Contract of Agency

Sanjay Bang
Points to be covered in this lecture
 1) Why the concept of agency has grown?
 2) The Latin maxim related to the concept of

agency.
 3) The parallel concept in Criminal Law and

Tort.
 4) The relationship between Principal and

agent.
 5) The test for agency.
 6) Who may act as agent?
Introduction
 Modern business is becoming complex day by
day. Due to vast expansion of modern business,
it is not possible for a person to carry on all the
business transactions himself.
 He has to rely on others in order to run his day
to day affairs.
 The principal of agency is based upon a
contractual relation between two parties through
which one delegates some authority to another
on which the other acting on behalf of the first
person can lawfully bind him.
History of agency
 The law of agency is usually represented in
the Latin phrase, “qui facit per alium facit per
se”.
 It means who acts through another is acting

himself.
 In Hindu Law “Prathinidi” is also almost

identical concept .
 The appointment of prathinidi has always

been a well accepted principle in all walks of

life.
Continued
 It’s a parallel concept to vicarious liability or
strict liability in which one person is held
liable in criminal law or tort for acts of
omissions of another.
 Section 182 to 238 of the Indian Contract Act

talks on the nature of agency, relationship of

principal with agent and the third party and
the termination of the agency.
Continued
 The person who has been appointed to
represent another is called as agent.
 The person to whom such act is done or who

is represented is called the principal.

 The contract which creates the relationship of

principal and agent is called as Agency.

 A appointed B to purchase 100 bags of rice.

Here A is principal and B is agent.

Definition
 Section 182 of the Indian Contract Act defines
agent as “ A person employed to do any act
for another or to represent another in
dealings with third party”.
 It simply means the agent is a person who is

authorised to act in place of another.

 In Common Law “Agency is taken as

employing a person for creating legal

relations between the employer and the third
party”.
Continued
 The function of the agent is to bring the
principal and the third party into contractual
relationship.
 Thus agent is mere a contracting link

between the two.

 The agent has a power to make the principal

answerable to the third parties for his

conduct.
Continued
 So every person who acts for another is not an
agent.
 In this regard, the observations of Justice

Ramaswamy are noteworthy “ Every person who

acts for another is not an agent, like domestic
servant, the one who acts in shop, it is only
when he acts as a representative of the other in
business negotiations between principal and the
third party. Representative character and
derivative authority may briefly be said to be the
distinguishing features of an agent”.
Two rules of the Agency
 1) Whatever a person can do personally he can
do through the agent, except the performance
based upon the personal skills.
 2) He, who does an act through another, does
by himself. Consequently , all the acts of the
agent are the acts of the principal.
 According to section 184 of the Indian Contract
Act, any person can act as agent. Even minor or
unsound mind person can also act as agent but
they are not liable for their acts.
Advantages of Agency
 1) Principal can engage himself in entering
into several contracts and bind himself in
entering into several contracts and bind
himself at the same time with different
persons at different places.
 2) Efficiency in operation of scale can be

enjoyed only because the principal can

appoints agent of various types suitable for
various specified tasks.
Who is Principal
 The definition of Principal is also given under
section 182 of the Indian Contract Act.
 Sec 182 says that Principal is the person for

whom such act is done or who is represented

by the agent.
 It is the Principal who gives the instructions

or directions to the agent to perform any act.

 What principal can do the agent can do

except the work which is based upon

personal skill
Competancy to appoint agent
 According to section 183 of the Indian
Contract Act, a 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 agent.
 According to section 185 of the Act, no

consideration is required to create an agency.

 The judiciary has also interpreted the

competency for the appointment of agent in

different prouncements.
T.C.Mathai vs District and session
Judge, Thiruanantpuram
 The citation of the case ( 1999) 3 SCC 614
 It was held in this case that “ every person

has the right to appoint an agent for any

purpose except where the act to be
performed is personal in character or when it
is annexed to a public officer or to an office
involving any fiduciary obligations.
 Thus, Indian Contract Act has given certain

conditions for appointing agent but not for

acting as agent.
Lamb (WT) & sons vs Goring bricks
company LTD
 The citation is (1932) 1KB 710.
 A person was given sole selling rights. The

defendant asked the plaintiff to sell the

goods for a fixed period. Before that period
was up, the defendants decided they wished
to sell the goods themselves.
 Is this the example of Agency or example of

general contract?
 Give the reasons
Continued
 The Court held in this case, that
there was a breach of contract,
which meant that the relationship
between the defendant and the
plaintiff was not based upon the
agency. If it had been the
defendants could not have sold
the goods themselves.
Essentials of the contract of agency
 1) Agreement between the Principal and the
agent.
 2) Principal must be competent to contract as

per section 183.

 3) Agent need not to have contractual

capacity.
 4) Consideration is not necessary to create

agency. (sec 185).

 5) Privity of contract.
Continued
 The agent establishes privity of contract
between himself, his principal and the third
party.
 There is a binding contract between the agent

and the principal, as it’s a special type of

contract.
 But there is no privity of contract between the

agent and the third party.

 The agent step aside and has no more to do

with the principal contract.

Continued
 A has been appointed agent of B. A buys raw
material for B on credit from C. In this case if
B refuses to pay, C can sue him for the
recovery of payment, It is because there is
privity of contract between B and C.
Formation of agency
 The agency may be created in the following
Four ways.
 1) By express agreement.

 Ireland vs Livingstone (1872) 5HL 395

 500 tones of sugar in Mauritius case.
 If the express instructions are ambiguous,

the Principal is liable for the same

Continued
 2) By implied agreement:- Section 187 says that an
authority is implied when it is to be inferred from
the circumstances or words spoken or written.
 The authority is said to be implied when it is

inferred from the conduct, situation or relations of

the parties.
 The relationship of the agent and the principal

need not be expressly constituted but can be

brought about by implication of law on a particular
situation arising or from the necessity of the case.
Continued
 Example of rent remission by third party with
knowledge.
 Advocates power to compromise the suit or

confess judgment is implied in every

Vakalatnama unless expressly excluded.
 Panorama Ltd vs Furnishing Fabrics Ltd.
 ( 1971) 2 Q.B 711
 The Company Secretary case. It is in

administrative power of the company

secretary. ( Purchase of car)
Cntinued
 Thus, very often the relationship of the agent
and the principal required to be ascertained
from the fact situation because most of the
things are not in writing.
 In Branwhite v Worcestor works finance ltd
 (1969) 1AC 552
 It was held that while the agency must

ultimately be derived from consent, the

consent need not necessarily be expressed in
writing.
Types of implied agency (237)
 A) By Estoppel:- presumption of agency. Agency
by estoppel is a legally binding agency
relationship that may arise where, infact no
formal agency agreement is effected.
 B) By Holding out:- The relationship of agency is

created out of some positive or conformity act

by the principal. In this case the principal
himself holds out that someone is his agent.
The active assertion made by the principal is to
induce the other person for believing that
someone is his agent.
Continued

 3) By Necessity:- An agency of necessity may

arise if an agent is compelled by some
emergency to exceed his authority in order to
protect his principals property. Sec 189 of the
Act specifically authorize the agent to act in
emergency for his principal.
Continued
 Following Four conditions must be satisfied
for an agency of necessity to arise:-
 1) The agent must have in control of the

principals property as bailee.

 2) There must be an emergency and it must

be impossible for the agent to obtain his

principals instructions.
 3) There must be genuine emergency.

( Perishable goods).
 4) The agents action must be bonafide.
Continued
 The best example is in marine adventure.
 The necessity is a power that arises out of

need of circumstances.
 1) Sims & Co v Midland Railway (1919) 1 KB

103
 Perishable goods sold , held valid.
 2) Springer Vs G.W.R (1921) 1 K.B 257
 Tomato's were sold out, but still action of

Railways was held invalid.

Continued
 The example of husband and the wife. Is the
relationship comes under agency?
 4) By operation of Law:- Agency is also

constituted by operation of Law.

 Partnership firm. It is an implied agency by

operation of law.
 Stridhan concept, the guardian will represent

the interest of minor etc.

Classification of agents
 Agents have been broadly classified on the
basis of the extent of their authority.
 I) General agent:-General agent is the one

who represents the principal in all matters

concerning a particular business. The
authority of the general agent is continuous
until it is terminated. The agent binds his
principal if he acts within his apparent
authority
Continue
 2) Specific or particular agent:- He is appointed
for specific transaction only. His authority will
come to an end as soon as the transaction gets
finish.
 3) Universal agent:- A universal agent is one
who is authorised to do all the transaction of all
kind of his principal what the principal can do
lawfully and can delegate. Such an agent has
unlimited authority to act, in any capacity This
type of agency must be created by the title or
deed only
Mercantile and non mercantile agent
 Another classification of agents is based
upon the nature of work performed into
Mercantile and Non-mercantile agents.
 Mercantile or commercial agents may be

classified as following.
 A) Commission agent:- He buys goods and

sells on behalf of principal.

 B) Broker:- Same like commission agent but

with one difference.

Continue
 C) Factor:- A factor is a mercantile agent to
whom the possession of the goods is given
for the purpose of selling the same. He has
authority to sell in his own name. He has got
discretionary powers to enter into contract
with third parties. He has a general lien on
the goods of his principal for all charges and
expenses due from the principal. The factor
even can sell the goods on credit and give
such type of receipt to the principal.
Continue
 D) Del credere agent:- He is agent who for an
extra commission or remuneration
guarantees the performance of the contract
by the third parties with whom he is entering
into the contract on behalf of the principal.
His extra commission is known as del-
credere commission. Thus, he is the one who
guarantees the solvency of the buyer and not
of the principal. Thus, he is like a insurer or
guarantor and agent as well.
Continued
 E) Forwarding or Clearing agent:- A
forwarding agent also known as clearing
agent or shipping agent acts as agent of the
principal, who wants to export goods outside
the country or to clear the goods imported by
the principal and all functions of exporting.
He undertakes the transmission of goods for
the principal and is personally liable for the
freight charges , off course which are
recoverable from the principal.
Non mercantile agents.
 This is a general category. Where these
persons are not specifically dealing with
commercial goods.
 1) Advocate.
 2) Insurance agents.
 3) Banker.
 4) Auctioneer.
 5) Solicitor.
 6) Guardian
 7) Wife/Husband
Sub agents and substitute agent
 An agent appointed by the original agent is
known as sub agent.
 The relationship between the original agent

and he sub agent is like the Principal and

agent.
 Sec 191 talks on Sub agent. A sub agent is

the person who is employed by and acting in

the control of the original agent.
 As a general rule, agent cannot delegate his

duties to another.
Continued
 This is based upon the maxim, “ Delegatus
non protest delegare” .
 It means delegate cannot delegate.
 Sec 190 talks , “ An agent cannot lawfully

employ another to perform acts which he has

expressly or impliedly undertaken to perform
personally.
 Still there are certain exceptions to the

general rule given under sec 191 of the Act.

Continued
 1) A sub agent may be employed by the
ordinary custom of trade.
 2) From the nature of the agency.
 Eg:- Banker authorize the house on rent,

agent can appoint lawyer.

 3) where unforeseen emergencies arise

necessitating an agent to employ.

 4) Acts like ministerial nature like, authorise

to sign. But acts based upon personal skill

cannot be delegated
Continue
 The relationship of Principal, agent and
subagent depends upon the question whether
the agent has an authority to appoint sub
agents and whether the sub agent is properly
appointed.
 If the sub agent is not properly appointed,

the Principal will not be deemed to be

represented or responsible for the acts of the
sub agent so employed.
Continued
 But if the sub agent is appointed properly,
then following things will happen
 1) The Principal is bound by and responsible

for the acts of sub agents.

 2) The agent is responsible to the principal

for the acts of the sub agents.

 3) The sub agent is responsible for his acts to

the agent, but not to the principal except in

case of Fraud or willful wrong.
Continued
 Raghunath Prasad vs Firm seva Ram Tikam
Das AIR 1980 ALL 15
 Sub agent is not answerable to the principal

for the accounts.

 Termination of the sub agents authority (sec

210):- Termination of the authority of the

agent causes termination of all the sub
agents appointed.
Substitute agent
 Substitute agent is defined in sec 194 and
195 of the Indian Contract Act.
 Where an agent is holding an express on
implied authority to name another person to
act for the principal in the business of agency.
 He is not sub agent but substitute agent.
 He is directly answerable to the Principal.
 The distinction between sub agent and
substitute agent is the circumstances under
which they are appointed.
Rights of the agent
 1) Right to receive remuneration.(219)
 Toulmin vs Millar (1887) 3TLR
 Employed to find tenant
 2) Right of lien.
 3) Right to be indemnified against

consequences of Lawful acts. (222).

 4) Right to be indemnified against

consequences of Acts done in good faith.

(223)
Continued
 5) Right to get compensation for the principals
want of skill or negligent.
 6) Right to do lawful act. (188)
 7) 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.
 8) Right to stoppage of the goods in transit, if he

has brought the goods with personal expenses

and the principal becomes insolvent.
Continued
 9) To claim compensation from the agent in
case of premature termination of the agency.
(205)
 10) Right to renounce agency with reasonable

notice to the Principal.

 10) Agents right to retain out of sums

received on Principals account.

 Green vs Bartlett (1863) 14 C.B (N.S) 681 685
 Where the third party took address of the

Principal and contacted him directly.

Duties of the Agent
 1) It is the duty of the agent to conduct the
business of the principal with due care and
obey the instructions of the principal. (211)
 Lilley vs Doubledy (1881)
 Transferred the goods to another warehouse.
 According to the custom of business the

agent has to invest the interest, which he

fails, the principal suffered the loss.
 If agency is gratuitous then the agent is not

liable.
Continued
 2) It is the duty of the agent to use ordinary skill
and the diligence.
 Keppel vs Wheeler (1927) 1KB 577
 Real estate agent, got two offeres and re
arranged the sale without informing to the
principal.
 3) Duty to communicate to the principal.
 4) It is the duty of the agent to act in good faith.
 5) It is his duty to submit accounts to the
principal.
Continued
 6) Section 190 talks on not to delegate the duty
to others.
 7) It is the duty of the agent not to use the
information for personal profits against the
principal.
 8) When the agent acts beyond his authority and
commits misrepresentation or fraud he is
personally liable to the principal. (sec 238).
 9) Where agent misconducts the business is not
entitled for the remuneration for that particular
transaction.
Continued
 10) Agent is liable for the acts of sub agent/s as
per section 190 and 191 are concerned.
 11) It is the duty of the agent not to deal or mix

his account without principals consent. (sec 215).

 The agent is in fiduciary relationship with the

principal, without principals consent he cant mix

his goods with principals one.
 Armstrong vs Jackson (1917) 2KB 822
 Jackson was the stock broker and sold his shares

to Armstrong his client.

Continued
 12) It is the duty of the agent not to make any
secret profit. ( Not to take bribe)
 The remedy available to the principal is to
recover the secret profit from the agent.
 The principal has an alternative remedy in
damages for the tort of deceit.
 He can claim the damages as well if the
contract is entered between the two. But the
principal has to choose only one option , he
cant exercise both the options simultaneously.
Case laws
 Andrews vs Ramsay (1903) 2KB 635
 The owner asked the agent to sell the

property for 2500 pounds and then he will py

him 50 pounds. He sold the property to 2100
pounds and earn 20 pounds from the
purchaser and 50 from the principal.
 Lucifero vs Castel (1887) 3 TLR 371
 Sold his own yacht to principal, he took away

the secret profit but commission was paid

Termination of agency
 Agency is terminated under the following
ways.
 1) By Operation of Law:- (sec 201)
 A) By death or insanity of the Principal or the

agent.
 B) The insolvency of the Principal.
 C) Destruction of the subject matter.
 D) Expiry of the time.
 E) By subsequent event regarding the agency

unlawful.
Continued
 F) Occurrence of some event.

 2) By act of Parties:-
 A) By agreement.
 B) By revocation.
 C) By renouncing.
 D) By completion or performance.
Effect of termination of the agency
 It is provided under sec 208 of the Act.
 The effect of termination of agency rises only

after the same is communicated to the agent and

not before that.
 The termination is effective from the time when it

come to the knowledge of the agent or third

parties.
 Therefore if the buyer has no notice of

termination of agents authority and h buys the

goods, the principal will be liable even if the
agent has received the notice of termination.
Continued
 Death of the principal also terminates the
agency when agent receives knowledge of the
death of the principal.
 Thus, a formal notice from both the parties is

required to terminate the relationship between

the Principal and the agent to complete this
contractual relation.
 A formal notice from the principal to the third

party is also require to prohibit him from

entering into any contract, otherwise the
principal will be held liable.
Renouncing of agency by the agent
 An agent may also renounce his agency by
giving a reasonable notice of such renunciation
to the principal, otherwise there will be
compensation to be paid to the principal.
 If there is any provision that agency cannot be
renounce for specific time period, then even
such notice will not work and the agent has to
compensate the principal.
 Renunciation may be express or implied in the
conduct of agent.
Comparison between Agent and
servant
 Agent is a person to do any act or to
represent the principal in dealing with third
parties while servant is employed to serve the
employer.
 Master servant or employee-employer

relationship doesn’t arise here where as it

exists in other case.
 He is not subject to direct control and the

supervision of the principal where as the

servant is.
Continued
 The agent has the authority to act on behalf of
the principal where as servant doesn’t have.
 For his service the agent receives the
commission whereas the servant receives wage
or salary.
 Agent as discretion to act where as the servant
doesn’t have.
 The principal is having the liability to third party
for the wrongful act of agent but it is during only
in the course of employment the employer is
liable for the act of servant.