Agency under Indian Contract Act, 1872.

Introduction.
When one party (principal) employs another
party (agent) to represent him or work on his
behalf, as in dealings with the third person. This
relationship between them is known as agency.

Agency as it is a well-settled legal concept

which is employed by the Court when it
becomes necessary to explain and resolve the
problems created by certain fact or situation.
The act of the agent binds the principal in the
same manner in which he would be bound if he
does that act himself.

The agent must be expressly authorized to do an

act on behalf of the principal. An agent here is a
person who is employed to do an act for another
party or to represent that party in front of third
party. And principal on the other hand is a
person for whom an act is done.
Section 182 of the Indian Contract Act, 1872
states that “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”.
What are the Different Kinds of Agency?
Depending upon the kind of authority given to
the agent to act on behalf of the principal, the
agents are of various kinds. These are-
Auctioneers
An auctioneer is an agent whose business is to
sell goods or other property by an auction i.e. by
open sale. The authority vested in him is to sell
the goods only and not to give warranties on
behalf of the seller, unless expressly authorized
in that behalf. He is a mercantile agent within
the meaning of Section 2(9) of the Sale of
Goods Act.
If the owner of the goods puts him in possession
of the goods, although the authority to sell has
not been conferred in him, a buyer in good faith
from such an auctioneer will get a good title in
respect of the goods. Thus, if he has been
authorized to sell the goods only subject to a
reserved price but he sells the same to an
innocent and bona fide buyer below the reserved
price, the buyer will get a good title in respect of
such goods.
Factors
A factor is a mercantile agent who is entrusted
with the possession of the goods for the purpose
of sale. He has also the power to sell goods on
credit and also to receive the price from the
buyer. If the owner has put a factor in
possession of the goods or the document of title
but without authorizing him to sell the goods,
the sale of goods by him will convey a good title
to a bona fide buyer.
According to Section 171 of the Indian
Contract Act, a factor has right of general lien
over the goods belonging to his principal, which
are in his possession for the general balance of
account.
Brokers
A broker is an agent who has an authority to
negotiate the sale or purchase of goods on
behalf of his principal, with a third person.
Unlike a factor, he himself has no possession of
the goods. He gets his commission whenever
any transaction materializes through his efforts.
Del Credere Agents
Generally, the function of an agent is over after
a contract is established between his principal
and a third person. He is not answerable to his
principal for the failure of the third person to
perform the contract. A del credere agent
constitutes an exception to this rule. He is a
mercantile agent who on the payment of some
extra commission known as del credere
commission, guarantees the performance of
contract by the third person.
Banker Agent.
It acts as the agent of the customer on behalf of
his customers. He collects cheques, drafts, bills
or buys that too on behalf of his customers. He
has a general lien in respect of the general
balance of account.
What are the Features of Agency?
Section 183 – Principal should be competent
to contract
Section 183 states “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.”
As in an agency the client creates a contractual
relationship between his principal and the third
persons, it is necessary that the principal and the
third person should be competent to contract. If
a person is not competent to contract and
therefore is incapable of making a contract, he
cannot make a contract through an agent either.
A person can do only such thing through an
agent which he himself is personally capable of
doing. Therefore, if the principal is a minor or
of unsound mind, he is incapable of being
bound through the acts of his agent. Although a
minor himself cannot appoint an agent, there is
nothing in Section 183, which prohibits the
guardian of a minor from appointing an agent
for him.
When a client gives a power of attorney to his
counsel, while he is in good state of health and
mental understanding, but subsequently the
client becomes old, feeble, weak, unable to
comprehend under a mental incapacity, the
power of attorney becomes worthless after the
change in the state of health and mental
infirmity of the client.
Section 184 – The agent may not be
competent to contract
Section 184 states “As between the principal
and the third person, any person may become
an agent, but no person who is not of the age of
majority and of the sound mind can become an
agent, so as to be responsible to his principal
according to the provisions in that behalf herein
contained.”
The capacity of an agent could be looked on
from two angles.Firstly, the capacity of the
agent to act on behalf of the principal, so as to
bind his principal and the third person.
Secondly, his capacity to bind himself by a
contract between himself and his principal.
So far as the agent’s capacity to bind himself to
the principal is concerned, for that it is
necessary that the agent should also be
competent to contract. Section 184, therefore
provides that 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 principal
according to the provisions in that behalf herein
contained.
Thus, if an agent is a minor, through him a valid
contractual relationship will be created between
the principal and the third party, through such
an agent will not himself be responsible for his
acts to his principal.
Section 185 – No consideration is necessary to
create an agency
Section 185 provides that no consideration is
necessary to create an agency. From the very
nature of the contract of agency, the principal
agrees to be bound by the acts done by the agent
on his behalf and that serve as a sufficient
detriment to the principal. Moreover, the
principal’s duty to indemnify the agent is also
there. The law does not require any
consideration as such for the validity of a
contract of agency.
As in the case Adamson Vs Jarvis[i], the
plaintiff who was an auctioneer, sold certain
cattle on the instruction of the defendant. It
subsequently turned out that the livestock did
not belong to the defendant, but to another
person, who made the auctioneer liable and the
auctioneer in his turn sued the defendant for
indemnity for the loss he had thus suffered by
acting on the defendant’s directions.
Section 186 – Agent’s authority may be
expressed or implied
Section 186 states “The authority of an agent
may be expressed or implied.”
As seen in the case of Chairman, L.I.C. Of
India And Ors. Vs Rajeev Kumar
Bhaskar[ii] the salary savings scheme floated by
the L.I.C. provided for a tripartite arrangement
under which, the employer accepted the sole
responsibility to collect premium from its
employees and remit the same by means of one
cheque to the corporation. No individual
premium notice was required to be sent to any
employee and furthermore, no receipt was to be
given therefore. The employer was to inform the
Corporation about changes in staff including
factum of cessation of employment. The
employees were not made aware of
communication between the L.I.C. and the
employer.
It was held that the employer, though not agent
of L.IC. qua its regulations, it could be
interfered that the employer had implied
authority to act as agent of the L.I.C. in view of
Section 186 of the Indian Contract Act, 1872.
Section 187 – Definitions of express and
implied authority
Section 187 states “An authority is said to be
express when it is given by words spoken or
written. An authority is said to be implied when
it is to be inferred from the circumstances of the
case; and things spoken or written, or the
ordinary course of dealing, may be accounted
circumstances of the case.”
Illustration: A owns a shop in Serampore, who
himself is living in Calcutta and visit the shop
on some occasions. The shop which is at
Serampore is managed by B and he orders
goods from C in name of A for shop purposes.
He also pays funds for the items without A
being having any knowledge about that. Here B
has an implied authority from A to order goods
from C in the name of A for the purpose of the
shop.
As in case Kandhe and Ors Vs Jhanjan Lal
And Ors.[iii] it was held that the agreement was
intended to be a permanent provision for
securing peace between the parties and that
having regard to Section 187 it was right to infer
the representative character of the signatories to
the agreement from the surrounding
circumstances and that the agreement was
binding on the plaintiffs who brought the suit.
Extent of Implied Authority (Section 188)
Section 188 states “An agent having an
authority to do an act has authority to do every
lawful thing which is necessary in order to do
such act. An agent having an authority to carry
on business has authority to do every lawful
thing necessary for the purpose or usually done
in the course of conducting such business.”
Illustration- A 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.
Implied authority of an agent simply means
such authority which has not been conferred by
the express words, but which can be inferred
from the circumstances of the case, or the
course of dealing between the parties, or the
usage of particular trade. An agent’s implied
authority depends upon the nature of business
which the agent has been authorized to transact.
As in case Ishaq Abdul Karim and Anr. Vs
Madanlal[iv] , it was held that person with whom
the agent has implied authority to accept any
consideration from the fact that the agent is
armed with the power to take the delivery of the
goods and to dispose of them and the fact that
the agent accepts the particular terms offered, it
is not necessary for the purchaser in these
circumstances, to make inquiries from the
principal about the extent of the agent.
Agent’s authority in an Emergency (Section
189)
Section 189 states “An agent has authority in
an emergency, to do all such acts for the
purpose of protecting his principal from loss as
would be done by a person of ordinary
prudence in his own case, under similar
circumstances.”
Illustration- A consigns provisions to B at
Calcutta, with directions to send them
immediately to C at Cuttack. B may sell the
provisions at Calcutta if they will not bear the
journey to Cuttack without spoiling.
Duty not to delegate his Duties (Section 190)
Section 190 states “An agent cannot lawfully
employ another to perform acts which he has
expressly or impliedly undertaken to perform
personally, unless by the ordinary custom of
trade a sub- agent may or from the nature of the
agency, a sub- agent must, be employed.”
This Section contains the general rule that when
an agent has expressly or impliedly undertaken
to perform a contract personally, he cannot
employ a sub- agent for the same.
Definition of Sub- Agent (Section 191)
Section 191 states “A sub- agent is a person
employed by and acting under the control of the
original agent in the original agent in the
business of the agency.”
Representation of principal by sub- agent
properly appointed (Section 192)
Section 192 states “Where a sub- agent is
properly appointed, the principal is so far as
regards third persons, represented by sub-
agent and is bound by and responsible for his
acts, as if he were an agent originally appointed
by the principal. Agent’s responsibility for sub-
agent- The agent is responsible to the principal
for the acts of the sub- agent. Sub- agent’s
responsibility- The sub- agent is responsible for
his acts to the agent, but not to the principal,
except in cases of fraud or wilful wrong.”
When the sub-agent is properly appointed, he
gets vested with the power to represent the
principal, and, therefore for the acts of such a
sub- agent, the principal becomes bound
towards third persons. In such a case, the
principal is represented by and is responsible for
the acts of the sub- agent towards third persons
as if such sub- agent was originally appointed
by the principal. It means that the act of the sub-
agent would bind the principal in the same way
as an act of any duly appointed agent.
As in the case Nensukhdas Shivnaraen Vs
Birdichand Anraj[v] it was held the principal
has a choice to bring an action action against the
agent or the sub- agent as this was the case of
fraud and wilful wrong.
Agent’s responsibility for sub- agent
appointed without authority (Section 193)
Section 193 states “Where an agent, without
having authority to do so, has appointed a
person to act as sub- agent, the agent stands
towards such person in the relation of a
principal to an agent, and is responsible for his
acts both to the principal and to the third
person; the principal is not represented by or
responsible for the acts of the person so
employed, nor is that person responsible to the
principal.”
When an agent makes the appointment of a sub-
agent without having an authority to do so, the
principal is not represented by or responsible for
the acts of the sub- agent. For the acts of sub-
agent it is he agent who is responsible to the
third person as well as the principal.
Relation between principal and person duly
appointed by an agent to act in business of
agency (Section 194)
Section 194 states “Where an agent holding an
express or implied authority to name another
person to act for the principal in the business of
the agency, has named another person
accordingly, such person is not sub- agent but
an agent of the business of the agency as is
entrusted to him.”
Illustration- A authorizes C, a merchant in
Calcutta, to recover the money due to A from C
& Co. B instructs D, a solicitor, to take legal
proceedings against C & Co. for the recovery of
the money. D is not a sub- agent, but is a
solicitor for A.
An agent’s only function is to appoint
substituted agent with due care. After a
substituted agent has been appointed, the work o
agency is to be performed by the substituted
agent, and the principal is represented by the
substituted agent in relation to the third person.
A substituted agent is himself responsible
towards the principal.
Agent’s duty in naming such person (Section
195)
Section 195 states “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 of negligence of the agent
so selected.”
When the agent exercises due care in selecting a
substituted agent for his principal his
responsibility is over. The agent is not
responsible for the acts of negligence of the
substituted agent.
Illustration: A instructs B, a merchant to buy a
ship for him. B employs a ship surveyor of good
reputation to choose a ship for A. The surveyor
makes the choice negligently and the ship turns
out to be unseaworthy and is lost. B is not, but
the surveyor is responsible to A.
Act done on behalf of another (Section- 196)
Section 196 states “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 ratify them the
same effects will follow as if they had been
performed by his authority.”
Similarly, if an agent acts on his own account,
such an act cannot be ratified by another person.
As in case Keighley, Maxsted & Co. Vs
Durant[vi] it was held that they could not be
made liable, because the act by Roberts not
having been done on their behalf, purported
ratification by them was ineffective.
Ratification may be express or implied
(Section 197)
Section 197 states “Ratification may be
expressed or may be implied in the conduct of
the person on whose behalf the acts are done.”
Illustration: A without B’s authority lends B’s
money to C. Afterwards B accepts interest on
the money from C. B’s conduct implies a
ratification of the loan.
Ratification with full knowledge of facts
(Section 198)
According to this section no valid ratification
can be made by a person whose knowledge of
the facts of the case is materially defective.
As in Savery Vs King[vii] It was held that since
B did not knew about the invalidity of
agreement, the purported ratification of the
same by him was of no effect.
Ratification of the whole transaction (Section
199)
According to this section, a person ratifying any
unauthorized act done on his behalf ratifies the
whole of the transaction of which the act formed
a part. The object of this provision is that no
principal to him and disown others. If he makes
a ratification, it is deemed to be the ratification
of the whole of the act.
Ratification of unauthorized act cannot
injure third person (Section 200)
Section 200 states “An act done by one person
on behalf of another, without such other
person’s authority, which if done with authority,
would have the effect of subjecting a third
person to damages, or of terminating any right
or interest of a third person, cannot by
ratification be made to have such effect.”
Illustration: A holds a lease from B, terminable
on three months’ notice. C, an unauthorized
person, gives notice of termination to A. The
notice cannot be ratified by B, so as to be
binding on A.
Termination of agency (Section 201)
Section 201 states “An agency is terminated by
the principal revoking his authority; or by the
agent renouncing the business of the agency; or
by the business of the agency being completed;
or by either the principal or agent dying or
becoming of unsound mind; or by the principal
being adjudicated on insolvent provisions of
any Act for the time being in force for the relief
of insolvent debtors.”
The agency which may be validly created stands
revoked in the event of different situations
mentioned above, including the death or
insanity of either the principal or the agent, or
by the insolvency of the principal.
No revocation of agency when agent has
interest in the subject- matter (Section 202)
Section 202 states “Where the agent has himself
an interest in the property which forms the
subject- matter of the agency, the agency cannot
in the absence of an express contract be
terminated to the prejudice of such interest.”
Illustration: A gives authority to B to sell A’s
land and to pay himself out of the proceeds, the
debts due to him from A. A cannot revoke this
authority, nor can it be terminated by his
insanity or death.
As in the case Birat Chandra Dagara Vs
Taurian Exim Pvt. Ltd.[viii] there was an
intention to transfer leasehold area in favour of
power of attorney holder in respect of such
property. The Orissa High Court held that
Section 202 was attracted and such agency
could not be terminated in the absence of any
express contract, to the prejudice of such
interest.
Revocation possible before the authority has
been exercised (Section 203)
According to Section 203, the principal may
save as otherwise provided by the last
proceeding by the last preceding Section i.e.
Section 202 revoked the authority given to his
agent at any time before the authority has been
exercised so as to bind the principal. It means
that when the agent has already exercised the
authority conferred upon him by the principal,
the revocation of the same is not possible.
As in case Subhadra Vs M.
Narasimha[ix] Murthy the plaintiff sold the suit
property to the 1st defendant by executing a
power of attorney based on which, the
1st defendant executed a sale deed in favour of
the 2nd defendant. The plaintiff had received Rs
29,000 as consideration from the 1st defendant.
The plaintiff had cancelled the power of
attorney without paying back the consideration
of Rs 29,000 received by him.
Revocation where authority has been
partially exercised (Section204)
Section 204 states “The principal cannot revoke
the authority given to his agent after the
authority has been partly exercised so far as
regards acts and obligations as arise from acts
already done in the agency.”
Illustration: A authorizes B to buy 1,000 bales
of cotton on account of A, and to pay for it out
of A’s money remaining in B’s hands. B buys
1,000 bales of cotton in A’s name, and so as not
to render himself personally liable for the price.
A can revoke B’s authority to pay for the cotton.
Compensation for Revocation by principal,
or renunciation by agent (Section 205)
Section 205 states, “Where there is an express
or implied contract that the agency should be
continued for any period of time, the principal
must make compensation to the agent, or the
agent to the principal, as the case may be, for
any previous revocation or renunciation of the
agency without sufficient cause.”
If the agency is for a fixed term, although with
the possibility of fresh appointment after the
expiry of the term, it automatically terminates
on the expiry of the said term. Such agency
cannot be said to be irrevocable.
Principal should give reasonable notice of
revocation (Section 206)
According to Section 206 when the principal
having justification to do revokes the authority,
he must give reasonable notice of such
revocation to the agent, otherwise he can be
made liable to make good any damage which
may be caused to the agent.
As in the case M/S Om Prokash Pariwal And
Anr. Vs Union Of India (Uoi) And Ors.[x] it
was held that termination of agency without
giving to the storing agent a notice asking him
to show cause and opportunity of hearing before
the termination, was illegal.
Revocation and renunciation may be
expressed or implied (Section 207)
According to Section 207 revocation or
renunciation may be expressed or may be
implied in the conduct of that principal or agent
respectively.
Time from which the termination of agent’s
authority becomes effective (Section 208)
According to section 208 the termination of the
authority of an agent does not, sop far as regards
the agent, take effect before it becomes known
to him, so far as regards third persons, before it
becomes known to them.
Illustration: A directs B, his agent, to pay certain
amount of money to C. A dies, and D takes out
probate to his will. B, after A’s death, but before
hearing of it pays the money to C. The payment
is good as against D, the executor.
Agent’s duty on termination of agency by
principal’s death or insanity (Section 209)
When an agency is terminated by the principal
dying or becoming of unsound mind, the agent
is bound to take, on behalf of the representatives
of his late principal, all reasonable steps for the
protection and preservation of the interests
entrusted to him.
Termination of agency terminates sub-
agency (Section 210)
According to Section 210, the termination of the
authority of an agent causes the termination of
the authority of all sub- agents appointed by
him.
Conclusion
Those contracts are very common in business
law who establish a relationship of agency. An
agency is created when a person delegates his
authority to another person as it appoints them
to do specific work. The principal- agent
relationship confers certain rights and duties
upon both the parties. Examples of such types of
agency are: Insurance agency, travel agency,
brokers etc.