AGENT

Meaning of Agent (sec 182):-

An Agent is a person employed to:

1. Do any act for another: Or

2. Represent another in dealings with third person

Meaning of Principal:-

Principal is the person:

• For whom an act is done by the agent

• Who is represented by the agent in respect of dealing with 3 rd person.

Test of Agency: - Where a person has the capacity

1. To create contractual relations between the principal and 3rd party

2. Bind the principal by his own acts, there exists a relationship of agency.

Principal is liable for the acts of agent:-

a. Lawful Acts (only).

b. Within the scope of agents authority.
c. Contracts entered into by the agent on behalf of the principal have the
same legal consequence as if their contracts were made by the principal
himself.

Essential Requirements of Agency

There are certain requirements that are necessary for an agency. The following
are the requirements:

1. Principal Must be Competent to Contract Sec 183:

Any person of sound mind and with the age of majority by law can employ an
agent.

2. Competence of Agent is not Mandatory Sec 184:

Agent may be not be competent to contract.
Who may employ an agent:
a. He is of the age of majority and
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 b. He is a sound mind.

Who can be an agent?

a. Any person may become an agent.

b. Even a minor or a person of unsound mind can become an agent.

Liability of agent:

• Generally an agent is liable to the principal

• An agent is not liable to the principal if he is a minor/unsound
mind.

Any person can become an agent between the principal and the third person.
Generally, an agent does not have any personal liabilities towards the principal
while contracting. Therefore the agent doesn’t need to be competent to contract.

3. No Consideration is Necessary Sec 185:

No remuneration is necessary while appointing an agent. The agent receives

payment by the way commission for the rendered services.

Creation of Agency

The following are the ways to create an agency:

1. The acts done with principal’s Actual Authority. Extent of agents

authority (Sec 188) :-
a. Expressed

Any competent principal person can appoint an agent as his representative

through a contract. The appointment contract can be in oral or also in written
form.

b. Implied

The principal person can appoint an agent indirectly, and an implied agency will
be created. The formation of the implied agency can be through relationships or
certain situations.

• Authority to do lawful acts.

• Necessary acts / in course of conducting such business.

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 • Such authority has not been conferred by the express words, but which
can be inferred from the circumstance of the case / course of dealings /
usage of the particular trade.

Extent of agent authority depends upon the nature of business which the
agent has authorised to transact

Case law :- Ishaq V/s Madanlal:

Facts :

• the plaintiff, a wholesale dealer of potatoes at Fatehgarh in UP., sold and

dispatched wagon of potatoes to the defendant, a dealer of potatoes at
Khandwa in Madhya Pradesh.
• The defendant refused to take delivery of the goods.
• The plaintiff authorising the agent to take delivery of the potatoes and
sell them there ‘at any price he chooses’.
• The agent contracted the defendant and other dealers in the trade.
• The offer made by the defendant for this consignment was highest, but
this amount was 700 Rs less than what the defendant had originally
agreed to pay.
• The agent accepted this payment and gave in writing that this payment
was a full settlement of the claim of the plaintiff against the defendant.
• The plaintiff accepted this money but brought an action to recover the
balance of Rs 700 form the defendant.

Issue:

• Agent has implied authority to accept smaller amount in cash from the
defendant in settlement of the whole claim.
• Agent had any implied authority under sec 188.

Judgement: plaintiff claim was rejected.

2. Agents authority in an Emergency (sec 189) :-

• For protecting his principal from loss
• In ordinary prudence in his own case under circumstance

Illustration: - a) Repair of good: An agent for sale may have goods repaired if
it be necessary.

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 b) If goods spoiling: 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.

3. Principal bound by Estoppal Sec 237: :-

Sometimes the agent has neither express nor implied authority to do an act on
behalf of the principal, but the principal by his conduct creates an impression in
the mind of the 3rd person that the agent has an authority to act on his behalf. In
such case, the principal is liable towards the 3rd person for the acts done by the
agent, on the ground of the application of the

Sec 237: Liability of principal inducing belief that agent’s unauthorized

acts were authorized.—When an agent has, without authority, done acts or
incurred obligations to third persons on behalf of his principal, the principal is
bound by such acts or obligations, if he has by his words or conduct induced
such third persons to believe that such acts and obligations were within the
scope of the agent’s authority.

Illustrations

(a) A consigns goods to B for sale, and gives him instructions not to sell under a
fixed price. C, being ignorant of B’s instructions, enters into a contract with B
to buy the goods at a price lower than the reserved price. A is bound by the
contract. (a) A consigns goods to B for sale, and gives him instructions not to
sell under a fixed price. C, being ignorant of B’s instructions, enters into a
contract with B to buy the goods at a price lower than the reserved price. A is
bound by the contract."

(b) A entrusts B with negotiable instruments endorsed in blank. B sells them to

C in violation of private orders from A. The sale is good. (b) A entrusts B with
negotiable instruments endorsed in blank. B sells them to C in violation of
private orders from A. The sale is good."

4. Principal bound by Ratification (Sec 196 to 200) :-

Act done on behalf of another (Sec 196):-

Principal may be bound even for the acts done without any authority. if the
principal ratifies i.e, accords subsequent approval to an act done without his
authority but on his behalf the principal would be bound in respect of such act.

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Meaning:-

• If a person (agent) acts on behalf of another person (principal)

• The pretended agent acts without the knowledge pr consent of the
principal and
• Afterwards the principal accepts such act
• Agency by ratification come into existence

ESSENTIALS OF VALID RATIFICATION

1. Act done on behalf of another (Sec 196):-

The act to be ratified, it is necessary that the same has been bone on behalf of
the person who seeks to ratify the same. A person cannot ratify an act done on
wife. Similarly if an agent acts on his own account, such an act cannot be
ratified by another person.

Agent acts on his own account

Keighley Maxsted & co v/s Durant;

Facts:

• Above company instructed Roberts to buy wheat on joint account, i.e.,.

for them and himself, at a certain rate. Wheat was not available to
Roberts at that rate, so he purchased wheat at a slightly higher rate.
• It was purchased by Roberts on his own account only.
• Keightley, Maxsted & Co. purported to ratify the agreement, but
subsequently, when the price fell, refused to take delivery of wheat. In an
action by the seller for breach of contract against Keighley, Maxsted &
Co.,.

Judgement: 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.

2. Principal should be in existence and competent to contract:-

If a contract is purported to be made on behalf of a company which has not yet

been formed, the company cannot ratify the contract after coming into
existence.

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Kelner V/S Boxter :

Facts:

• The promoters of a company, which had not yet been formed, entered
into a contract on behalf of the company. After the company was formed,
it ratified the contract.
• Then the company went into liquidation. An action was brought against
the promoters to make them liable on the contract.
• They tried to avoid their liability by pleading that after the contract made
by them had been ratified by the company, their liability was over.

Judgement: it was held that since the company was not in existence at the
time of the doing of the act, the purposed ratification was a nullity and
therefore, the liability of the promoters continued in spite of ratification.

Existence of principal- The principal must be in existence at the time

when the act was done in his name

3. Ratification may be express or implied (Sec 197) :-

• Sec 197. Ratification may be expressed or implied.—Ratification may be
expressed or may be implied in the conduct of the person on whose
behalf the acts are done. —Ratification may be expressed or may be
implied in the conduct of the person on whose behalf the acts are done."
Illustrations

(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 for him by
A. (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 for
him by A."

(b) 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. (b)
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."

4. Ratification with full knowledge of facts (Sec 198):-No valid

ratification can be made by a person whose knowledge of the facts of the
case is materially defective. In other words the principal must have full
knowledge of all the materials facts.

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Savery V/S King: A entered into a mortgage agreement on B’s behalf. The
agreement was invalid. Without knowing this fact, B purported to ratify the
transaction.

Judgement: it was held that since B was not knowing about the invalidity of
agreement, the purported ratification of the same by him, was of no effect.

5. Ratification of the whole transaction (Sec 199):-

It must be done for whole transaction in fact; ratification of the part of a

transaction operates as a ratification of the whole transactions.

6. Ratified act should not be injurious to a 3rd person (Sec 200):-

Ratification of unauthorised act cannot injure 3rd person

Effects: - a) damages

b) Terminating any rights

c) Interest of 3rd person

Sec 200 Ratification of unauthorized act cannot injure third person—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. —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." Illustrations

(a) A, not being authorized 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 C liable for damages for his refusal to
deliver. (a) A, not being authorized 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 C liable for damages for his
refusal to deliver."

(b) 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

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ratified by B, so as to be binding on A. (b) 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."

• Ratification within a reasonable time:-

Delay in ratification could prejudice the interest of the 3rd person and therefore
undue delay in ratification should not be there.

5. Agency in husband-wife relationship

• A married women cohabiting with her husband is presumed to have the
power to pledge the credit to her husband for “necessary”
• Good and service for domestic use to herself, her husband and child
• Husband becomes bound to pay for them
• Living together appears to be husband and wife to a 3rd person:-liable.

Implied authority:- Wife to husband

A. Cohabiting
B. No living separately
C. Domestic establishment

Agency for necessity was overtaken by matrimonial proceedings and property

act 1970 and now no agency of necessity.

DUTIES OF AGENT sec 190 to 218:

1. Duty not to delegate his duty (Sec 190) :-

“DELEGATUS NON POTECT DELEGARE” means that an agent to

whom some authority has been delegate cannot further delegate that authority to
another person.

• Relationship based on confidence and trust.

• Agent cannot substitute another person in his place
• Agent cannot substitute another in his place
• No sub-agent to get work done

Subagents: sec 191: a subagent is a person employed by and acting under

the control of, the original agent in the business of agency.

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Exception to DELEGATUS NON POTECT DELEGARE”

a. Ordinary custom on trade

b. From the nature of agency. Ex: to file a suit agent can not do it, it can be
done only through a lawyer.
c. Personal Skill.
d. Expressly/impliedly agrees to appoint.

General rule: - An Agent has expressly or impliedly undertaken to perform a

contract personally he cannot employ a sub-agent for the same.

Representation of principal by sub-agent properly appointed (Sec 192):-

Position when sub-agent is properly appointed and proper delegated of authority

Appointment of the sub-agent is valid. Represented by sub-agent then the

Principal is bound and responsible for his acts.

• Agent’s responsibility for sub-agent:- The agent is responsible to the

principal for the acts of the sub-agent.
• Sub-agent responsibility:- Sub-agent is responsible for his acts to the
agent but not to the principal

Expect in cases of fraud or wilful wrong

1. The acts of the sub-agent bind the principal towards 3rd person:-

Act of the sub-agent would bind the principal in the same way as an act of any
duly appointed agent.

Responsibility of the agent/sub-agent towards the principal:-

The act of Sub-agent would bind the principal in the same way as an act of nay
duly appointed agent.

2. Responsibility of the agent/sub-agent towards the principal:

• Agent and the principal: Sub-agent is not directly responsible to
principal.
• Agent is responsible to the principal for the acts of the sub-agent.

No privity of contract between sub-agent and principal therefore sub-agent is

not personally responsible to the principal

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 • Its agent responsibility to see that the sub-agent properly performs his
duties and therefore the agent is responsible for the same to the principal.
• No contractual relationship between principal and sub-agent but this rule
does not apply when the sub-agent commits a “torts”
• In case tortuous acts like fraud or wilful wrong committed by the sub-
agent, the sub-agent becomes directly answerable to the principal.
• In case of fraud/wilful wrong. The principal has a choice to bring an
action against the agent or the sub-agent.

Position when sub-agent not properly appointed (Sec 193):-

Sec 193: agent’s responsibility for sub-agent appointed without authority:

1. Principal is not represented by or responsible for the acts of the person so

employed.
2. 3rd person not responsible to the principal.
• Principal will not bound towards any 3rd party or person
• Sub-agent it not responsible for his acts to the principal.

Acts of sub-agent:- Agent will be responsible for principal and 3rrd person.

• Between agent and sub-agent considered to be Principal ad agen.

• Agent is answerable for the acts of the sub-agent to principal.
• Agent and sub-agent is considered to be principal and Agent. So finally
agent is answerable for the acts of the subagent to the principal.

Substituted agent:- (Co-agent) sec 194:

Sec 194: Relation between principal and person duly appointed by an agent
to act in business of agency:-

• The appointment of a substituted agent is made by an agent

• Sub-agent is agent of the agent, substituted agent is an agent of the
principal.
• Not appointed by the principal.
• Substituted agent is appointed by/ through efforts of an agent
• Agent is authority by the principal to appoint substituted agent to act for
the principal in the business of agency.
• Substituted agent is the agent of the principal
• Privity of contract between principal and substituted agent.

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 • Principal is bound by the acts of substituted agent.
• Agent goes out of the picture.
• Agent duties is to appointed substituted agent with due care.
• Once substituted agent appointed a agent will perform all functions of
agent and principal will be represented by substituted agent in relation to
3rd person.
• Substituted agent will be responsible towards the principal.

Duty in appointing a substituted agent (Sec 195):-

1. Agent duty in naming such person. Same amount of discretion as a man

of ordinary prudence would exercise his own case.
2. If negligence of the agent to selected he is not responsible.
3. Agent is appointed with care then agent is not responsible for negligent
act of substituted agent.

Illustration:

(a) 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. (a) 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."

Distinguish between sub-agent and substituted agent

1. Sub-agent is agent’s agent. Substituted is principal agent

2. Sub-agent is not responsible for his acts to the agent and agent in his trun
is responsible for the sub-agent’s act to the principal- Sub-agent is not
responsible to the principal to the principal, except in case of fraud or
wilful wrong.
3. A substituted agent is directly responsible to principal for his acts.
4. Even after appointing a sub-agent, the agent continues to be responsible
for the acts of the sub-agent towards the principal
5. An agent’s responsibility, on the other hands, is over when he names a
substituted agent. Agent goes out of the picture.

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2. Duty to follow principal’s directions (Sec 211):-

• Sec 211(i): agent is bound to conduct business according to principal

direction
• Sec 211(ii): No direction, agents act according to customs. Without
direction/customs even agent not anticipated at the time of doing an act
agent is liable.

(a) A, an agent engaged in carrying on for B a business, in which it is the

custom to invest from time to time, at interest, the moneys which may be in
hand, on its to make such investments. A must make good to B the interest
usually obtained by such investments. (a) A, an agent engaged in carrying on
for B a business, in which it is the custom to invest from time to time, at
interest, the moneys which may be in hand, on its to make such investments.
A must make good to B the interest usually obtained by such investments."

Lilley v/s doubleday:

Facts:

• The defendant, having agreed to store the plaintiff’s goods in his own
repository, stored some of them in another warehouse.
• Those goods were destroyed by fire without any negligence on the part of
the defendant.
Judgement: defendant was held liable.

Advocate: Advocate being an agent of his client has to follow the instruction
and directions given by his client. If he acts in a manner contrary to the
direction given by his client, or against the custom, or practice of his profession
and any loss is caused to his client thereby, he must make good such loss.

Shankarlal v/s state bank of India

3. Duty to show proper skill and care ( Sec 212):-

Skill and diligence required from agent:- An agent is bound to 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 this
want of skill. The agent is always bound to act with reasonable diligence,
and to use such skill as he possesses; and to make compensation to his
principal in respect of the direct consequences of his own neglect, want of

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skill, or misconduct, but not in respect of loss or damage which are indirectly
or remotely caused by such neglect, want of skill, or misconduct. —An agent
is bound to 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 this want of skill. The agent is always bound to act
with reasonable diligence, and to use such skill as he possesses; and to make
compensation to his principal in respect of the direct consequences of his
own neglect, want of skill, or misconduct, but not in respect of loss or
damage which are indirectly or remotely caused by such neglect, want of
skill, or misconduct." Illustrations

(a) A, a merchant in Calcutta, 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—as, e.g., by variation of rate of
exchange—but not further. (a) A, a merchant in Calcutta, 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—as, e.g., by variation of
rate of exchange—but not further."
1. Such skill generally engaged in similar business
2. Reasonable diligence and to use such skill as he possesses
3. Make compensation to principal if he is
a. Neglect
b. Want of skill
c. Misconduct (only with direct but not indirectly acted)

Keppel v/s 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.

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 Judgement: it was held that the agent did not show proper skill and care
in the manner and, therefore, he was liable to pay damages to his
principal for the loss suffered by him.

Narandas Vs Papammal:

4. Duty to render proper accounts (Sec 213):- from agent to principal on

demand but no right of agent or provision in act enabling an agent to
require the principal to render accounts or filing a suit for that purpose.
Narandas v/s Papammal

No statutory right but equitable right to agent for filing call

against principal for accounts.

Saroj kapur v/s Nitin casting Ltd

5. Duty to communicate with principal (Sec 214): according to sec 214, it

is the duty of an agent, in case of difficulty to use all reasonable diligence
in communicating with his principal, and in seeking to obtain his
instruction.

6. Duty not to deal on his own account (Sec 215 & 216):

If any transaction, an agent deals on his own account without the principal’s
prior consent, the principal has the following two rights:

(i) Repudiation of contract by principal when agent deals on his own

account Sec 215:

Right of principal when agent deals, on his own account, in business of

agency without principal’s consent:- If an agent deals on his own account in
the business of the agency, without first obtaining the consent of his principal
and acquainting him with all material circumstances which have come to his
own knowledge on the subject, the principal may repudiate the transaction, if
the case shows, either that any material fact has been dishonestly concealed
from him by the agent, or that the dealings of the agent have been
disadvantageous to him. —If an agent deals on his own account in the business
of the agency, without first obtaining the consent of his principal and
acquainting him with all material circumstances which have come to his own
knowledge on the subject, the principal may repudiate the transaction, if the
case shows, either that any material fact has been dishonestly concealed from

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him by the agent, or that the dealings of the agent have been disadvantageous to
him." 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. (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."

• Material fact has been dishonestly concealed from him by the agent
• Dealings of the agent have been disadvantageous to him

(ii) Principal’s rights to claim benefit when agent acting on his own
account:-

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. —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. 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."

De Bursche v/s Alt:

Facts:

• 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.

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 • Later, he sold the ship on profit.

Judgement: it was held that the agent was bound to account to the principal
for the profit made by him in the transition.

Bentley Vs Craven:

Facts: a partner of a firm of sugar refiners, who was asked to purchase sugar for
the firm for the purpose of refining, supplied to the firm his own sugar, without
informing the other partners about this fact. He supplied this sugar at the
prevailing market rate but had himself purchased it at a lower rate.

Jugdgement: it was held that he was bound to account for the profit made in
this transaction, to the firm.

7. Duty to pay sums received for principal (Sec 217 & 218):
• Pay to his principal all sums to be received from 3rd person
• He can deduct due
• Advance made
• Expenses
• Remuneration

RIGHTS OF AGENT AND DUTIES OF PRINCIPAL

1. Rights to remuneration (Sec 219):-

219. When agent’s remuneration becomes due.—In the absence of any

special contract, payment for the performance of any act is not due to the agent
until the completion of such act; but an agent may detain moneys received by
him on account of goods sold, although the whole of the goods consigned to
him for sale may not have been sold, or although the sale may not be actually
complete.

a. Agent should complete his act.

b. agent may detain money due to him
c. Even without whole of the goods consigned to him for sale may not
have been sold/sale is not actually complete.

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Ex- Parties agreed to the agent will be entitled to commission when he finds a
purchaser who is ready and willing to purchase the property agents become
entitled to the commission on doing that.

Saraswathi Devi v/s Motilal: Moti law, the plaintiff, who was an agent, had
been engaged by the defendant, Smt. Saraswathi Devi and her husband, to find a
purchaser for certain property. The plaintiff found a customer, who was willing
to pay 1.27.000 for the property and who also paid an advance of Rs. 30,000.
Subsequently, the defendants refused to sell the property to that customer. The
plaintiff brought an action against the defendants to recover Rs. 2,500 as
remuneration for finding the customer.

Judgement: it was held that according to the nature of this 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 entitle to his commission.

• Agent efforts should be effective cause for the transaction.

• No remuneration for the business misconduct (Sec 220)
Sec 220. Agent not entitled to remuneration for business misconduct: “An
agent who is guilty of misconduct in the business of the agency, is not
entitled to any remuneration in respect of that part of the business which
he has misconduct: An agent who is guilty of misconduct in the business
of the agency, is not entitled to any remuneration in respect of that part of
the business which he has misconduct”.
Illustration:
A employs B to recover 1,000 rupees from C. Through B’s misconduct
the money is not recovered. B is entitled to no remuneration for his
services, and must make good the loss.
• Suit for recovery of commission in contract of agency.

2. Rights to retain sums (Sec 217 & 218):

Agent’s right of retainer out of sums received on principal’s account:
An agent may retain, out of any sums received on account of the principal
in the business of the agency, all moneys due to himself in respect of
advances made or expenses properly incurred by him in conducting such
business, and also such remuneration as may be payable to him for acting
as agent. —An agent may retain, out of any sums received on account of
the principal in the business of the agency, all moneys due to himself in
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 respect of advances made or expenses properly incurred by him in
conducting such business, and also such remuneration as may be payable
to him for acting as agent."

3. Rights of lien of principal’s property (Sec 221):

Agent’s lien on principal’s property:- In the absence of any contract to
the contrary, 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, disbursements and
services in respect of the same has been paid or accounted for to him. In
the absence of any contract to the contrary, 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, disbursements and services in respect of the same has been
paid or accounted for to him.
• Retains good paper and other property both movable and immovable.
Lien over goods purchased for his principal rights comes to an end when
possession is transferred.
• Ram Prasad Vs State of MP: as a general rule in order to have a lien an
agent must have some possession, custody or control or disposing power
in or over the subject matter in which the lien is claimed.

4. Rights to be indemnified (Sec 222-224):

• According to section 222, the employer of an agent is bound to
indemnify him against the consequences of all lawful acts done by
such agent in exercise of the authority conferred upon him.
• Principal is liable for a. Damages b. Costs and C. Expenses.
• Sec 223: Indemnity for civil wrongs for acts done with good
faith: illustration: (a) A, a decree-holder and entitled to execution
of B’s goods requires the officer of the Court to seize certain
goods, representing them to be the goods of B. The officer seizes
the goods, and issued by C, the true 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

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 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.

Case law: Adamson v/s Jaruis

• No Indemnity in case criminal offence sec 224:

5. Rights to compensation for damages due to principal’s neglect (Sec

225) :The principal must make compensation to his agent in respect of
injury1 caused to such agent by the principal’s neglect or want of skill.
• The principal must make compensation to his agent in respect of injury
caused to such agent by the principal’s neglect or want of skill."
• Illustration A employs B as a bricklayer in building a house, and puts up
the scaffolding himself. The scaffolding is unskillfully put up, and B is in
consequence hurt. A must make compensation to B. A employs B as a
bricklayer in building a house, and puts up the scaffolding himself. The
scaffolding is unskillfully put up, and B is in consequence hurt. A must
make compensation to B."

RELATIONS OF PRINCIPAL AND AGENT WITH 3R PERSONS SEC

226

• Principal becomes bound towards 3rd person as if he entered into the

contract by himself
• Same legal consequences.

Principal’s liability
1. Principal’s liability when agent exceeds authority:

Sec 227: Principal how far bound, when agent exceeds authority: 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.

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Illustration: A, being owner of a ship and cargo, authorizes B to procure an
insurance for 4,000 rupees on the ship. B procures a policy for 4,000 rupees on
the ship, and another for the like sum on the cargo. A is bound to pay the
premium for the policy on the ship, but not the premium for the policy on the
cargo.

Ahammad v/s mamad Kurhi: an agent was authorised 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 authorised and the
unauthorised portions were separable.

Judgement: 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.

2. Principal’s liability for notice to the agent Sec 299:

Consequences of notice given to agent: 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 parties, 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 certain goods, of which C is the
apparent owner, and buys them accordingly. In the course of the treaty for
the sale, A learns that the goods really belonged to D, but B is ignorant of
that fact. B is not entitled to set-off a debt owing to him from C against
the price of the goods.

3. Principal’s liability for agents fraud, misrepresentation and torts

(Sec 238)

Misrepresentation made or frauds committed, by agents acting in the course of

their business for their principals, have the same effect on agreements made by
such agents as if such misrepresentations or frauds had been made or committed
by the principals; but misrepresentations made, or frauds committed, by agents,
in matters which do not fall within their authority, do not affect their principals.

Illustration: (a) A, being B’s agent for the sale of goods, induces C to buy them
by a misrepresentation, which he was not authorized by B to make. The contract
is voidable, as between B and C, at the option of C.

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Vicarious Liability of the principal (Sec 238)

• 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”
means “acts of agent is act of principal”.

Lloyd v/s Grace, smith and co :

Facts:

• One Mrs. Lioyd who owned two cottage but was not satisfied with the
income from them, went to the office of Grace, Smith & Co, a firm of
solicitor, 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 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 acted without the principal’s knowledge and solely for
his personal gain.
Judgement: it was held that since the agent was acting in course of
the principal’s business, the principal was liable for fraud.

M.N Shankar v/s maharastra state board of secondary and higher

secondary education:

Facts:

• In this case 30 students of a school recognised by the respondent

Education Board submitted their applications and fees for the Board’s
examination with the Headmaster of their school for being forwarded to
the Board.
• The head master forwarded the same through the clerk of the school, who
misappropriated the fees and did not deliver those applications to the
Board.

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 Judgment: it was held that the said school which was recognised by the
Board for accepting he students’ fees and the applications was the agent
of the Board, and had express authority to do so, and if in the process of
receipt and transmission, any fraud was committed by the school clerk,
the Board was liable for the same.

PERSONAL LIABILITY OF AGENT

• Generally: Agent is not liable

• Principal liable to the 3rd person
• A suit for specific performance is not maintable against the agent
• Agent cannot personally enforce, nor be bound by contract’s on behalf of
principal (Sec 230) .

Exception to above

Personally liable on following cases:-

1. When agent acts on behalf of a foreign principal

When an agent contracts for the sale or purchase of goods for the’principal
residing abroad, the agent is personally liable for such contracts. However, the
agent can exclude his personal liability by expressly providing in the contract
not to incur personal liability.

2. Where the Agent Acts for an Undisclosed Principal: Where the agent acts
for an undisclosed principal, he is personally liable on the contracts. But where
the agent discloses that he is only an agent or the third party knows that he is
acting as an agent of another, then the agent is not personally liable.

Sec 232. Performance of contract with agent supposed to be principal:

Where one man makes a contract with another, neither knowing nor having
reasonable ground to suspect that the other is an agent, the principal, if he
requires the performance of the contract, can only obtain such performance
subject to the right and obligations subsisting between the agent and the other
party to the contract.

Illustration: A, who owes 500 rupees to B, sells 1,000 rupees worth of rice to
B. A is acting as agent for C in the transaction, but B has neither knowledge nor

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reasonable ground of suspicion that such is the case. C cannot compel B to take
the rice without allowing him to set-off A’s debt

Alliance Mills Vs Indian Cements Ltd,: the agent entered into a contract for
the purchaser of goods in his own name describing himself as the purchaser. .
He did not disclose that he was acting as an agent. The contract note itself cast
all obligations on the purchaser.

Judgement: it was held that in such a situation the agent could personally
enforce the contract and also could be made personally liable for the same.

3. Where the Agent Acts for an Incompetent Principal: When the agent
contracts for a principal who is not competent to contract such as minors,
persons of unsound mind etc., the agent is personally liable on the contracts.

4. Where the Agent Acts for a Non-existing Principal: Where the agent acts
for a principal who is non-existent, the agent is personally liable on the
contracts. For instance, the promoters, contracting on behalf of the company,
which is yet to be incorporated, are personally liable.

5. Where the Agent’s Authority is Coupled with Interest: Where an agent

has an interest in the subject-matter of the contract, his agency is said to be
coupled with interest. In such a case, the agent is personally liable to the extent
of his interest in the contract. He can also enforce the contract to the extent of
his own interest.

6. Where an Agent Receives or Pays Money by Mistake or Fraud: Where an

agent receives some money from a third party by mistake or fraud, he is
personally liable to the third person for the refund of such money. Likewise, if
he pays some money to a third party by mistake or fraud, he can recover it back
from the person to whom it has been paid.

7. Where the Contract Expressly Provides: If at the time of entering into a

contract with a third party, it is expressly agreed that the agent shall be
personally liable for the contract, the agent incurs personal liability.

8. Where the Agent Signs the Negotiable Instruments in his own Name: If
an agent signs the negotiable instruments such as Promissory Note, bill of
exchange or Cheque, without disclosing that he signs as agent, he incurs
personal liability on the instrument.

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9. Where the Trade Usage or Customs makes him Personally Liable:
Sometimes, the trade usage or customs of a particular trade provide that the
agent shall be personally liable for the contract. In such cases, the agent incurs
personal liability.

10. Where the Agent Contracts in Excess of his Authority: Where the agent
contracts exceeding his authority, he is liable to third party for any loss caused
to him.

11. Pretended Agent: A pretended agent is a person who represents himself to

be an agent of another, when in fact he has no authority from him whatsoever.
When a person pretends to act as an agent of another, the principal may ratify
the acts of the agent, and protect him from liability. But if the principal refuses
to ratify the acts of the agent, the latter becomes personally liable for any loss or
damage caused to him to the third party.

Sec 235. Liability of pretended agent.—A person untruly representing himself

to be the authorized agent of another, and thereby inducing a third person to
deal with him as such agent, is liable, if his alleged employer does not ratify his
acts, to make compensation to the other in respect of any loss or damage which
he has incurred by so dealing

Example: A borrowed money from B, as agent of D. B believed him to be so.

But this was not true. It was held that A was liable to B.

Where a person contracts as agent, he is not entitled to require the performance

of it provided he was in reality acting not as agent, but on his own account.

Example: A in the character of agent for B enters into an agreement with C, to

buy C’s house. A is in reality acting not as agent for B but on his own account.
A cannot enforce the performance of the contract.

Aa Bee Resort and Travel Pvt. Ltd. v. Om Prakash Palia: decided by the
Delhi State Consumer Disputes Redressal Commission, wherein it has been
held that the liability of the agent booking the ticket The agent had sold the
ticket on behalf of the airline as its booking agent. Agents here cannot escape
this liability.

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TERMINATION OF AGENCY

Modes of termination:

The provisions relating to the mode of agency are defined under Section 201 of
the Indian Contract Act – 1872. Section- 201 which provides termination of
agency is not comprehensive. We can divide termination of agency into two
parts:

1. By the act of parties.

2. By the operation of law.

1. By the act of parties:

There are following manner in which by the act of parties the agency can be
terminated:

a. Revocation by mutual agreement: The agency of contract can be

terminated at any time by mutual agreement between the principal and
the agent.
b. Revocation by the principal: Agency can be terminated by the principal
by revoking the agent’s authority. The principle can revoke his agent’s
authority when it has not been exercised by the agent reasonable, notice
must be given for such revocation.
For Example- A empowers B to let A’s house. Afterwards A lets it
himself. This is an implied revocation of B’s authority.
c. Revocation by the Agent: The Agent also can revoke the agency by
serving notice to the principle. As per section 206 of the Indian Contract
Act 1872, the agent must give proper notice of renunciation / revocation
of his principal. Otherwise, he shall be liable to make good for the loss to
the principal for such notice.

2. By operation of law:

The following points are included in this:

a. By the completion of agency – After completion of agency work, an

agency can be terminated for which agency is created.

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 Example: Mahesh employed Sachin as his agent to sell his house in
China when the house was sold by Sachin, it automatically terminates the
contract of agency between Mahesh and Sachin.
b. By the end of time- The agency can also be terminated by the end of
time. If the agency is created for a specific period of time, then it expires
after the time period is over.
Example: Anandam employs to anjana as a secretary for the period of 3
years at the end of the 3 years. The contract of agency will come to an
end after the specified period.
c. Death or insanity of principle or agent: Section 209 of the Indian
Contract Act deals with it. If there is a death of the principle or agent, the
business or agency of the firm may be terminated in this situation.
d. Insolvency of principle: To create an agency it is necessary to be
competent but, if the principal becomes insolvent or bankrupt, the agency
may be terminated.
e. Destruction of subject matter – If this subject of agency is destroyed
then the agency is closed.
Example – any agency is made for sale of airplanes, if the airplane
catches fire before the sale then, this agency can be terminated because
airplane are the subject of this contract.
f. Principal becomes a foreign enemy – If the principal becomes a foreign
enemy, the contract of agency terminates.
Example: Mr. T is employed in America and Mr Sachin who works as an
agent for Mr. T in China for business, due to war climate between the
countries of principal and agent, the contract of agency gets terminate.

Effects of Termination

The termination of the authority comes to effect only when the agent or the third
person becomes aware of it. The termination of the authority occurs at once
when the agent becomes aware of termination. But for the third person, the
termination takes place only when the third person becomes aware of the facts
of the termination.

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