Agency

JGLS
Contracts II
 Introduction to Chapter X of ICA

• Chapter X of the Contract Act has been stated to be not

exhaustive, but to lay down general principles in wide and
general terms.
• The Supreme Court of India in Narandas Morardas
Gajiwala v. SPAM Papammal AIR 1961 SC 3 categorically
noted that the ICA is not exhaustive of the rights of an
agent against the principal.
• The Law Commission of India in its 13th Report also
suggested several measures to make the concept of
Agency under the ICA to be more comprehensive, in
essence suggesting the statute is not exhaustive.
 CHAPTER X: Agency
Chapter X u/ ICA, although NOT exhaustive, provides for:
• appointment of agents (sections 182–185);
• authority of an agent (sections 186–189);
• appointment of sub-agent (sections 190–193)
• appointment of substituted agent (sections 194–195);
• ratification of acts done without authority (sections 196–
200);
• revocation and renunciation of authority and its
consequences (sections 201–207, 209–210);
• when termination of authority takes effect (section 208);
 CHAPTER X: Agency (contd.)
• effect of termination, agent’s duties to the principal
(sections 211–216);
• agent’s rights (sections 217–221);
• the principal’s duties towards the agent (sections 222–
225);
• the effect of agency on contracts with third persons
(sections 226–230);
• presumptions of personal liability of the agent (section
230); and
• presumptions in such cases (sections 231–238).
 Who is an “Agent”? (Generally)

•  Agency in law connotes the relation which exists where one person
has an authority or capacity to create legal relations between a
person occupying the position of principal, and third parties.
• The essential feature of an agent is his power of making the
principal answerable to a third person, viz. enabling the principal to
sue third parties directly, or render him liable to be sued directly by
the third party.
• Certain persons are referred to in common parlance as “agents”
even though they may not really have the power of changing their
principal’s relations with third parties. Therefore, to carry out the
business of an “agent” is not always the same thing as saying that
you are contracting as an “agent.”
 Section 182

• An ‘agent’ is a person employed to do any act

for another or to represent another in
dealings with third persons. The person for
whom such act is done, or who is so
represented, is called the ‘principal.’
Usually:
• Agency is NOT transferable or assignable
• Personal in character, depending on the terms
 Test
• The test of agency is whether the person is purporting to enter
into transactions on behalf of the principal; i.e. to create, modify
or terminate contractual obligations between his principal,
whom he represents, and some third person. To reframe, the
true test of agency is whether a person could represent this
other person to a third party so as to bind this other person.
• Note: Just because the parties have called their relationship as
that of an “agent” and “principal,” is not enough to show
agency. You must examine the true nature of the relationship.
• Note: Also, the fact that a person is paid “commission” for his
work is not by itself enough to constitute agency.
 Test…contd.
• Example: A finds an old Apple I computer lying
in his house that was released by Apple
Computers in 1976. He approaches an auction
house to sell the said antique. The auction
house demands a commission of 5% of the
total sale proceeds. A agrees. The Apple I is
put to auction. Is the auction house an agent
of A?
 Example
• ABC Pvt. Ltd. appointed BCD Pvt. Ltd. as a distributor for the sale of
Diesel Engines, Pumps and Pumpsets. Under the agreement between
the two, BCD Pvt. Ltd. would first purchase Diesel Engines, Pumps
and Pumpsets from ABC Pvt. Ltd., and then sell it to a third person at
a margin. Is there a relationship of agency between ABC & BCD?
• In order to constitute the relationship of agency, it is essential that
goods should be sold to customers by the agent not on behalf of the
agent himself, but on behalf of the Principal. In the approach to this
question, it is necessary to notice the distinction between a contract
of sale and a contract of agency. The essence of sale is the transfer of
the title to the goods for price paid or to be paid. The transferee in
such a case becomes liable to the transferor of the goods as a debtor
for the price paid and not as agent for the proceeds of the sale.
 Example (contd.): Clarifications
• The word ‘agency’ is often used in commercial matters
where the real relationship is that of vendor and
purchaser
• A ‘distributing agent’ or ‘exclusive agent’ in a territory
for a proprietary commodity does not put a consumer
into contractual relations with the manufacturer
• The word ‘agent’ is often used in business as meaning
one who has no principal, but who on his own account
offers for sale some particular article having a special
name
 Example (contd.): Clarifications
• An agency does not have the effect of transferring property
• In Sukumari Gupta v. Dhirendra Nath Roy Chowdhury and in
Orissa Textile Mills Limited v. Ganesh Das Ramkishun, it was
held that the questions of:
(1) Whether an agent has contracted personally or merely on
behalf of his principal; AND
(2) If personally, what is the extent of agent’s liability
depends upon the intention of the parties.
• Such intention has to be deduced from the terms and
nature of the contract and surrounding circumstances
 “Servant” vs. “Agent”

Lakshminarayan v. Govt. of Hyderabad AIR 1954 SC 364 (The

facts are not relevant for now. The relevance however lies in
ascertaining the principles that the SC applied in order to
distinguish between “a servant” and “an agent”)
• The SC in this case referred to and quoted two authors. The
first is Powell. The SC quoted the following paragraph from
Powell’s Law of Agency:
(a) Generally, a master can tell his servant what to do and
how to do it; (b) Generally, a principal cannot tell his agent
how to carry out his instructions; (c) A servant is under more
complete control than an agent;
 …contd.
The Court further quoted from Powell’s Law of Agency:

• Generally, a servant is a person who not only receives instructions from

his master but is subject to his master’s right to control the manner in
which he carries out those instructions. An agent receives his principal’s
instructions but is generally free to carry out those instructions
according to his own discretion.
• Generally, a servant has no authority to make contracts on behalf of his
master. Generally, the purpose of employing an agent is to authorise
him to make contracts on behalf of his principal.
• Generally, an agent is paid by commission upon effecting the result
which he has been instructed by his principal to achieve. Generally, a
servant is paid by wages or salary.
 …contd.
The SC then referred to and quoted from Halsbury’s Laws
of England. The SC quoted the following paragraph:
• A principal has the right to direct what work the agent
has to do; but a master has the further right to direct
how the work is to be done.
• An agent is to be distinguished... from a servant... A
servant acts under the direct control and supervision
of his master, and is bound to conform to all
reasonable orders given to him in the course of his
work;
 …contd.
However, an agent:
• is bound to exercise his authority in accordance with all
lawful instructions which may be given to him from
time to time by his principal
• is not subject, re such exercise of authority, to the
direct control or supervision of the principal
• is not a servant
Nevertheless, a servant is generally, for some purposes,
his master’s implied agent, the extent of the agency
depending upon the duties or position of the servant.
 Agency distinguished from others
• Agency may have be distinguished from other
relationships, viz. trusts, master-servant, employer-
contractor, etc.
• Agency must also be distinguished from one who
does an act at the bidding/request of another
• While an agent is entitled to indemnity under s. 222
against the consequences of all lawful acts done by
him, the latter (see bullet above) is entitled to be
indemnified only if there is a contract of indemnity
to that effect
 Is an agreement necessary?
• The relationship of a principal and agent may,
BUT need not always, arise out of a contractual
relationship
• It may be attributed upon a person by law; OR
• It may arise out of necessity; OR
• It may arise by ratification; OR
• It may even arise to the extent the acts of an
agent fall within the apparent, but outside the
scope of his actual authority
 Is an agreement necessary? (CONTD.)
If the function of the agent is merely to identify
customers/purchasers, OR bring about contracts
between the principal and persons intending to avail
services/goods from such principal (thereby creating
a privity of contract between the principal and third
parties):
• The agent cannot be personally bound to perform
such contracts, NOR made personally liable for
non-performance/breach by the principal
 FORMATION of agency
• An agency may be created by an express or implied
agreement b/w principal and agent
• It need not be in writing. It can be inferred from the
circumstances and the conduct of the parties,
including the correspondence between them
• The power of an agent need not necessarily be
described/disclosed in the contract document. THUS,
the omission on the part of the agent to describe in a
deed that s/he is acting on behalf of a principal is
immaterial
 FORMATION: Express & Implied
• An EXPRESS agency may be effected in a formal
document like a power of attorney, or a specific
letter of appointment
• An agency may also be created retrospectively,
through subsequent ratification by the principal of
acts done on his behalf
• An IMPLIED agency may arise from the conduct, or
the situation, or the IDENTITY of the parties
themselves, or by operation of law, viz. out of
necessity
 Express & Implied (contd.)
S. 187: Definitions of express and implied
authority
• 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.
 Express & Implied (contd.)
Illustration to s. 187:
• A owns a shop in Serampore, living himself in
Calcutta, and visiting the shop occasionally. The
shop is managed by B, and he is in the habit of
ordering goods from C in the name of A for the
purposes of the shop, and of paying for them
out of A’s funds with A’s knowledge. B has an
implied authority from A to order goods from C
in the name of A for the purposes of the shop. 
 Estoppel
• Agency may ALSO arise by estoppel, where if a
person allows another to transact with third
parties on his behalf and makes them believe
that the other is so transacting (doing things
on his behalf), such person will be bound by
the acts, and responsible for transactions
entered into by such ostensible/ apparent
agent
 Necessity
• Agency of necessity is said to arise where, by reason
of an emergency, the relation of principal and agent
is deemed to exist between persons not otherwise in
contractual relations
• Such an agency arises when a person may be
regarded as empowered to act for another without
prior authorisation in circumstances of emergency,
where it is impracticable for the agent to
communicate with the principal; and the acts are
done for the benefit of the principal
 NECESSITY: Explained
• A person may be deemed to have the authority to act on behalf of
another in cases where he is faced with an emergency in which the
property/interests of the other are in imminent jeopardy, AND it
becomes necessary to act thus to preserve such property/interests
• THUS, agency may arise by ostensible authority conferred by P upon A,
OR by implication of law in cases of necessity
Examples:
• A spouse may become an agent of necessity;
• Similarly, in case of accidents, the master of a ship is entitled to enter
into a contract which binds the owner of the cargo even if such
contracting transcends his express authority, AS LONG AS it is made in
the best interests of the owners concerned
• Same logic applies for land carrier in respect of perishable goods
 NECESSITY: Explained (contd.)
An agency of necessity arises whenever a duty is
imposed upon a person, apart from contract:
• To act on behalf of another to prevent an
irreparable injury to the other person; OR
• To preserve the other person’s property from
destruction
 ICA and Necessity
• The ICA does not provide for agency of
necessity
• S. 189 dealing with authority in an emergency,
deals with cases where there is already an
existing relationship of principal and agent,
and the authority of such an agent to deal in
an emergency
 s. 189
S. 189: Agent’s authority in an emergency
• In an emergency, an agent has authority 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
 
Illustrations:
(a) An agent for sale may have goods repaired if it be necessary
(b) 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
 ICA and Necessity (contd.)
• Thus, where the person is already an agent, he
has the authority to act in an emergency for the
protection of the principal
• The LCI recommended amendments in s. 187
(express and implied authority) to provide for
the creation of agency from the very existence of
emergency or necessity (i.e., such that the law
deems a person to be an agent even sans prior
authorization or contract, on a/c of emergency)
 Example
• QUESTION: Where an agent is given the power
to execute deeds of transfer in his own name,
and he executes a deed relating to the
property of his principal without describing
himself as the latter’s agent, does that still
bind the principal vis-à-vis third parties?
• ANSWER: In such a case, the omission is
immaterial and the deed is binding on the
principal and his representatives
 Agency by Law
• There may be additional formalities required by law/statute
for the valid formation and exercise of agency
Examples:
• An agent for the purpose of execution of a document u/
Registration Act 1908 must be effected in writing
• Appointment of proxy for attending meetings of a company
has to be in writing and in a prescribed form
• A pleader for appearance in the court must be appointed by a
document in writing
• A power of attorney issued on behalf of a company must be
given under its common seal, etc.
 Who may employ an agent?

Section 183
• 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.
• Thus, this section provides that a person can employ
an agent only if: (1) he is a major, and (2) of sound
mind.
• (Refer to your Law of Contract I slides to further figure
the details of ‘age of majority’ and ‘sound mind’)
 Who may be employed as an agent?

Section 184
• As between the principal and a third person, any
person may become an agent, but no person who is
not of the age of majority and of sound mind can
become an agent, so as to be responsible to his
principal according to the provisions in that behalf
herein contained.
• This section provides that any person can become an
agent provided: (1) he is a major, and (2) of sound
mind.
 No consideration required

Section 185
• No consideration is necessary to create an agency.
• Lack of consideration will not void an agency. Once
an agent accepts the employment of agency, he
immediately becomes liable for the agent’s duties.
• The very fact of employment and the credit gained
thereby on the one hand, and the promise to act
on behalf of the other, are sufficient to constitute
the formation of agency.
 The authority of an agent (Express or implied)

Section 186
• The authority of an agent may be expressed or implied.
Section 187
• 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.
• Note: The authority of an agent is his power to affect his
principal’s position by doing acts on his behalf. His power to
affect the legal position of the principal rests upon his authority.
 Express or implied authority
• An agency may be created by an express or implied agreement of
principal and agent. Therefore, it need not be in writing. However,
please note that other statutes may prescribe formalities for certain
types of agency.
• An express agency may be effected in a formal agreement (by way of a
Power of Attorney or a Letter of Appointment).
• Agency can also be inferred from the circumstances and the conduct
of the parties (including of course the correspondence between them).
The question of agency is one of intention, to be gathered from the
terms of the contract, if any, and surrounding circumstances.
• Agency may also arise by operation of law, by estoppel, by ratification,
among others.
 What can an agent do?

Section 188
• An agent having the 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 a business, has
authority to do every lawful thing necessary for the purpose,
or usually done in the course, of conducting such business.
• Illustration: A is employed by B, residing in London, to recover
at Bombay a debt due to B. A may adopt any legal process
necessary for the purpose of recovering the debt, and may
give a valid discharge for the same.
 What can an agent do?

• Generally speaking, the authority of an agent will extend not

only to acts expressly authorised, but also to subordinate acts
which are necessary or ordinarily incidental to the exercise of
the express authority.
• Both general and special agents who are authorised to act for
the principal have implied authority to do what is incidental
to the ordinary conduct of such a trade or business, or is
within the scope of that class of acts, and also whatever is
necessary for the proper and effective performance of duties.
• If the act is not lawful or is not necessary or is not usual in
such matters, that would fall outside his authority.
 What can an agent do?

• Further, an authority is generally construed in

case of doubt according to the usual course of
dealing in the business to which it relates,
partly because this may be presumed to have
been really intended, and partly because third
persons may reasonably attribute to an agent
such authority as agents in a similar business
usually have/do.
 Example
• A (an agent of LIC) collected premium from B (a policy holder of LIC)
by way of a cheque before the due date. However, he deposited the
cheque after the due date, by which time the policy had lapsed. The
rules framed by LIC prohibited agents from collecting premium. The
policy holder claimed and proved that this in fact was the prevailing
practice, whereby agents of LIC would collect the premium from
some policy holders and then deposit it with the LIC account. B is
now suing LIC to revive the policy arguing that A had an authority to
do every lawful thing which is necessary (collecting premiums) in
order to do such act (getting more and more policy holders on
board). What do you think about the validity of this argument,
especially in light of Section 237 of the ICA?
 Example
• A is founder and CEO of company XYZ Pvt. Ltd. He is terminally
ill and now wants to take a few months off. Accordingly, he
appoints B (his trusted employee for several years) as his agent
by executing a POA in his favour. This POA essentially gives B
the general authority to carry on A’s business and to receive
and expend money therein. A few months after taking over, XYZ
Pvt. Ltd. starts running into losses. B takes a loan in the name of
XYZ Pvt. Ltd. to keep the business running. When A returns, he
argues that B was not entitled to borrow money under the POA
and therefore the Bank ought not to have granted the loan. Do
you think Section 188 will come to the rescue of the Bank / B
under the circumstances?
 What can an agent do?

Section 189
• 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.
• In an emergency, an agent has the power to do all acts
as may be necessary only for the purpose of protecting
his principal from loss, such acts being done prudently,
as an ordinary prudent man may do in his own case
under similar circumstances.
 What can an agent do?

• This section is meant to protect the agent. It

categorically lays down that if the agent, for the
purposes of safeguarding the interest of his principal,
does certain acts without the express instructions
from the principal, he is exempted from liability if his
acts are those of a man of ordinary prudence, and are
performed at a time of an emergency.
• Note: This section only deals with a situation where
there is an existing relationship of principal and agent.
 What can an agent do?

• Example: A (a wholesaler of fruits in Chandigarh) appoints B

(A’s long term employee) as his agent. A authorizes B to deliver
10 tons of apples to a retailer in Delhi and take payment (Rs. 5
lakhs) from him. Due to on ongoing agitation, B’s truck is stuck
on the NH in Panipat for 10 days. There’s no charge on his
phone, and he doesn’t recall A’s phone number. Given that the
agitation was likely to continue for a few more days, B
somehow manages to reach Panipat and sells the apples to
another retailer for Rs. 3 lakhs as the apples had started to rot.
B duly pays Rs. 3 lakhs to A. A, however, is now suing B
claiming Rs. 2 lakhs with interest. Can B defend himself
successfully under Section 189 of ICA?
 Agent’s duty to principal

• To act in accordance with the principal’s directions

Section 211
• An agent is bound to conduct the business of his principal according to the
directions given by the principal, or in the absence of any such directions,
according to the custom which prevails in doing business of the same kind at
the place where the agent conducts such business. When the agent acts
otherwise, if any loss be sustained, he must make it good to his principal, and
if any profit accrues, he must account for it.
• This section essentially tells us how an agent should act in his dealings with
the principal. Ideally, the agent should follow the directions given by the
principal. If however, the agent does not follow the directions of his principal,
because of which the principal suffers some loss, the agent must make it up
to him.
 Agent’s duty to principal

• The section further adds that in the absence of directions from

the principal, the agent may follow local customs in his dealings.
Such customs will have to be successfully proved on trial.
• Note: In the absence of instructions, or in that of any custom or
usage, the agent may use his own discretion, and must be guided
by the honest exercise of his own judgment, and the interest of
the principal.
• Note: The relationship of agency has often been described as one
of a fiduciary nature because the principal places confidence in
the agent. Generally speaking, fiduciary duties in such a
relationship may be varied in accordance with the terms and
conditions of the contract and the prevalent circumstances.
 Section 211…contd.
• Example: A employed B as his agent (under a
valid contract of agency) for the specific
purpose of completing his part of the contract
with C. A, in his contract with C, had to deliver
some goods to him. Accordingly, A instructed
B to send the goods to C via train. However, B
sent those goods to C by truck. The goods
were lost in transit. Is B liable to compensate
for the losses of A?
 Example
A employed B as his agent (under a valid contract of agency) for
the specific purpose of completing his part of the contract with C.
A, in his contract with C had to deliver some goods to him.
Accordingly, A instructed B to immediately send the goods to C
via train. A, after issuing such instruction boarded a plane to the
US so that he was unreachable for the next 24 hours. Before B
could dispatch the goods via train, he saw on TV that a rail roko
protest had been planned by some people the very next day on
the route of his interest. In keeping with the interest of the
principal, B sent those goods to C by truck. The goods were lost
in transit. Is B liable to compensate for the losses of A even
though he was acting in the interest of the principal?
 Example
A employed B as his agent (under a valid contract of agency) for the
specific purpose of completing his part of the contract with C. A, in his
contract with C had to deliver some goods to him. Accordingly, A instructed
B to immediately send the goods to C via train. B went to the train station
to figure the availability of space in the goods train that leaves for the city
in which C lives, in the evening. He was told by the official at the railway
station that in order to book the space for the goods at this last moment,
he’ll have to pay Rs. 10,000 of which no receipt will be issued. B calls up A
to make sure he can pay the Rs. 10,000 demanded by the railway official.
A consents. However, B’s conscience does not allow him to pay a bribe
and he does not dispatch the goods on that day. B dispatches the goods
the next day, so that A is in breach of contract with C for not delivering
the goods in time. Is B liable to compensate for the losses of A?
 Agent’s duty to principal

• Duty to use as much skill as is generally possessed by persons engaged

in a similar business

Section 212
• 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.
 Contd…
• Whenever an agent is employed, there is, on his part, an implied
warranty that he is of a reasonably competent skill to perform
the work he undertakes;
• Such an implied warranty will have no impact if the principal is
aware of his agent’s qualifications and limitations.
• The sum of Section 212 is that an agent is always bound to act
with as much reasonable diligence as a reasonable man with his
qualification would act under similar circumstances.
• If loss to the principal occurs in spite of the agent using such
reasonable diligence, the agent is not liable.
• Note: There is no distinction with respect to the standard of care
for gratuitous and non-gratuitous agents.
 Contd…
• Compensation for direct consequences only: The measure
of damages would be based on the actual loss sustained
by the principal, provided that it was the natural and
probable consequence of the breach, or it was such a loss
in the particular circumstances as the agent might have
reasonably expected to result from such negligence or
breach of duty.
• Note: For a further discussion on direct / indirect
damages, please See Section 73 of ICA. Your slides for Law
of Contract I have ample examples / cases discussing
which loss is direct / remote, etc.
 Example
• A valid contract of agency exists between Mr.
X and HDFC Bank. By way of this contract,
HDFC Bank is to receive shipping documents
on the basis of the Letter of Credit issued by
the Bank, on the basis of which payment is to
be made. The Bank accepted the shipping
documents not in conformity with the Letter
of Credit and made payment. Can the Bank be
held liable under Section 212?
 Example
A employs an advocate (under a valid contract of agency) for
filing a law suit in a State Consumer Disputes Redressal
Commission. The property with respect to which ‘deficiency of
service’ is being claimed by A is located in Mohali, Punjab. The
office of the builder is also in Punjab and all payments /
correspondence are made at the builder’s office in Mohali.
However, the advocate who is based in Chandigarh, files the
petition in Chandigarh. The petition is rejected for want of
jurisdiction. The Advocate calls on A and asks him to pay his fees
and the court fees again as the matter was rejected and will have
to be filed in another court. Can A hold the Advocate liable
under Section 212? What can A claim from the Advocate?
 Example
A employs an advocate (under a valid contract of agency) for filing a law
suit in a State Consumer Disputes Redressal Commission. The property
with respect to which ‘deficiency of service’ is being claimed by A is
located in Mohali, Punjab. The office of the builder is also in Punjab and
all payments / correspondence are made at the builder’s office in
Mohali. However, the advocate who is based in Chandigarh, files the
petition in Chandigarh. The petition is rejected for want of jurisdiction.
In the meanwhile, however, the period of limitation for filing a suit
under the Consumer Protection Act, 1986 has been reached so that
A’s suit is now time-barred. If the delay is not condoned by the State
Commission in Punjab, can A hold the Advocate liable under Section
212 for compensation he would have received from the State
Commission in Punjab?
 Agent’s duty to principal

• Duty to render accounts to principal on demand

Section 213
• An agent is bound to render proper accounts to his principal on
demand.
• The right of a principal to have an account taken rests upon the
trust and confidence reposed in the agent – the fiduciary
relationship that exists between them.
• Note: The duty to account may also arise after a reasonable time
since the termination of agency.
• Note: The accounts must be produced in a manner in which a
reasonable person in the principal’s position is able to understand
all entries.
 Example
A valid contract of agency exists between X and Y. It was
agreed under the terms of agency that the Statement of
Accounts is to be kept with the principal and that the agent
is not responsible to keep accounts of any transactions. It
was also agreed that the agent’s commission will be 5% of
the profits accrued to the principal at the end of the
financial year. At the end of the said financial year, the agent
asks the principal for the statement of accounts to calculate
his commission. However, the principal refuses to give him
the statement of accounts. Can the agent sue the principal
for a statement of accounts?
 Answer
• There is no such provision in the Act which enables an
agent to sue his principal for accounts.
• The statute is not exhaustive and the right of the
agent to sue the principal for accounts is an equitable
right arising under special circumstances and is not a
statutory right.
• In English law an agent has a right to have an account
taken and where the accounts are of a simple nature
they can be taken in an ordinary action. The legal
position in India is no different. 
 Answer…contd.
• Although an agent has no statutory right for an account from his
principal, there may be special circumstances rendering it
equitable that the principal should account to the agent.
• Such a case may arise where all the accounts are in the
possession of the principal and the agent does not possess
accounts to enable him to determine his claims for commission
against his principal.
• The right of the agent may also arise in an exceptional
circumstance where his remuneration depends on the extent of
dealings which are not known to him or where he cannot be
aware of the extent of the amount due to him unless the
accounts of his principal are gone into.*
 Agent’s duty to principal

• Duty to use reasonable diligence in cases of

difficulty

Section 214
• It is the duty of an agent, in cases of difficulty,
to use all reasonable diligence in
communicating with his principal, and in
seeking to obtain his instructions.
 Agent’s duty to principal
• Duty not to act at his own accord
Section 215
• If an agent deals on his own account in the business of 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.
• The gist of this section is that the agent should not deal in the
business of agency without the consent of his principal.
 Section 215…contd.
• This Section postulates two circumstances in which the
principal can repudiate the transaction:

(a)  Where the agent acts in the business without obtaining

prior consent from the principal and some material
circumstances have been dishonestly concealed from the
principal by the agent.
(b)  Where the agent acts in the business without obtaining
prior consent from the principal, conceals material
circumstances and the transaction is disadvantageous to the
principal.
 Example
• On January 1, 2020, A employed B as his agent to sell his
flat located in Delhi as soon as possible. A wanted to sell
the flat as his business was in trouble and needed an
urgent injection of funds. Now, B sells off the flat to C at a
price which is less than the prevailing market rate. This was
duly approved by A prior to the transaction when B called A
to seek his permission for the same. After the transaction,
B is paid the agreed-upon 1% commission. Now, as it turns
out, A and C are friends and during a conversation, C tells A
that B had charged him 1% commission as well for the sale.
Can A repudiate the transaction?
 Agent’s duty to principal
• Duty not to convert himself into a principal
Section 216
• 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.
• This section imposes a penalty on the agent who converts himself into a
principal, without due disclosure to the principal.
• The principal has a right to obtain an account and payment of secret and illicit
profits which have come to the hands of the agent as an agent.
• Note: The operation of this section does not depend upon the principal
having suffered any loss. This is because the agent holds a fiduciary position
in relation to the principal and if he makes any profit in that capacity, he must
make it good to the principal.
 Example
• A, acting as B’s agent, agrees with C in respect
of a proposed sale to C of 100 tons of wheat
for future delivery. A delivers his own wheat to
C as against the contract and made a profit of
15%. When he receives the wheat from B, he
sells it in the open market at a profit of 10%
and gives the profits back to B. Can B sue A to
claim the difference in profits that accrued to
A?
 Payment to Agent for services

Section 217
• 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 from acting as agent.
Section 218
• Subject to such deductions, the agent is bound to pay to his
principal all sums received on his account.
• Note: Read Section 221 along with Section 217 and
understand the difference between the two.
 Section 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
 Payment to Agent…contd.
• The agent has a right over the principal’s money in his hands
for: (a) moneys due to the agent in respect of advances made
or expenses incurred in the business of agency; and (b) moneys
payable to him as remuneration for the work in the agency.
• Note: The word ‘business’ in this section means the same
business. Hence, money received by an agent in one business
cannot be retained by him on account of remuneration alleged
to be due to him in a different business.
• Section 218 further builds upon Section 217. It lays down that
the agent must pay to the principal all moneys received on his
account after the appropriate deductions are made.
 Payment to Agent…contd.
Section 219
• 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.
• No remuneration will be due to the agent until the
completion of the act for which the payment is to be
made, unless there is a special contract to that effect.
 Payment to Agent…contd.
• However, the agent may retain moneys received by him for
partial sale of goods, though all the goods have not been
sold, or sale is not fully complete.
• Note: The question whether an agent is entitled to
remuneration at all, depends on the terms of the agreement
between the principal and the agent. The said agreement
could be either express or implied. The mere fact of
employment of a professional agent itself raises the
presumption of a contract to remunerate him.
• Note: The words ‘special contract’ in this section include a
contract arising by implication from custom or usage.
 Payment to Agent…contd.
• Note: Where the terms of remuneration are contained in
writing, the agent is not entitled to remuneration unless all
conditions imposed by the writing have been fulfilled.
• Meaning of “completion of such act”: In order to entitle
the agent to receive his remuneration, he must have
carried out all that he had agreed to do under the agency,
and all conditions imposed by the contract must have been
fulfilled.
• Note: The agent is entitled to his remuneration after the
completion of his duties, irrespective of the fact that the
transaction was beneficial or not to the principal.
 Example
A wants to sell his flat located in Gurugram. The price he is expecting
is Rs. 3 Crore. A also wants to make sure that the buyer is not a
‘business-man’ as he has had a bad experience earlier. Accordingly, A
calls up B, a property broker and entrusts him with the responsibility
to sell the flat on his behalf (under a valid contract of agency) at an
agreed commission of 1% with the understanding that his demands
will be fulfilled. B finds a service professional who is willing to pay Rs.
3 Crore for A’s flat. Accordingly, an Agreement to Sell is signed
between B and the service professional for a consideration of Rs. 1
lakh with an agreement that the sale will take place within 3 months.
A backs out and the service professional doesn’t sue him for such
breach. Can B claim his 1% commission under Section 219 of ICA?
 Payment to Agent…contd.
Section 220
• 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 misconducted.
• The principle underlying this section is that a principal is entitled
to have an honest person as his agent, and not a person whose
actions are calculated to prejudice his interest, and it is only such
agent who can claim commission.
• Therefore, an agent cannot claim from the principal any
remuneration if he has acted contrary to the principal’s
instructions or where the agent did not exercise proper skill and
diligence.
 Payment to Agent…contd.

Section 221
• 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.
• This section confers on the agent a right of particular lien
on the property of the principal until the amounts due in
respect of: (1) commission; (2) disbursements; and (3)
services; are paid to him, or accounted for.
 Agent’s Lien
• Note: The agent’s lien does not give unrestricted authority to the
agent to deal with the property in any manner the agent may like.
The right of lien only enables the agent to RETAIN the property till
the dues are paid by the principal.
• Note: This section does not give an agent a right to sell the
property in his possession. However, in exceptional circumstances,
where an agent has spent money from his own pocket in
purchasing the goods on behalf of the principal, some courts have
held the agent to be in the position of a tacit pledgee, who can
recover as much of his outlay as possible by selling the goods which
are in his custody; However, as under Section 176, a “reasonable
notice” of sale must be given to the principal.
 Agent’s Lien…contd.
• Note: In order to have a lien, the agent must have some
possession, custody or control over the said property.
• Note: The scope of the agent’s lien is not vast enough to
include his right to retain property which were the subject
of different and separate transactions.
• Note: A lien cannot be acquired by a wrongful act. The
possession of the property must be obtained by the agent
lawfully in order for a lien to attach. If the agent obtains
the property by misrepresentation or without the
principal’s authority, he has no lien on the said property.
 Principal’s duty to agent
• To indemnify all lawful acts

Section 222
• The principal 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.
• The primary duty of the principal is to indemnify the agent against the
consequences of his lawful acts.
• This right of an agent to be indemnified by his principal flows from the
principle that an agent, as the representative of his principal and acting
wholly on his behalf, is entitled to be indemnified for such liabilities
incurred and losses suffered as were in contemplation when the agency
was undertaken, or as were stipulated by the contract of agency.
 …contd.
• The only two conditions that the agent must fulfill in
order to claim indemnification from the principal are:
(a) he must have acted within the bounds of his
authority, (b) he must have done something lawful
within the bounds of his authority.
• The only reason for the foregoing limitation is that the
principal cannot be entitled to indemnification for each
and every loss. The agent can only claim
indemnification where neither his actions are unlawful,
nor has he exceeded the bounds of his authority.
 Example
• A employed B as an agent under a valid contract
of agency. A instructed B to purchase goods
worth Rs. 10 lakhs from Kolkata and deliver it to
C in Delhi on his behalf. B purchased the goods
from Kolkata and immediately thereafter sent
the goods to Delhi. However, the goods were lost
in transit. B is not at fault. Can the agent sue the
principal to recover his losses under Section 222?
 Example
• A employed B as an agent under a valid contract of
agency. A instructed B to purchase some perishable
goods worth Rs. 10 lakhs from Kolkata and deliver it to C
in Delhi on his behalf. B purchased the perishable goods
from Kolkata and immediately thereafter sent the goods
to Delhi via an open truck. B was fully aware that there
was a possibility of heavy rain during the days when the
truck would be on its way to Delhi. The goods were lost
in transit due to heavy rainfall. Can the agent sue the
principal to recover his losses under Section 222?
 Principal’s duty to agent

• To indemnify for all acts done in good faith

Section 223
• Where one person employs another to do an act, and the
agent does the act in good faith, the employer is liable to
indemnify the agent against the consequences of that act,
though it caused an injury to the rights of third persons.
• It appears that this section deals with the consequences of
unlawful acts done in good faith. As a corollary to this, it is
obvious that if the agent knows about the unlawful nature of
the act, he will not be able to claim indemnity under this rule.
 Example
• A employed B as an agent under a valid contract of
agency for the felling of trees on a particular piece
of land. While carrying on with his employment, B
also felled some trees which formed part of the
adjoining forest. The forest officials successfully
sued B under the relevant law and were awarded
compensation of Rs. 5 lakhs. If B didn’t know that
he was felling trees that come within a forest area,
would he be able to claim Rs. 5 lakhs from A?
 No indemnification in certain cases

Section 224
• Where one person employs another to do an act which is
criminal, the employer is not liable to the agent, either upon an
express or an implied promise to indemnify him against the
consequences of that act.
• This section in essence says that where an agent has been
employed to do a criminal act, the agent will not be entitled to
indemnification from the principal.
• Illustration: A employs B to beat C, and agrees to indemnify him
against all consequences of the act. B thereupon beats C, and has
to pay damages for so-doing. A is not liable to indemnify B for
those damages.
 Delegation to a sub-agent
Section 190
• 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 maybe
employed, or from the nature of the agency a sub-agent must be
employed.
• As a general rule, delegated authority cannot be delegated
further. The reason is fairly obvious: the risks of agency are
substantial, and a person has a right not to be represented, save
at his own election and by an agent of his choice.
• This section lays down the scenarios in which such delegation is
allowed.
 …contd.
• This section provides that an agent cannot delegate his authority for acts
which he has expressly or impliedly undertaken to perform.
• However, he may do so when: (a) the nature of the agency demands it or
permits it; or (b) the ordinary custom of trade in a particular business allows
it.
• Note: Where the principal has reposed trust and confidence in the agent,
then such delegation is not permitted.
• Note: The principal may authorize the agent to further delegate the work
either in express terms or in implied terms. When no personal confidence or
skill is reposed by the principal in the agent and the duties are capable of
being equally well discharged by any person, then such an implied authority
could be construed. Therefore, an authority to delegate may be implied from
the nature of the task of agency, custom or usage of trade, and the conduct
of the parties.
 Examples
• Example: A employs B as his agent under a valid contract of
agency for effectuating the sale of a ship at any port where the
ship may, from time to time happen to be. In a situation where
there are no categorical instructions from A to B in this regard,
do you think it reasonable for A to travel wherever the ship
sails?
• Example: A employs B as his agent under a valid contract of
agency for effectuating the sale of a ship at any port where the
ship may, from time to time happen to be. At the time of hiring
him, A tells B that he’s hiring him for the sole reason that he is
of the opinion that B is the best negotiator and will get him
the best money for his ship. What do you think?
 Sub-agent
Section 191
• A ‘sub-agent’ is a person employed by, and
acting under the control of, the original agent
in the business of the agency.
• The relation of the sub-agent to the original
agent is, as between themselves, that of an
agent to principal.
 ‘Ultimate’ principal and sub-agent

Section 192
• Where a sub-agent is properly appointed, the principal is,
so far as regards third persons, represented by the sub-
agent, and is bound by and responsible for his acts, as if
he were an agent originally appointed by the principal.
• The agent is responsible to the principal for the acts of the
sub-agent.
• The sub-agent is responsible for his acts to the agent, but
not to the principal, except in cases of fraud or wilful
wrong.
 …contd.
• Meaning of “properly appointed”: It appears that these words are
referring to the conditions laid down under Section 190. The idea
is that the principal is bound by a sub-agent only if the conditions
laid down therein are being complied with. No other plausible
interpretation of “properly appointed” has been obtained.

Section 190
• 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.
 Contd…
The following are the takeaways from this section:
(a) As a general rule, the principal may take legal recourse
against the agent for the actions of the sub-agent. The
principal as a general rule may not take direct action against
the sub-agent.
(b) As a general rule, the sub-agent is responsible to the
agent for his actions. The sub-agent is responsible to the
‘ultimate’ principal in cases of fraud or wilful wrong.
• Note: Do you think the principal should be able to sue the
sub- agent directly for all causes of action? Why or why
not?
 Contd…
• Note: The reason for the foregoing rule is that, generally
speaking, there need not be any privity of contract
between the ‘ultimate’ principal and the sub-agent.
Therefore, the sub- agent is usually liable to his principal,
which is the agent appointed by the ‘ultimate’ principal.
• Note: If the principal is a party to the appointment of the
sub- agent, or in some manner, it is indicated that it was
the intention of the parties that privity of contract should
be established between them, this rule will not apply and
the sub-agent has both the rights and the liabilities of an
agent vis-à-vis the ‘ultimate’ principal.
 Example
• A instructed HDFC Bank to pay money to Mr. X in
Place Y. HDFC Bank has no branch in Place Y;
however, OBC Bank does. HDFC Bank instructs OBC
Bank to pay money to Mr. X on their behalf. Now, as
it turns out there are two Mr. Xs in Place Y and OBC
Bank paid the money to the wrong Mr. X because of
an honest mistake. Now A sues OBC Bank. OBC Bank
resists the action on the grounds that they are the
sub-agent, and given that there’s no privity between
them and A, A cannot sue them. Is OBC Bank right?
 Example
• A employed B as his agent to sell his property located in
New Delhi. A demanded that the property be sold at
market rate. Under the contract of agency, B was free
to appoint a sub-agent. B appointed C as his sub-agent
to sell the property of A. C sold off A’s property at Rs. 1
lakh less than the market rate. A approved the
transaction and paid 1% commission to B as agreed. A
few days later, A comes to know from the buyer of his
property ‘D’ that C took 1% commission from D as well.
Can A sue C for fraud / wilful wrong under Section 192?
 Section 193
• Where an agent, without having authority to
do so, has appointed a person to act as a 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 third persons; the principal is not
represented by or responsible for the acts of
the person so employed, nor is that person
responsible to the principal.
 Section 193…contd.
• Where the sub-agent is NOT properly appointed,
Section 193 provides the following rules:
(a) The agent stands as a principal towards such a sub-
agent; (b) The agent is responsible to third persons for
the acts of the sub-agent; (c) The agent is responsible
to his principal for the acts of the sub-agent; (d) The
sub-agent does not represent the principal; (e) The
principal is not liable to third persons for the acts of
the sub-agent; and (f) The sub-agent is not responsible
to the principal, but only to the agent.
 Substituted Agent
Section 194
• 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 a sub-agent, but
an agent of the principal for such part of the business of the agency as is
entrusted to him.
• This section envisages a person called the “substituted agent” who is
nominated by the agent to act for the principal in the business of agency
with the knowledge and consent of the principal. Therefore, there is an
element of privity between the principal and the substituted agent.
• With respect to a “substituted agent,” direct relations are established
between the principal and the substituted agent.
• The substituted agent becomes the agent of the principal.
 …contd.
The primary difference between a sub-agent and
a substituted agent:
• The whole distinction in law appears to turn
upon the original agent ‘naming’ the person he
appoints to represent the principal. In the case
of a sub-agent, no such naming is required. By
way of this naming, privity of contract arises
between the principal and the substituted
agent.
 Caution
• Caution in appointing a Substituted Agent

Section 195
• In selecting such agent for his principal, an agent is bound to
exercise the same amount of discretion as a man of ordinary
prudence would exercise in his own case; and, if he does this, he is
not responsible to the principal for the acts or negligence of the
agent so selected.
• This section essentially sums up the liability of the agent for the
acts of the substituted agent.
• As a general rule, the burden on the agent in naming the
substituted agent is that of an ordinary prudent person.
 Ratification by the Principal
Section 196
• Where acts are done by one person on behalf of another, but
without his knowledge or authority, he may elect to ratify or
to disown such acts. If he ratifies them, the same effects will
follow as if they had been performed by his authority.
• This section is self-explanatory. All it says is that an act which,
at the time it was entered into or done by an agent, lacked
the authority of a principal, may, by subsequent conduct of
the principal, become ratified by him. Such ratification is
equivalent to taking the authority of the principal
beforehand.
 …contd.
• Ratification in law is equivalent to previous authority. It amounts
to endorsing the unauthorised act of the agent as authorised.
• An effective ratification places all the parties in a position similar
to that which they would have occupied at the material time if
the agent had actual authority to perform the acts ratified. Then,
the agent gets relieved from personal liability to the principal for
acting in excess of authority, and can recover his commission
and expenses, and becomes entitled to indemnity.
• Note: Ratification once deliberately made upon full knowledge
of all material circumstances cannot be revoked.
• Note: When the acts of the agent are ratified by the principal,
the relation of principal and agent is constituted retrospectively.
 Example
• A appoints B as his agent for buying and supplying to
C 15 tons of wheat. Given that the rates for wheat
were really low, B purchases 20 tons of wheat to
supply it to C on behalf of A. B tells A about it. A
says/does nothing, thinking that C will eventually
buy all 20 tons of wheat. A day later, the goods are
lost in transit, without any fault of B’s. B sues A
claiming indemnity for 20 tons of wheat. A argues
that he is only liable to indemnify B for 15 tons of
wheat. Whose argument is likely to prevail?
 Section 197
• Ratification may be express or may be implied in the conduct of the
person on whose behalf the acts are done.
• Ratification can be implied from any act which reflects the conscious
adoption of the transaction. It can also be inferred from silence or
mere acquiescence.
• Taking the benefit of the transaction is the strongest, and the most
usual, evidence of tacit adoption.
• It may be sufficient ratification that the intended principal, having all
material facts brought to his knowledge and knowing that he is being
regarded as having accepted the position of principal, takes no steps
to disown that character within a reasonable time, or adopts no
means of asserting his rights at the earliest time possible.
 Section 198
• No valid ratification can be made by a person whose
knowledge of the facts of the case is materially
defective.
• For the ratification to be effective, the person
ratifying should have had, at the time of ratification,
knowledge of all material facts in respect of the case.
• The burden of proof lies on the person who relies on
the alleged ratification to show that the principal had
requisite knowledge.
 Example
A employs B under a valid contract of agency to sell his flat in Delhi.
There were clear instructions from A to B that B could not sell this flat
either to himself or to any of his family members. Another clear
instruction to B was to sell the flat only at the market rate of Rs. 1
crore. B floats a Company, the majority shares of which are controlled
by members of B’s family to whom A did not want to sell the flat to (A
is not aware of the shareholding of this Company). B sells the flat to
this Company for Rs. 99 lakhs. When B tells A about the sale to the
Company for 99 lakhs, A is happy and doesn’t show any disagreement.
After a few days, however, A comes to know of the Company’s
shareholding and wants to annul the sale. B resists, arguing that A
ratified B’s actions in all respects. Is B’s argument likely to prevail?
 Section 199
• A person ratifying any unauthorized act done on his behalf ratifies the
whole of the transaction of which such act formed a part.
• The essence of this section is that a contract cannot be ratified in part and
repudiated in part. Therefore, the general rule is that where a ratification
is established as to a part, it operates as a confirmation of the whole of
that particular transaction entered into by the agent.
• Example: X, without Y’s authority, buys 100 bales of cotton from the open
market. Now, Y gets an order to supply 25 bales of cotton to a third party.
Y instructs X to supply 25 bales of cotton out of the 100 bales he bought
without his authority, to A. X does so. Now, it rains and the rest of the 75
bales of cotton are destroyed. X sues Y claiming indemnification for the 75
bales of cotton. Y resists the action saying that he merely ratified X’s
transaction to buy 25 bales and not 100 bales. Is he right?
 Revocation of Authority
Section 201
• 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 an
insolvent under the provisions of any Act for the time being
in force for the relief of insolvent debtors.
• Note: This section is not exhaustive. An agency may also be
terminated by mutual agreement, completion of the term
of agency, the agency becoming subsequently unlawful, etc.
 …contd.
An agency can be terminated by the following ways:

(1) Revocation of the agent’s authority by the principal:

• The principal may revoke his authority only before the agent exercises
such authority. (See Section 203)
• The principal may NOT revoke his authority after the authority has been
partly exercised. (See Section 204)
• The revocation may either be express or implied. (See Section 207)
• The revocation becomes effective only when it comes to the knowledge
of the agent or the third person, respectively. (See Section 208)
• The termination of the agent’s services causes termination of the
services of the sub-agent (See Section 210)
 …contd.
(2) Agent renouncing the business of agency:
• The agent may also choose to get out of the contract of agency at any time
before the completion of the task for which he was hired.

(3) Completion of the business of agency:

• Where the contract of agency is entered into for a particular task, and that
task has been achieved, then the agency comes to an end.

(4) Death of the principal or the agent:

• The revocation becomes effective only when it comes to the knowledge of
the agent or the third person respectively. (See Section 208)
• The agent is bound to take reasonable steps for the protection and
preservation of the principal’s interests. (See Section 209)
 …contd.
(5) The principal or the agent becoming of unsound mind:
• See Section 12 of ICA for a further understanding of ‘unsound
mind’.

(6) The principal being adjudicated an insolvent.

• Note: A mere presentation of the petition in court to declare
the principal insolvent is not enough. The court must
adjudicate / hold the principal insolvent for this part of the
section to kick in.
• Note: The ICA does not contemplate the insolvency of an
agent as a ground for termination of agency.
 Section 203
• The principal may... revoke the authority given to his
agent at any time before the authority has been
exercised so as to bind the principal.
• Note: The term “authority has been exercised”
connotes that the agent has bound the principal into
a legally binding relation with another person.
Therefore, the principal may revoke an agent’s
authority even if the agent has taken preliminary
steps towards the completion of the transaction, but
has not completed it.
 Section 204
• The principal cannot revoke the authority given to his agent
after the authority has been partly exercised, insofar as
such acts and obligations that arise from acts already done
in the agency are concerned.
• An agent who has already acted on his principal’s
instructions, and has thereby incurred a legal obligation to
a third party, is not bound on the command of the principal
to stop short and refuse to perform the obligation incurred.
• The agent is at liberty to carry out the instructions for
which he has incurred legal liabilities and it is necessary for
him to relieve himself of the same.
 Example
• A employs B as an agent under a valid contract of agency to
buy 100,000 cans of Pepsi from the open market. A also
instructs B to search the market and buy from a wholesaler
that gives him the best deal. B goes around in the market,
spending his time and money (petrol, phone, food) to find
the perfect wholesaler. B is still doing the rounds and hasn’t
yet finalized a wholesaler yet. Can A revoke?
• Example: (continuing from the previous one) B shortlists a
wholesaler and enters into a contract with him for the
supply of 100,000 cans, with delivery to take place in a day.
Can A revoke his authority after this contract was executed?
 Revocation…contd.
Section 207
• Revocation or renunciation may be express or
may be implied in the conduct of a principal or an
agent, respectively.
Section 208
• The termination of the authority of an agent does
not, so far as regards the agent, take effect before
it becomes known to him, or, so far as regards
third persons, before it becomes known to them.
 Revocation…contd.
Section 205
• 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.

Section 206 (The HCs are divided about whether this section deals with
an agency which is to continue for a period of time or to all agencies)
• Reasonable notice must be given of such revocation or renunciation,
otherwise the damage thereby resulting to the principal or the agent,
as the case may be, must be made good to the one by the other.
 Revocation…contd.
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.
• An agency stands terminated by the death of the
principal. However, the authority of the agent continues
to the extent required for the protection and preservation
of the interest entrusted to him, and no more.
 Revocation…contd.
Section 210
• The termination of the authority of an agent
causes the termination of the authority of all
sub-agents appointed by him.
 Miscellaneous
Section 226
• Contracts entered into through an agent, and obligations arising
from acts done by an agent, may be enforced in the same
manner, and will have the same legal consequences as if the
contracts had been entered into and the acts done by the
principal in person.
Section 229
• Any notice given to or information obtained by the agent,
provided it be given or obtained in the course of the business
transacted by him for the principal, shall, as between the
principal and third parties, have the same legal consequences as
if it had been given to or obtained by the principal.
 Miscellaneous
Breach of warranty by person purporting to be agent:

Section 235
• 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.
• Where any person purports to do any act or make any contract as agent on
behalf of a principal, he is deemed to warrant that he has, in fact, authority
from such principal to do the act or make the contract in question. And if
he has no such authority, he is liable to be sued for breach of warranty of
authority by any third person who was induced by his conduct.
 Section 235
• This section equally applies to a situation where a
man who represents that he has authority from
another when in fact he has no authority whatsoever,
and the case of a man who represents that he has
certain authority from another when he has authority
of another description. In neither case can the man,
who makes the representation, be said to be the
authorized agent of the other with reference to the
matter on which he has no authority. Therefore,
Section 235 applies to both classes of cases.
 Apparent /ostensible authority
Section 237
• When an agent has, without authority, done acts or
incurred obligations to a third person on behalf of his
principal, the principal is bound by such acts or
obligations, if he (principal) has by words or conduct
induced such third persons to believe that such acts or
obligations were within the scope of the agent’s authority.
• Apparent/ostensible authority is the authority of an agent
as it appears to others. Such authority coincides with
actual authority as will be seen in further slides.
 Section 237
• Generally speaking, this section encompasses a situation when one
person has clothed another, or allowed him to assume an appearance
of authority to act on his behalf, without actually giving him any
authority either express or implied, by which appearance of authority
a third party is misled into believing that a real authority exists.
• The doctrine of apparent authority applies in the following cases: (1)
where a person allows another who is not his agent, to appear as his
agent; or (2) where a principal allows his agent to appear to possess
more authority than he actually has; (3) where the principal reserves
or limits the authority of an agent which the agent would have in the
ordinary course of business, but does not make this known to third
parties; (4) where the principal allows it to appear that the agent has
authority although his authority has been terminated.
 …contd.
• In Hely Hutchinson v. Brayhead Ltd. (1967) 3 All ER 98 it was held as
follows, “... when the board of directors appoint one of their members to
be a managing director they invest him not only with implied authority,
but also with ostensible authority to do all such things as fall within the
usual scope of that office. Other people who see him acting as managing
director are entitled to assume that he has the usual authority of a
managing director. But sometimes ostensible authority exceeds actual
authority. For instance, when the board appoints the managing director,
they may expressly limit his authority by saying he is not to order goods
worth more than £500 without sanction of the board. In that case his
actual authority is subject to £500, but his ostensible authority includes
all the usual authority of a managing director. The company is bound by
his ostensible authority in his dealings with those who do not know of the
limitation...”
 …contd.
• The liability under this section is an application of the principle of estoppel.
Therefore, if a person allows another to act on his behalf with other parties
and makes them believe that the other person is acting on his behalf, he
will be bound by the transactions entered into by the ostensible agent.

Section 115 of the Indian Evidence Act, 1872

• When one person has, by his declaration, act or omission, intentionally
caused or permitted another person to believe a thing to be true, and to
act upon such belief, neither he nor his representatives shall be allowed in
any suit or proceeding between himself and such person or his
representatives to deny the truth of that thing.

(This section of the Evidence Act defines Estoppel)

 Example
• A (an agent of LIC) collected premium from B (a policy
holder of LIC) by way of a cheque before the due date.
However, he deposited the cheque after the due date, by
which time the policy had lapsed. The rules framed by LIC
prohibited agents from collecting premium. The policy
holder claimed and proved that this in fact was the
prevailing practice (and that the LIC HQ was aware of such
a practice), whereby agents of LIC would collect the
premium from some policy holders and then deposit it with
the LIC account. B is now suing LIC to revive the policy
within the t/c stated in the agreement. Can he succeed?
 Case
Harshad J. Shah v. LIC of India (1997) 5 SCC 64
Facts:
• The insured took out four insurance policies for Rs. 25,000
each with double accidental benefits on March 6, 1986
through a general agent of LIC.
• On June 4, 1987, the general agent of LIC met the insured
and obtained from him a bearer cheque dated June 4,
1987. The said cheque was encashed by the son of the
general agent on June 6, 1987. Thereafter, the said
premium was deposited by the general agent with LIC on
August 10, 1987.
 Facts…contd.
• Meanwhile, on August 9, 1987 (a day before the premium was deposited
with LIC), the insured person died.
• The widow of the insured submitted a claim to LIC, being the nominee of
the policyholder, and LIC rejected her claim arguing that the policy had
lapsed due to non-payment of the premium and that revival was not
possible because the premium was deposited after the death of the
insured.
• The argument of the widow is that the collection of the premium by the
general agent was tantamount to collection by LIC. Therefore, the policy
was validly revived by paying the premium to the agent during the
lifetime of the insured and within 5 years of non-payment of premium.
• The argument of LIC is that collection by general agent cannot be said to
be collection by LIC. Therefore, the policy stands lapsed.
 Arguments
• LIC substantiated its argument further by arguing that the general agent was
not authorized to collect the premium amount. It cited the following
paragraph from its Regulations, “... nothing contained in these regulations
shall be deemed to confer any authority on an agent to collect any
moneys... on behalf of the Corporation...”

• LIC also pointed to the terms and conditions of appointment of the general
agent, which stated, “... you are not authorized to collect moneys.. Nor are
you authorized to advance premium to the Corporation on behalf of
policyholders... you are also not authorized to collect or pass receipts for
moneys paid towards premiums... In respect of any unauthorized collection,
you will be acting as an agent of the party concerned... and you alone will
be answerable to the party for the consequences of such action...”
 LIC Case…contd.
Issue:
• Whether the premium was paid by the insured to LIC on June 4,
1987 - when the bearer cheque was delivered to the general
agent, OR on August 10, 1987 - when the amount realized by
encashing the cheque was deposited with LIC?
Decision:
• The Court ruled in favour of LIC for lack of evidence.
Rationale:
• No case set up by the appellants in the lower courts that LIC, by
its conduct had induced policyholders to believe that the general
agent were authorised to receive premium on behalf of LIC.
 Rationale
• The mere fact that LIC allowed the agent to
deposit money on behalf of the insured is not
enough to prove that LIC induced the insured
to believe that the agent had authority to
collect premiums from the insured.
Misrepresentation/Fraud by agent
Section 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.
• If the agent, acting within the scope of his authority, is guilty of fraud, or
misrepresentation in the making of the contract, or has concealed facts
which must be disclosed to the other party, the contract is voidable at the
instance of that party, who may rescind it as against the principal and
recover from the principal any benefit which has passed under the contract.
This principle applies irrespective of whether the principal has or has not
been party to such misrepresentation or fraud.
 …contd.
• Note: Although the particular act which gives the cause of
action may not be authorized, if the act is done in the course of
employment of the agent which is authorized, then the
employer is liable for the act of his agent. The reason for the
foregoing is that even though the principal has not authorized
the particular act, he is the one who put the agent in his place
to do that class of acts, and he must be answerable for the
manner in which the agent conducted himself in doing the
business.
• Note: Such misrepresentation / fraud must be committed by
the agent during the course of his employment and not at any
other time.
 Case
National Bank of Lahore (NBL) v. Sohan Lal Saigal

Facts:
• The Head Office of the Bank had issued instructions to NBL
regarding operation of lockers. Some of the relevant instructions
were: (a) The strong room / vault had to remain under joint control
of the cashier and the manager; (b) The master key to all lockers was
also to remain under joint control of the cashier and the manager;
• The respondent took up a locker on rent from the Bank for the
safekeeping of his jewellery.
• After some time, all the jewellery of the respondent was found
missing from the locker.
 Facts
• Now, it was proved on trial that: (a) the keys of the strong
room were kept with the manager alone; (b) the master
key of all the lockers was also kept with the manager alone;
(c) the manger was given accommodation by NBL, right
above the Bank premises; (d) the manager, before giving
the lockers on rent, had tampered with the locks so that
the lockers could have been opened using the master key
alone; (e) the Head Office of the Bank had no idea what the
Manager of NBL was doing; (f) the Head Office of the Bank
never checked if the regulations laid down by it were being
followed in spirit and was guilty of gross negligence.
 …Contd.
Issue:
• Whether the Bank can be held liable for the fraud
committed by its Manager during the course of
his employment, even though the Bank per se
was not aware of the exact wrongdoings that the
Manager was involved in?
Decision:
• The court answered the question in the
affirmative.
 Rationale
• Given that the lockers were given out on rent upon an
agreement, there was an implied condition that only such
lockers would be rented out which were safe. Where
defective lockers were rented out by the agent of the
Bank, there was a breach of that condition.

• It doesn’t matter that the Head Office of the Bank was not
aware of the exact fraud that was being cooked up by its
Manager. It was enough that it was done during the course
of his employment. Therefore, applying Section 238 of ICA,
the court held the Bank liable.
 Case
• Estate agent’s conflict of interest

Kelly v. Cooper [1993] AC 205

Facts:

• The plaintiff instructed the defendants, a firm of estate agents, to sell

his house and agreed to pay them a percentage of the selling price as
commission. The plaintiff was seeking $3.5 million.
• The owner of another house (which was adjacent to the plaintiff’s
house) instructed the defendant to sell such house as well.
• The defendant showed both houses to a prospective purchaser, whose
offer to purchase the adjacent house was accepted for $2 million.
 Facts
• The same purchaser then offered to buy the plaintiff’s house for $2.5 million.
The agent, after discussion with the plaintiff, sold the house to the same
purchaser for the price offered.

• After the sale was completed, the plaintiff found out about the sale of the
adjacent house and alleges that the defendant should have told him of the
purchaser’s interest in both the properties, it being material information
relating to the sale of his property. Accordingly, the plaintiff now refuses to
pay the agreed commission to the defendant.

• The defendant therefore sues the plaintiff for the commission. On the other
hand, the plaintiff counter-sues the defendant for breach of duty in failing to
disclose material information to him and placing themselves in a position of
conflict of interest.
 Kelly…contd.
Issue:
• Whether an estate agent is liable to disclose to Principal 1 information
that comes to his knowledge from his dealings with Principal 2?

Decision:
• The Privy Council answered this question in the negative.

Rationale:
• In the case of estate agents, it is their business to act for numerous
principals. Despite this conflict of interest, estate agents must be free
to act for several competing principals, otherwise they will be unable
to perform their function.
 Rationale
• It is the business of estate agents to act for numerous
principals, several of whom might be competing and whose
interests would conflict. Therefore, a term was to be implied in
the contract with such an agent that he was entitled to act for
other principals selling similar properties, and to keep
information obtained from each principal confidential.
• Although the purchaser’s interest in acquiring both properties
was material information which could have affected
negotiations for the sale price of the plaintiff’s house, the
defendants were not in breach of their duty in failing to inform
the plaintiff of the agreement to buy the adjacent house, which
was confidential to the owner thereof.
 …contd.
• Note: It was not proved on trial that the
purchaser had a special interest in buying both
properties and that such special interest could
have influenced negotiations.