid
remuneration for his services.
• Sec 186- The agent may be expressly or impliedly authorized to do an
act on behalf of the principal.
• Contracts entered into through an agent, and obligation arising from
the acts done by the agent, may be enforced in the same manner, and
will have the same legal consequence, as if the contract had been
entered into and the acts done by the principal in person.
• Agent is the connecting link between principal and third party.
• The contract which creates the relationship of 'principal' and 'agent'
is called an 'agency'. Thus where A appoints to buy ten bags of sugar
on his behalf, A is the 'principal,' B is the 'agent' and the contract
between the two is 'agency.’
• If, in pursuance of the contract of agency, the 'agent' purchases the
bags of sugar from C, a wholesale dealer in sugar, on credit, then in
the eye of law the 'principal' and the wholesale dealer are brought
into direct contractual relations and the contract of purchase is
enforceable both by and against the 'principal.'
General Rules of Agency
• There are two important general rules regarding agency, viz.
• 1. Whatever a person competent to contract may do by himself, he
may do through an agent, except for acts involving personal skill
and qualifications. In fact, where the work to be done is obviously
personal, no agent can be employed. For example, a person cannot
marry through an agent, cannot paint a picture through an agent,
and so on.
• 2. "He who does through another, does by himself." In other words,
'the acts of the agent are, for all legal purposes, the acts of the
principal." Section 226 provides to the same effect: "Contracts
entered into through anagent, and obligations arising from acts
done by an agent, may be enforced in the same manner, and will
have the same legal consequences, as if the contracts had been
entered into and the acts done by the principal in person."
• ILLUSTRATIONS (appended to Sec. 226).
• (a) A buys goods from B, knowing that he is an agent for their sale,
but not knowing who is the principal. B's principal is the person
entitled to claim from A the price of the goods and A cannot, in a
suit by the principal, set off against that claim a debt due to himself
from B.
• (b) A being B's agent, with authority to receive money on his behalf,
receives from C a sum of money due to B. C is discharged of his
obligation to pay the sum in question to B.
• Use of the word “agent” for a person is not conclusive proof of the fact that there
is agency in law between the parties. The court must examine the true nature of
the agreement and the subsequent dealings between the parties and then decide
whether it established a relationship of agency under the law.
• It is common experience that the word ‘agent’ is frequently used to describe a
relationship which is not an agency in law.
• Loon Karan v. John and Co.- that it was well settled that for the purpose of
determining the legal nature of the relationship between the alleged principal and
agent, the use of or omission of the word “agent” was not conclusive.
• Chairman, LIC v. Rajiv Kumar Bhaskar
• Delhi Electric Supply Undertaking (DESU) v. Basanti Devi
Chairman L.I.C v Rajiv Kumar Bhaskar
• In this case, as per the salary saving scheme of L.I.C, the employer was
supposed to deduct the premium from the employee’s salary and deposit
it with L.I.C. Upon the death of the employee, it was found by his heirs
that the employer has defaulted in doing so, causing the policy to lapse. A
clause in the acceptance letter was referred to, in which the employer
had said that he would act as the agent of the employee and not as that
of L.I.C. It was held that the employer was acting as the agent of the
company, thereby making the company (L.I.C) responsible as a Principal
due to the fault of the Agent (the employer).
• The Court said that it was well settled that for the purpose of determining
the legal nature of the relationship between the alleged principal and
agent, the use of or omission of the word agent was not conclusive.
Delhi Electric Supply Undertaking (DESU) v.
Basanti Devi
• Formation of the law of Contract of insurance is between L.I.C and
the employee of DESU Scheme has been introduced by the LIC
purely on business consideration and not for any particular benefit
of insurance conferred on the employee working in an organization.
under Salary Saving Scheme adopted by LIC of India, the employer
(DESU) was authorized by LIC to collect premium amount from the
salary of an employee and forward it to LIC. Thus DESU became an
agent of LIC for that purpose. Thus, on failure of DESU to collect
premium whereby the policy was about to lapse on the death of the
employee, LIC was held liable to make payment under the policy.
Test of Agency

• Agency exists 'whenever a person has the authority to act on behalf of

the other and to create contractual relations between that other and
third persons.' When this kind of power is not enjoyed, the relationship is
not one of agency. Thus a person is not an agent merely because he gives
another advice in matters of business (Mahesh Chandra vs Radha
Kishore¹). (1908)
• Similarly, a person rendering personal service to his master or working in
his factory cannot be called an agent because in these cases he not acting
for another in dealings with third persons. It is only when one acts as a
representative of the other in business dealings so as to create
contractual relations between that other and third persons, that he is an
agent and there is an agency (Krishna vs Ganapathi²).(1955)
 Different Kinds of Agent
1. Auctioneers:
An agent who acts as a seller for the Principal in an auction. Authority
vested in him is to sell the goods only and not to give warranties on
behalf of the seller unless he is expressly authorized in that behalf.
2. Factors:
He is a mercantile agent who is entrusted with the possession of the
goods for the purpose of sale. He also has the power to sell the goods
on credit and to receive the price from the buyer. Right of general lien.
3. Brokers:
He is an agent who has an authority to negotiate the sale/ purchase of
goods on behalf of his principal, with a third person. Unlike a factor, he
himself has no possession of the goods. He merely makes the two
parties to enter into a contract. He gets his commission whenever any
transaction materializes through his efforts.
4. De Credere Agent:
Generally the function of an agent is over after a contract is established
between his principal and a third person. A del credere agent
constitute an exception to this rule. He is one who in consideration of
an extra commission guarantee his Principal that the third person with
whom he enters into contracts on behalf of the principal shall perform
their financial obligations that is, if the buyer does not pay, he will pay.
Thus he occupies the position of a surety it as well as an Agent.
• 5. Commission agent. A commission agent is a mercantile agent who buys or
sells goods for his principal on the best possible terms in his own name and who
receives commission for his labours. He may have possession of goods or not.
• 6. Pakka Adatia and Katcha Adatia:
• These are a species of agents, and their transactions are known in the Bombay
market as katchi adat and pakki adat. When an up country constituent wants to
enter into any transaction in the Bombay market, he either deals through a Pakka
Adatia or a katcha Adatia
Point of view of the extent of authority-
1. Special Agent:
A Special Agent is one who is employed to do some particular act or represent his Principal in some particular transactions. A
special agent is one who is employed to do some particular act or represent his principal in some particular transaction, e.g.,
an agent employed to sell a motor car. As soon as the act is performed, the authority of such an agent comes to an end. If a
special agent does any thing outside his authority, the principal is not bound by it, and third parties are not entitled to assume
that the agent has unlimited powers. They should, therefore, make proper enquiry as to the extent of his authority before
entering into any contract with him.
For example, An agent employed to sell a Bike. If the special agent does anything outside his authority, the principal is not
bound by it and third parties are not entitled to assume that the agent has unlimited powers.
2. General Agent:
A general agent is one who is employed to do all acts connecte with a particular business or employment, e.g., a manager of a
firm. He can bind the principal by doing any thing which falls within the ordinary scope of that business, whether he is actually
authorised for any particular act or not, is immaterial, provided the third party acts bona fide. Third parties may assume that
such an agent has power to do all that which is usual for a general agent to do in the business concerned.
3. Universal agent. A universal agent is said to be one whose authority
is (unlimited, i.e., who is authorised to do all the acts which the
principal can lawfully do and can delegate. He enjoys extensive
powers to transact every kind of business on behalf of his principal.
 Features of a Contract of Agency
• The principal should be competent to contract- Sec 183
Sec 183: Who may employ agent—Any person who is of the age of majority
according to the law to which he is subject, and who is of sound mind, may
employ an agent.
• The agent may not be competent to contract- Sec 184
Sec 184: Who may be an agent—
As between the principal and third person any person may become an agent,
but no person who is not of the age of majority and of sound mind can
become an agent, so as to be responsible to his principle according to the
provisions in that behalf herein contained.
• No consideration is necessary to create an agency- Sec 185
Sec 185- Consideration not necessary—No consideration is necessary to
create an agency.
Modes of Creation of Agency
An agency may be created in any one of the following ways:
1. Agency by Express Agreement - Normally agency is created by an
express agreement, specifying the scope of the authority of agent. The
agent may, in such a case, be appointed either by word of mouth or by
an agreement in writing (Sec. 187). However, in certain cases, e.g., to
execute a deed for sale or purchase of land, the agent must be
appointed by executing a formal 'power of attorney' on a stamped
paper.
• 2. Agency by Implied Agreement - Implied agency arises when there
is no express agreement appointing a person as an agent, but
instead the existence of agency is inferred from the circumstances
of the case, or from the conduct of the parties on a particular
occasion, or from the relationship between parties (Sec. 187). Such
an agency may take the following forms:
• (a) Agency by estoppel;
• (b) Agency by holding out;
• (c) Agency by necessity.
• (a) Agency by estoppel. Such an agency is based on the 'doctrine of
estoppel' which may briefly be stated thus, "Where a person by his words
or conduct has wilfully led another to believe that certain set of
circumstances or facts exists, and that other person has acted on that
belief, he is estopped or precluded from denying the truth of such
statements, although such a state of things did not in fact exist.“
• We may sum up thus, an agency by estoppel is created when the alleged
principal by his conduct or by words spoken or written, leads wilfully the
other contracting party into an honest belief that the supposed agent had
authority to act as such and bind the principal. Such a principal will be
estopped from denying subsequently his agent's authority, although the
agent did not in fact possess any authority whatever.
• ILLUSTRATIONS. (a) T tells M in the presence and within the hearing
of N that he (T) is N's agent. N does not contradict this statement
and keeps quiet. Later on M enters into a transaction with T
believing honestly that T is N's agent. N is bound by this transaction
and he will be estopped from denying the existence of the agency,
even though such an agency did not in fact exist. Notice that by
virtue of the doctrine of estoppel an apparent or ostensible agency
becomes as effective as an agency deliberately created.
• Agency by holding out. Such an agency is based on the "doctrine of
holding out" which is a part of the law of estoppel. In this case also
the alleged principal is bound by the acts of the supposed agent, if
he has induced third persons to believe that they are done with his
authority. But, unlike an ‘agency by estoppel', an 'agency by holding
out' requires some affirmative or positive act or conduct by the
principal to establish agency subsequently.
• Thus, where an employer has been accustomed to pay for goods
bought on his behalf by his employee from P, the employer may be
liable for a purchase made in the customary manner, even though it
is made, by the employee fraudulently after he has left the
employment. The employer's conduct in 'holding out' his employee
to be his agent (paying for purchases made by the employee on
previous occasions) estops him from denying that his authority was
not still in existence.
• c) Agency by necessity. In certain circumstances the law confers an
authority on one person to act as agent for another without any
regard to the consent of the principal. Such an agency is called an
agency of necessity. Bowstead has rightly observed: "An agency by
necessity is conferred by law in certain cases, where a person is
faced with an emergency in which the property or interests of
another are in imminent danger, and it becomes necessary in order
to preserve the property or interests, to act before the instructions
of the owner can be obtained. The law assumes the consent of the
owner to the creation of the relationship of principal and agent."
• Thus, the conditions which enable a person to act as an agent of
necessity of another are as follows:
• (i) There should be a real necessity for acting on behalf of the
principal. (ii) It should be impossible to communicate with the
principal within the time available. (iii) The alleged agent should act
bona fide in the interests of the principal.
Generally the agency by necessity' arises in
the following cases:
• (i) Where the agent exceeds his authority, bona fide, in an
emergency. For example, where A consigns fruits to B at Allahabad
with directions to send them immediately to C at Varanasi, and B,
finding that the fruits are perishing rapidly, sells them at Allahabad
itself for the best price obtainable, the sale will bind the principal
and the agent cannot be held liable for exceeding his authority as
under the circumstances of the case there arises agency of necessity
• .(ii) Where the carrier of goods acting as a bailee, does any thing to
protect or preserve the goods, in an emergency, although there is
no express authority in that regard. Thus a master of a ship is
entitled, in cases of accident and emergency, to sell or pledge the
goods in order to save their value and the sale or pledge will bind
the cargo owners. Similarly, a land carrier of goods, in case of
accident or emergency, becomes an agent of necessity, for example,
if a public carrier develops an engine trouble, the driver can pledge
a part of the goods loaded thereon in order to raise the money
necessary for repairs and the pledge will be binding on the owner of
goods. Notice that in these cases it is not practicable to
communicate with the principal.
• (iii) Where a husband improperly leaves his wife without providing proper
means for her sustenance. In a special circumstance the case of husband
and wife also provides an instance of agency by necessity. When the wife
has been deserted by the husband and thus forced to live separate from
him, the wife is regarded as the agent of necessity of the husband and
she has the authority of pledging her husband's credit for necessaries
even against her husband's wishes. However, this rule does not apply
where the wife improperly leaves the husband.
• It is relevant to state that in the ordinary course of things there is an
implied agency between the husband and wife and the wife is presumed
to have implied authority to pledge her husband's credit for necessaries
suiting to the couple's joint style of living. But a husband enjoys no
corresponding right to pledge his wife's credit for necessaries.
• 3. Agency by Ratification - Ratification means the subsequent
adoption and acceptance of an act originally done without
instructions or authority. Thus where a principal affirms or adopts
the unauthorised act of his agent, he is said to have ratified that act
and there comes into existence an agency by ratificaition
retrospectively.
• Section 196 deals with the effect of 'ratification.' It provides that
"where acts are done by one person on behalf of another, but
without his knowledge or authority, he may elect to ratify or to
disown such acts. If he ratifies them, the same effects will follow as
if they had been performed by his authority."
• ILLUSTRATION. A buys 5 bags of wheat on behalf of B. B did not
appoint as his agent. B may, upon hearing of the transaction, accept
or reject it. If B accepts it, the act is ratified and A becomes his agent
with retrospective effect.
• ILLUSTRATIONS (appended to Sec. 197). (a) A, without authority,
buys goods for B. Afterwards B sells them to C on his own account.
B's conduct implies a ratification of the purchase made by A for him.
Essentials of a valid ratification. A valid ratification
must fulfil the following conditions:
• 1. The agent must purport to act as agent for a principal who is in
contemplation. The agent must expressly contract as an agent for a
principal in the knowledge of third parties. The principal must be named
or must be 'identifiable' and it is not sufficient to indicate simply that he
is acting as agent of some one. The word 'identifiable' here means that
there must be such a description of the principal as shall amount to a
reasonable designation of him, for example, it would cover the
expressions like "on behalf of the Vice-Chancellor, Delhi University" or
"on behalf of my elder brother." Thus, to be valid, a ratification must be
done by the person on whose behalf the agent professed to act. An
undisclosed principal cannot step in and ratify acts done by a third
person. Similarly, a person entering into a contract in his own name
cannot later shift it on to a third party.
• 2. There should be an act capable of ratification. The act to be ratified
must be a lawful one. There can be no ratification of an illegal act or an
act which is void. Thus, the shareholders of a company cannot ratify an
ultra vires contract made by the directors.
• 3. The principal must be in existence. For a valid ratification it is essential
that the principal must be in existence at the time when the original
contract is made, because rights and obligations cannot attach to a
non-existent person. Thus contracts, entered into by promoters of a
company on its behalf before its incorporation, cannot be ratified by the
company after it comes into existence. The Specific Relief Act, however,
provides for certain exceptions where a company can ratify its
pre-incorporation contracts.
• 4. The principal must be competent to contract. The principal must
have contractual capacity both at the time of original contract and
at the time of ratification. Thus a person cannot ratify a contract
made on his behalf during his minority. Similarly, a person cannot
ratify a contract of insurance made by an unauthorised agent on his
behalf after he has become aware that the event insured against
has in fact occurred, because he could not himself insure in such
circumstances (Grover & Grover vs Mathews").
• 5. The principal must have full knowledge of material facts. Section 198
declares: "No valid ratification can be made by a person whose
knowledge of facts of the case is materially defective." Thus to constitute
a valid ratification, the principal must, at the time of ratification, have full
knowledge of all material facts or give such an unqualified acceptance
that the inference may be drawn that he intended to ratify the contract
whatever the facts may be.
• 6. Whole transaction must be ratified. Ratification must be of the whole
contract. Once a part is accepted, it is an implied acceptance of the whole
(Sec. 199). There cannot be partial rejection and partial ratification. The
principal cannot reject the burdens attached and accept only the
benefits.
• 7. Within reasonable time. A ratification to be effective must be
made within a reasonable time after the original contract is made.
Where a time is expressly fixed for the performance of the contract,
ratification must be made within that time.
• 8. Ratification must not injure a third person (Sec. 200). A
ratification cannot be effective where its effect is to subject a third
person to damages, or terminate any right or interest of a third
person.
• ILLUSTRATIONS (appended to Sec. 200).
• (a) A, not being authorised thereto by B, demands on behalf of B,
the delivery of a chattel, the property of B, from C, who is in
possession of it. This demand cannot be ratified by B, so as to make
Cliable for damages for his refusal to deliver.
• (b) A holds a lease from B, terminable on three months' notice. C,
an unauthorisedperson, gives notice of termination to A. The notice
cannot be ratified by B, so asto be binding on A.
Extent of Agent's Authority
• The authority of an agent means his capacity to bind the principal to
third parties. The agent can bind the principal only if he acts within
the scope of his authority. The scope of an agent's authority is
determined by his:
• 1. Actual authority. An agent can do all such acts as have been
assigned to him either expressly or impliedly and thereby bind the
principal to third parties by acts done within the scope of his 'actual'
or 'real' authority (Secs. 186 and 226). The authority is said to be
express when it is given by words spoken or written. The authority
is said to be implied when it is inferred from the circumstances of
the case or the ordinary course of dealings (Sec. 187).
• 2. Ostensible or apparent authority. An agent can also bind the
principal to third parties by acts done within his apparent authority;
(although the act is in excess of his actual authority); provided the
third party acts bona fide and without knowledge of the limitation
of the agent's apparent authority (Watteau vs Fenwick). Thus
'actual' and 'apparent authority stand on the same footing.
• Ostensible authority means an authority which the third parties
dealing with the agent can presume to be with the agent in relation
to a particular business ordinarily. In other words, such an authority
implies authority to do an act usually necessary in the course of
conducting similar business in accordance with the customs and
usages of the particular place, trade or market Thus if it is the usual
practice of hotel managers to purchase liquors and cigarettes, then
purchases of this nature shall be deemed within the scope of the
manager's apparent authority and the principal will be bound by
such purchases, notwithstanding limitations, as between the
principal and agent, put upon that authority (Watteau vs Fenwick).
• Section 188 which deals with the extent of agent's authority lays down
the scope of an agent's apparent authority in these words: "An agent
having an authority to do an act or to carry on a business has authority to
do every lawful thing which is necessary in order to do such act, or which
is usually done in the course of conducting such business."
• The following illustrations are appended to the Section:
• ILLUSTRATIONS. (a) 4, is employed by B, residing in London, to recover at
Mumbai a debt due to B. A may adopt any legal process necessary for the
purpose of recovering the debt, and may give a valid discharge for the
same. (b) 4 constitutes B, his agent, to carry on his business of a
ship-builder. B may purchase timber and other materials, and hire
workmen, for the purpose of carrying on the business.
• In normal times, therefore, the scope of an agent's authority is
determined by his 'actual' as well as 'apparent' authority. Although
the apparent authority of an agent may be curtailed by the principal
but such a curtailment is ineffective vis-a-vis the principal and third
parties unless the third parties have notice of it. Even if an act of the
agent is in excess of his actual authority, the principal will be bound
by the act if it is within the scope of the agent's apparent authority,
provided the third parties act bona fide.
• Thus, if a principal delivers goods to a 'factor' with instructions that
they are not to be disposed of but are to be retained pending
further instructions; and the factor, in breach of his authority, sells
the goods to a third party who acts bona fide for value, then the
principal (owner) is estopped from disputing the validity of the
transaction since it is within the scope of apparent authority of a
factor to dispose of the goods of which he is in possession.
• Authority in emergency. An agent has authority, in an emergency,
to do all such acts for the purpose of protecting his principal from
loss as would be done by a person of ordinary prudence in his own
case, under similar circumstances (Sec. 189).
• The following illustrations are appended to the Section
• ILLUSTRATIONS. (a) An agent for sale may have goods repaired if it
be necessary.(b) A consigns provisions to B at Kolkata, with
directions to send them immediately to Cat Cuttack. B may sell the
provisions at Kolkata, if they will not bear the journey to Cuttack
without spoiling.
Delegation of Authority
Section 190
Section 190
• Section 190 provides that "an agent cannot lawfully employ another to
perform acts which he has expressly or impliedly undertaken to perform
personally, unless by the ordinary custom of trade a sub-agent may, or
from the nature of agency, a sub-agent must, be employed." Accordingly
an agent cannot delegate his powers or duties to another without the
express authority of the principal, except in certain cases (which are
discussed in the next paragraph).
• This Section is based on the well-known maxim of Roman law, viz.,
"delegatus nonpotest delegare," that is "a delegate cannot further
delegate." An agent, being himself a delegate of his principal, cannot pass
on that delegated authority to someone else. As a rule, he must not
depute another person to do that which he has undertaken to do
personally. The reason for this rule is that confidence in the integrity and
competence of a particular person is at the root of a contract of agency.
"delegatus nonpotest
delegare,"
Exceptions. But there are exceptions to this general rule. In
the following cases the agent can delegate his authority to
another (i.e., can appoint a sub- agent) and bind the principal:
1. Where the principal has expressly permitted delegation of such
power.
2. Where the principal has impliedly, by his conduct, allowed such
delegation of authority, e.g., where the principal knows that the
agent intends to delegate his authority but does not object to it.
3. Where by the ordinary custom of trade a sub-agent may be
employed. Thus stock exchange member brokers generally appoint
clerks to transact business on behalf of their clients.
• 4. Where the very nature of agency makes it necessary to appoint a sub-
agent. For example, a manager of a shop may employ sales assistant.
• 5. Where the acts to be done are purely ministerial and do not involve
the exercise of discretion, e.g., clerical or routine work.
• 6. Where the acts to be done are purely ministerial and do not involve
the exercise of discretion, e.g., clerical or routine work.6. Where
unforeseen emergencies arise rendering appointment of the sub-agent
necessary.
• If a sub-agent is appointed in any of the above circumstances, then he is
called as "properly appointed sub-agent."
Sub-Agent
• "A sub-agent is a person employed by, and acting under the control
of the original agent in the business of the agency" (Sec. 191). Thus
a person employed by an agent is called a sub-agent.
• A sub-agent acts under the control of the original agent as for the
relation in between themselves is that of agent and principal. In
other words, the original agent acts as principal for the sub- agent.
Consequences of the appointment of sub-agent.

• The legal effects of the appointment of a sub-agent as between the

principal and the sub-agent inter se and as regards third parties
depend upon whether the sub-agent has been properly or
improperly appointed.
• A sub-agent is said to be properly appointed when the appointment
is made under any of the recognised exceptional circumstances
discussed under the preceding heading.
• The appointment is said to be improper when it is made without
any justification for such appointment
• Where a sub-agent is properly appointed. In such a case, as per Section
192, the following consequences emerge:
• (a) The principal is bound and liable to third parties for the acts of the
sub- agent, as if he were an agent originally appointed by the principal.
• (b) The agent is responsible to the principal for the acts of the sub- agent.
For example, if any moneys are due on the sub-agent, the agent is
responsible for the same and the principal cannot sue the sub-agent on
that account. It is so because in the eye of law there is no privity of
contract between the principal and the sub-agent and therefore, in
general, the principal cannot claim against the sub-agent for negligence
(Calico Printers Association vs Barclays Bank).
• (c) The sub-agent is responsible for his acts to the agent and not to
the principal. But in case the sub-agent is guilty of fraud or wilful
wrong, he is directly liable to the principal. In such a case the
principal has the choice to sue either the agent or the sub-agent
(Nensukhdas vs Birdichand¹¹).
• Where a sub-agent is improperly appointed. Where the
appointment of sub-agent is made without authority and without
any justification, as per Section 193, the following consequences
arise:(a) The principal is not represented by such sub-agent and
hence he is liable for the acts of the sub-agent. not(b) The agent is
responsible for the acts of the sub-agent to the principal as well as
to the third parties.(c) The sub-agent is not responsible to the
principal at all. He cannot be held liable by the principal even for
fraud or wilful wrong. He is responsible for his acts only to the agent
(his employer).
Substituted Agent
• Section 194 deals with the appointment of a substituted agent.
Accordingly, "when an agent has an express or implied authority of
his principal to name another person to act for the principal and the
agent names another person accordingly, such person is not a
sub-agent but a substituted agent of the principal in respect of the
business which is entrusted to him".
• Thus an agent simply names or appoints a substituted agent at the
request of the principal and thereafter drops out altogether from
the scene. The substituted agent is directly responsible to the
principal and a privity of contract is deemed between him and the
principal.
• ILLUSTRATIONS (appended to Sec. 194). (a) 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 the conduct of the sale.
• Section 195 imposes a duty on the original agent to act with
reasonable care while naming a substituted agent. The Section lays
down that "in selecting such agent for his principal, an agent is
bound to exercise the same amount of discretion as a man of
ordinary prudence would exercise in his own case; and if he does
this, he is not responsible to the principal for the acts or negligence
of the agent so selected."
• Thus the original agent must act with reasonable care in selecting a
substituted agent. If he makes the selection carelessly, he becomes
liable to the principal for the negligence of the agent so selected. It
may by noted, however, that the original agent is not required to
guarantee the integrity or solvency of the substituted agent.
• ILLUSTRATIONS (appended to Sec. 195). (a) A instructs B, a merchant, to
buya ship for him. B employs a ship surveyor of good reputation to
choose a ship for A. The surveyor makes the choice negligently and the
ship turns out to be unseaworthy and is lost. The surveyor, but not the
agent, is liable to A, the principal.(
• b) A consigns goods to B, a merchant, for sale. B, in due course, employs
an auctioneer in good credit to sell the goods of A, and allows the
auctioneer to receive the proceeds of the sale. The auctioneer afterwards
becomes insolvent without having accounted for the proceeds. B is not
responsible to A for the proceeds. (B would have been responsible to A
for the proceeds if the auctioneer so employed were a known man of
doubtful credit).
Agent’s duty to principal
• 211. Agent’s duty in conducting principal’s business.
• 212. Skill and diligence required from agent.
• 213. Agent’s accounts.
• 214. Agent’s duty to communicate with principal.
• 215. Right of principal when agent deals, on his own account, in
business of agency without principal’s consent.
• 216. Principal’s right to benefit gained by agent dealing on his own
account in business of agency.
• 217. Agent’s right of retainer out of sums received on principal’s
account.
• 218. Agent’s duty to pay sums received for principal.
• 219. When agent’s remuneration becomes due.
• 220. Agent not entitled to remuneration for business misconducted.
• 221. Agent’s lien on principal’s property.
Duties of Agents
• An agent’s duties towards his principal are as follows (which give
corresponding rights to the principal who may sue for damages in
the event of a breach of duty by the agent):
• (a) An agent must act within the scope of the authority conferred
upon him and carry out strictly the instructions of the principal
(Section 211).
• in the absence of express instructions, he must follow the custom
prevailing in the same kind of business at the place where the agent
conducts the business (Section 211).
• ILLUSTRATIONS. (a) Where the principal instructed the agent to
warehouse the goods at a particular place and the agent
warehoused them at a different warehouse which was equally safe,
and the goods were destroyed by fire without negligence, it was
held that the agent was liable for the loss because any departure
from the instructions makes the agent absolutely liable (Lilley vs
Doubleday).
• (b) Duty to carry out the work with reasonable skill and diligence
(Sec. 212) The agent must conduct the business of the agency with
as much skill as is generally possessed by persons engaged in similar
business, unless the principal has notice of his want of skill. Further,
the agent must act with reasonable diligence and to the best of his
skill. If the agent does not work with reasonable care, skill (unless
the principal has notice of his want of skill) and diligence, he must
make compensation to his principal in respect of 'direct
consequences' of his own neglect, want of skill or misconduct. But
he is not so liable for indirect or remote losses.
• ILLUSTRATIONS (appended to Sec. 212). (a) A, a merchant in
Kolkata, has an agent B, in London, to whom a sum of money is paid
on A's account, with orders to remit. B retains the money for a
considerable time. A, in consequence of not- receiving the money,
becomes insolvent. B is liable for the money and interest from the
day on which it ought to have been paid, according to the usual
rate, and for any further direct loss such as loss by variation of rate
of exchange, but nothing further
Keppel v. wheeler
• In Keppel v. Wheeler, the principal instructed an estate agent to find
a buyer for his estate. The agent communicated an offer of a
prospective purchaser who was willing to buy the estate for £ 6,150.
Before the contract for sale was concluded, the agent got an offer
of £ 6,750 from another buyer. The agent did not communicate
about the second offer to the principal. It was held that the agent
did not show proper skill and care in the matter and, therefore, he
was liable to pay damages to his principal for the loss suffered by
him.
Link International v. Mandya National Paper
Mills Ltd
• There was contract for purchase suction press roll machine from
foreign company Appellant had acted as agent between
respondents and Foreign Company. Instead of full machine, only
shell of machine was supplied. Suit for damages was filed. Finding
was recorded by Courts below that appellant facilitated playing
fraud upon respondents as they kept respondent in dark though
they were aware that only 'shell' was being supplied. Nothing had
been shown to conclude that finding was not correct. The Apex
Court held the Appellant would be liable for loss caused to
respondent irrespective of fact whether contract was entered into
by appellant on behalf of Foreign Company or it was direct contract.
• (d) He must disclose promptly any material information coming to
his knowledge which is likely to influence the principal in the making
of the contract.
• (e) He must not disclose confidential information entrusted to him
by his principal (Section 213).
• (f) He must not allow his interest to conflict with his duty, e.g., he
must not compete with his principal (Section 215).
• ILLUSTRATIONS. (a) A directs B to sell A's estate. B buys the estate for
himself in the name of C. A, on discovering that B has bought the estate
for himself, may repudiate the sale, if he can show that B has dishonestly
concealed any material fact or that the sale has been disadvantageous to
him. [Illustration (a) appended to Section 215]
• (b) A directs B to sell A's estate. B, on looking over the estate before
selling it, finds a mine on the estate which is unknown to A. B informs A
that he wishes to buy the estate for himself but conceals the discovery of
the mine. A allows B to buy, in ignorance of the existence of the mine. A,
on discovering that B knew of the mine at the time he bought the estate,
may either repudiate or adopt the sale at his option. [Illustration (b)
appended to Section 215]
• (g) The agent must keep true accounts and must be prepared on
reasonable notice to render an account. (213) - Duty to render
proper accounts (Section 213) Another duty of the agent is to
render proper accounts to his principal on demand. This means that
he should maintain proper accounts of the sums belonging to the
principal which are in his hands, he should not misutilize and
misappropriate them, and on demand from the principal, he should
render true accounts to his principal.
• In Narandas v. Papammal, it has been held by the Supreme Court
that although there is no statutory right under which an agent can
sue his principal. for the rendition of accounts, but he has an
equitable right for that under special circumstances. Such
circumstances may be: (1) where all the accounts are in the
possession of the principal and the agent does not possess accounts
to enable him to determine his claim against the principal for
commission, or (2) where his remuneration depends on the extent
of dealings which are known to him but the accounts of which are
available only with the principal.
• in Saroj Kapur v. Nitin Casting Ltd., provides one such example. In that
case, the plaintiff was appointed by the defendant company as its agent
to secure order for supply. of its goods to parties. The plaintiff was to be
paid 5% commission on the orders received by the company. Such
commission was to be paid after the orders were executed and the
amounts recovered by the defendant. The defendant company was
keeping all the accounts relating to the receipt of orders, their execution
and the amounts recovered. It was held that the suit by the plaintiff
against hisprincipal (ie., the defendant company) for rendition of
accounts about the commission to which he was entitled to was
maintainable. But, if the accounts are in the hands of the agent himself
and he merely alleges that they have been forcibly taken away by the
principal without giving any satisfactory proof of the same, he cannot sue
the principal for rendering accounts.
• (h) He must not make any secret profit; he must disclose any extra
profit that he may make.
• Duty on termination of agency by principal's death or insanity (Sec.
209). When an agency is terminated by the principal dying or
becoming of unsound mind, the agent must take, on behalf of the
representatives of his late principal, all reasonable steps for the
protection and preservation of the interests entrusted to him.
• (c) He must do the work with reasonable skill and diligence
whereby the nature of his profession, the agent purports to have
special skill, he must exercise the skill which is expected from the
members of the profession (Section 212).
• Where an agent is discovered taking secret bribe, etc., the principal
is entitled to (i) dismiss the agent without notice, (ii) recover the
amount of secret profit, and (iii) refuse to pay the agent his
remuneration. He may repudiate the contract, if the third-party is
involved in secret profit and also recover damages.
• Principal's right to claim benefit when agent acting on his own
account - Section 216 contains the following provision in this regard
:"216. Principal's right to benefit gained by agent dealing on his own
account in business of agency.-If an agent, without the knowledge
of his principal, deals in the business of the agency on his own
account instead of on account of his principal, the principal is
entitled to claim from the agent any benefit which may have
resulted to him from the transaction.
• Illustration - 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 to sell it to
A at the price he gave for it."
• In De Bussche v. Alt,' an agent was entrusted with the task of selling
a ship at a stated price. He could not find a customer for the same
and without the consent of the principal he purchased that ship, at
the settled price, himself. Later, he sold the ship on profit. It was
held that the agent was bound to account to the principal for the
profit made by him in the transaction.
• In Turnbull v. Garden,2) an agent purchased goods for his principal
obtaining some discount on the transaction. He tried to charge the
principal with the full price of the goods. It was held that the
principal was not bound to pay to the agent more amount than the
agent had actually paid while purchasing the article.
• (i) An agent must not delegate his authority to sub-agent. A
sub-agent is a person employed by and acting under the control of
the original agent in the business of agency (Section 191).
• This rule is based on the principle: Delegatus non-protest
delegare–a delegate cannot further delegate (Section 190). But
there are exceptions to this rule and the agent may delegate (i)
where delegation is allowed by the principal, (ii) where the trade
custom or usage sanctions delegation, (iii) where delegation is
essential for proper performance, (iv) where an emergency renders
it imperative, (v) where nature of the work is purely ministerial, and
(vi) where the principal knows that the agent intends to delegate
Rights of Agents
• 1. Right of retainer (217) – An agent has the right to retain any
remuneration or expenses incurred by him while conducting the
Principal’s business.
• 2.. Right to receive remuneration ( 219-220) – An agent, when he
has wholly carried out the business of the agency has the right to be
remunerated of any expenses suffered by him while conducting the
business.
• - agreed remuneration
• -reasonable remuneration.
• - Claim remuneration after completion of work
• - effect of misconduct - not entitled to remuneration but liable to
compensation.
• ILLUSTRATIONS (appended to Sec. 220). (a) A employs B to recover
1,00,000 rupees from C, and to lay it out on good security. B recovers the
1,00,000 rupees and lays out 90,000 rupees on good security, but lays out
10,000 rupees on security which he ought to have known to be bad,
whereby A loses 2,000 rupees. B is entitled to remuneration for
recovering the 1,00,000 rupees and for investing the 90,000 rupees. He is
not entitled to any remuneration for investing the 10,000 rupees and he
must make good the loss of 2,000 rupees to A.
• (b) A employs B to recover ₹1,000 from C. Through B's misconduct the
money is not recovered (the debt might have become time-barred
because of B's negligence or leniency). B is entitled to no remuneration
for his services and must make good the loss to A.
cases
• 1. saraswati devi v. Motilal (1982)
• Motilal (plaintiff ) ( estate agent ) ---------------saraswati devi ( def)

• to find a purchaser for certain property

• - action bought by plaintiff for recovery
• The nature of the agreement the remuneration was payable to the
plaintiff when he found a purchaser who was ready , willing and
able to purchase the property and since he had done that he was
entitled to his commission.
• - Agents efforts should be the effective cause of making the
contract the agent is entitled to his commission.
• Muncipal Corp of Bombay v. Coverji -
• If the agent's efforts are the effective cause of making the contract, the
agent is entitled to his commission. Therefore, when a broker is
instrumental in purchase of land by the municipality, but at the last
moment of the bargain a municipal commissioner strikes the bargain with
a vendor, who has already agreed to sell the land with the efforts of the
broker, the broker is entitled to his commission.
• Similarly, if the plaintiff is asked to negotiate a loan and he makes the
principal have a contract with a banker who is willing to advance the loan
but the transaction does not materialize at that time, but subsequently
the principal takes the loan from the same source through another
broker, the plaintiff would be entitled to the commission.
G.T. Hodges and sons v. H.P. Residential
Hotel Ltd.
• In G.T. Hodges & Sons v. H.P. Residential Hotel Ltd., a firm of estate
agents, in an effort to find a purchaser for their client's property,
negotiated for the sale of property at £ 12,500 with a Colonel, who
was acting for the War Office, but the transaction did not
materialize. Subsequently, there was compulsory purchase order of
that property by the War Office at less than £ 8,000. The agents
were held not entitled to any commission as their efforts were
considered to be not an effective cause of the sale of property.
• In Continental and Eastern Agencies v. Coal India Limited, plaintiff,
agent of foreign company had entered into contract with defendant
for sale of machinery to defendant. There were terms in contract
that payment of commission would be subject to installation of
those machinery. Site for such installation was to be kept ready by
the defendant. The Delhi High Court held that as there was failure
of defendant to keep the site ready, therefore, agent could not be
responsible for non-installation of machines and as such was
entitled for commission.
• 3. Right of Lien on Principal’s property (221) - The agent has the
right to hold (keep with himself) any movable or immovable
property of the Principal until his due remuneration is paid to him
by the Principal.
• - this lien is particular lien, it becomes general lien by special
contract eg. Section 171 , factors, bankers, attorneys of HC
4. Right to be Indemnified against consequences of lawful acts (
section 222) – The agent has the right to be indemnified against all the
lawful acts done by him during the course of conducting the Principal’s
business.
• ILLUSTRATIONS (appended to Sec. 222). (a) B, at Singapore, under
instructions from A of Kolkata, contracts with C to deliver certain goods
to him. A does not send the goods to B and C sues B for breach of
contract. B informs A of the suit, and A authorises him to defend the suit.
B defends the suit and is compelled to pay damages and costs, and incurs
expenses. A is liable to B for such damages, costs and expenses.
• (b) B, a broker at Kolkata, by the orders of A, merchant there, contracts
with C for the purchase of 10 casks of oil for A. Afterwards A refuses to
receive the oil, and C sues B. B informs A, who repudiates the contract
altogether. B defends, but unsuccessfully, and has to pay damages and
costs and incurs expenses. A is liable to B for such damages, costs and
expenses.
• ILLUSTRATIONS (appended to Sec. 224). (a) A employs B to beat C
and agrees to indemnify him against all consequences of the act. B,
thereupon beats C and has to pay damages to C for so doing. A is
not liable to indemnify B for those damages.
• (b) B, the proprietor of a newspaper, publishes, at A's request, a
libel upon C in the paper and A agrees to indemnify B against the
consequences of the publication and all costs and damages of any
action in respect thereof. B is sued by C and has to pay damages and
also incurs expenses. A is not liable to B upon the indemnity.
• 5. Right to be Indemnified against consequences of acts done in
good faith( section 223)
• Indemnity for civil wrongs ( s. 223) - a) A, a decree-holder and
entitled to execution of B's goods requires the officer of the Court
to seize goods, representing them to be the goods of B. The officer
seizes the goods and is sued by C, the owner of the goods. A is
liable to indemnify the officer for the sum which he is compelled
to pay to C, in consequence of obeying A's directions.
• (b) B, at the request of A, sells goods in the possession of A but
which A had no right to dispose of. B does not know this and hands
over the proceeds of the sale to A. Afterwards, C, the true owner of
the goods, sues B and recovers the value of the goods and costs. A is
liable to indemnify B for what he has been compelled to pay to C
and for B's own expenses."
Adamson v. Jarvis
• In this case, the plaintiff, an auctioneer, sold certain goods in good
faith on behalf of the defendant. It turned out that the defendant
had no right to sell the goods, and the plaintiff auctioneer) was
made to compensate the true owner. The plaintiff was held entitled
to be indemnified by the defendant for the loss caused to the
former.
No indemnity in case of criminal offences
Section 224
• “Non-liability of employer of agent to do a criminal act. Where one
person employs another to do an act which is criminal, the
employer is not liable to the agent either upon an express or an
implied promise, to indemnify him against the consequences of that
act.”
• (a) A employs B to beat C, and agrees to indemnify him against all
consequences of the act. B thereupon beats C and has to pay
damages to C for so doing. A is not liable to indemnify B for those
damages.
• (b) B, the proprietor of a newspaper, publishes, at A's request, a
libel upon C in the paper, and A agrees to indemnify B against the
consequences of the publication and all costs and damages of any
action in respect thereof. B is sued by C and has to pay damages,
and also incurs expenses. A is not liable to B indemnity.
• 6. Right to Compensation ( section 225) – The Agent has the right
to be compensated for any injury or loss suffered by him due to the
lack of skill and competency of the Principal.
• ILLUSTRATION (appended to Sec. 225). A employs B as a bricklayer
in building a house, and puts up the scaffolding himself. The
scaffolding is unskilfully put up and B is in consequence hurt. A must
make compensation to B.
• 7. Right of stoppage of goods in transit. An agent has a right to stop
the goods in transit to the principal (just like an unpaid seller), if (i)
he has bought goods either with his own money or by incurring a
personal liability for the price and (ii) the principal has become
insolvent.
RELATIONS OF PRINCIPAL AND
AGENT WITH THIRD PARTIES
POSITION OF PRINCIPAL IN RELATION TO
THIRD PARTY
• All acts done by an agent on behalf of the principal within a scope of
his authority are binding on the principal. In fact the principal is
being represented by his agent to deal with third party. The legal
position of the principal in relation to third party may be
understood with the help of following situation.
• A. Agent acts for named principal.
• B. Agent acts for unnamed principal.
• C. Agent acts for undisclosed principal.
Agent acts for named principal.
LIABLITY OF THE PRINCIPAL
• Section 226 - Effect of agency on contracts with third persons.
Contracts entered into through an agent and obligations arising
from the acts done by an agent, may be enforced in the same
manner, and will have the same legal consequences, as if the
contracts had been entered into and the acts done by the principal
in person.“
• “One who does through another , does by himself”
• The Section has been explained with the help of the following
illustration:
• (a) A buys goods from B, knowing that he is an agent for their sale
but not knowing who is the principal. B's principal is the person
entitled to claim from A the price of the goods and A cannot, in a
suit by the principal, set off against that claim a debt due to himself
from B.
• (b) A being B's agent, with authority to receive money on his behalf,
receives from C a sum of money due to B. C is discharged of his
obligation to pay the sum in question to B.
Authorized and Unauthorized acts

• Principal's liability for various kinds of acts has been noted above. It
has already been noted that the principal is liable for such acts of
the agent for which the authority has been conferred upon him.
Such authority may be 'Express' or 'Implied." The principal’s liability
also arises for acts done in a situation of 'Emergency." Principal can
also be made liable towards third person on grounds of 'Estoppel.
Even if the acts are done without the principal's authority, he
becomes bound when there is ratification of such acts by him. Apart
from that, there is a presumption of agency in husband-wife'
relationship so as to make the husband liable for the acts of his
wife.
various other aspects of principal's liability-
• 1. When agent exceeds authority; section 227
• 2. When agent receives notice on principal's behalf; section 229
• 3. When agent commits a fraud or some other wrong against third
person. Section 238
Principal's liability when agent exceeds
authority
• A principal is bound only for such acts of the agent which are within
the authority of the agent. If the agent's act is in excess of the
authority, the principal is not liable for the same.
• Sometimes apart of the act done by the agent may be within the
authority and the other part outside it. If the two parts can be
separated, then the principal is bound by such part only as is within
the authority, and he is not liable for the part of the act which is
outside the authority If the two parts cannot be separated, then the
principal is not bound to recognize the transaction.
Position when the authorized and
unauthorized acts are separable
• Section 227 explains the position when the acts done by the agent
within the authority and those outside it can be separated. The
provision is as follows: "When an agent does more than he is
authorized to do and when the part of what he does, which is within
his authority, can be separated from the part which is beyond his
authority, so much only of what he does as is within his authority is
binding as between him and his principal."
Ahammed v. Mamad Kunhi.
• In this case, an agent was authorized by power of attorney to sell
half right over certain property. He, however, entered into an
agreement with purchaser-plaintiff to sell the entire property. The
authorized and the unauthorized portions were separable. It was
held that specific performance of that half portion of the property
could be claimed by the purchaser under the Specific Relief Act, in
respect of which the authority for sale was given to the agent.
Position when the authorized and
unauthorized acts are not separable
• According to Section 228, where an agent does more than he is
authorized to do, what he does beyond the scope of authority
cannot be separated from what is within it, the principal is not
bound to recognize the transaction.
• For instance, A authorizes B to buy 500 sheep for him. B buys 500
sheep and 200 lambs for a sum of 6,000 rupees, A may repudiate
the whole transaction.
Principal's liability for notice to the agent
• According to Section 229, any notice given to, or information
obtained by the agent, provided it be given or obtained in the
course of the business transacted by him for the principal shall as
between the principal and third person have the same legal
consequences as if it had been given to or obtained by the principal
• (a) A is employed by B to buy from C goods of which C is the
apparent owner. A was, before he was so employed, a servant of C,
and then learnt that the goods really belonged to D, but B is
ignorant of that fact. In spite of the knowledge of his agent, B may
set off against the price of the goods a debt owing to him from C.
Principal's liability for agent's fraud,
misrepresentation and torts (Section 238)
• When an agent, acting in the course of the principal's business,
makes misrepresentation or commits a fraud, it has the same effect
on agreements made by such agent as if such misrepresentation or
fraud had been made, or committed by the principal.
• Section 238 contains the following provision in this regard:
• (i) Misrepresentation made, or frauds committed by agents acting in the
course of their business for their principals, have the same effects on
agreements made by such agents as if such misrepresentations or frauds
had been made, or committed by the principals;
• (ii) But misrepresentations made, or frauds committed, by agents, in
matters which do not fall within their authority, do not affect their
principals.
If the agent acts in the course of the principal's business that entitles the
third person to avoid the contract on the grounds of fraud or
misrepresentation.
• The following illustrations to Section 238 explain the provision:
• (a) A, being B's agent for the sale of goods, induces C to buy them
by misrepresentation, which he was not authorized by B to make.
The contract is voidable, as between B and C at the option of C.
• (b) A, the captain of B's ship, signs bills of lading without having
received on board the goods mentioned therein. The bills of lading
are void as between B and the pretended consignor.
Vicarious liability of the principal
• Section 238 provides that when there is fraud agent
misrepresentation by an agent while making an agreement on
behalf of the principal, apart from affecting the validity of the
contract, an agent's fraud or wrongful act makes a principal liable if
the agent is acting in the course of the principal's business.
• Principal's liability is based on the rule
"Qui facit per alium facit per se”
• that the act of an agent is the act of the principal.
Lloyd v. Grace, Smith & Co.
• In this case one Mrs. Lloyd, who owned two cottages but was not
satisfied with the income from them, went to the office of Grace, Smith &
Co., a firm of solicitors, to consult them about the matter of her property.
She was attended by the firm's managing clerk. The managing clerk, who
was acting as firm's agent, advised her to sell the two cottages and then
invest the money in a better way. She was asked to sign two documents,
which were supposed to be sale deeds. In fact, the documents got signed
were gift deeds in the personal name of the managing clerk. The
managing clerk then disposed of the cottages and misappropriated the
proceeds. He had acted without the principal's knowledge and solely for
his personal gain. It was held that since the agent was acting in the course
of the principal's business, the principal was liable for fraud.
• Llyod (two cottages) want to sell
• ------------------ office of Grace, Smith & Co., a firm of solicitors
National Bank of Lahore v. Sohanlal
• In this case, the appellant bank used to maintain a safe deposit vault in its
Jullundur City branch, where locker cabinets were rented to its customers
for the safe custody of the jewellery and other valuables. One key of the
locker was given to the renter of the locker, without which the locker
could not be opened. There was a master key of the lockers with the
bank, which had to be used in addition to the renter's key for the opening
of a locker. As a matter of precaution, the vault was to remain under the
joint control of the cashier and custodian or bank manager. The master
key and the keys of unleased lockers were also to remain under the joint
control of the two bank officers, and when the locker was to be operated,
that too had to be done in the presence of two representatives of the
bank. Instructions for these precautions had been issued to all the
branches of the bank, but contrary to these instructions, the manager of
this branch, Baldev
• Chand, was the sole custodian of the vault, and the keys of the strong room
were kept by him personally, and not in any safe. He was also in sole possession
of renter's keys of unleased locks The plaintiffs had rented certain lockers for
depositing theirmissing from the lockers and brought an action against the
bank. The following facts were also established. The manager, Baldev Chand,
who had the sole possession of the renter's keys of unleased lockers had filed
off the levers of the locks of the renter's portion of the lockers, so that now the
lockers could be opened even without the help of renter's keys. The manager,
who lived in the upper portion of the bank premises and had the sole charge of
everything concerning the lockers had ample opportunity to tamper with the
locks of the lockers. These lockers were rented out to the plaintiffs after the
manager had done tampering with the levers of the locks. It may also be noted
here that at the time of renting a locker,jewellery and other valuables in them.
They found their valuablesthe customer had to sign a condition that the bank
will not be liable for any loss, etc.
• Out of the points raised, there were three main questions to be
decided, as regards-the liability of the bank for the wrongful act
ofits agent, viz. :-1. Could the bank be exempt from liability on the
ground that there was an exemption clause in the agreement for
renting the locker?2. Could the bank be held liable as bailee for the
jewellery and other valuables kept by the customers in the lockers?
3. Could the bank be held vicariously liable under Section238, for
the fraud committed by its agent?
• The bank was held liable. On the above stated points, the decision
was as under :- 1. That the term in the agreement exempting the
bank was not reasonable, and it could not exempt the bank from T
iability for fraud of its employees.2. That the bank was in the
position of a bailee, particularly when the lockers rented out to the
plaintiffs could be opened even without the keys with the plaintiffs,
and the liability of the bank as a bailee was also there. Some
American decisions,' in which the bank was held a bailee of things
kept in safe deposit boxes, were followed in this case