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in todays world, we need the

interventions of a third party

to join personal relations

Then What will about

business world ???




In compliance to partial fulfillment of the marking scheme for Trimester 4 of 2015-16
in the subject of CONTRACTS-2.


ON DATE: 8th AUGUST 2015




ICA Indian Contract Act

E.g Example
vis--vis- With regard to/ in relation to
F. Supp- FederalSupplement
AIR All IndiaReporter
SC- Supreme Court


Chairman L.I.C v. Rajiv Kumar Bhaskar 2003 ACJ 86

Ishaq Abdul Karim And Anr. vs Madan Lal on 2 January, 1964
Badri Prasad v. State of Madhya Pradesh & Anr. 1969 SCR (2) 380



As a student of law the subject contracts forms the basis of my study. It has been essential as it
explains various relationships when it comes to the daily dealings we do. Contracts have been
widely explained under the ICA with one of its topic as agency covered under it. Thus taking
the opportunity to deal with the topic in detail the below research is conducted.

Method adopted:
I have adopted secondary method of research. I have viewed various books and sites on the
Internet. Articles have been of great help. The online sites such as mentioned in the
bibliography were of great help to study the topic in a better legal perspective.

Objective of the study:

It is of keen interest to study how agents work on behalf of their principal. The relationship
they share which forms a kind of contract amongst them. The study conducted helps the
reader to understand this relationship in detail and gives an overview about the various
aspects regarding agency as a contract.


The hypothesis used in the above study:


To understand relationship between an agent and principal

To understand the concept of vicarious liability in terms of contracts
To understand briefly how contract laws differ from country to country
A brief outline of the cases to understand the topic more clearly
A study of contractual provisions stated under law

Limitations of the study:

There are several limitations to this project too because I have not been able to cover the
entire topic and conduct an in depth study of all the areas. And I have done in depth study of
only a part of the topic. Some portions of the AGENCY are not covered under my project.
The project just gives the reader a jist of how agency forms a part of contract. The project
fails to conduct a primary research through examination and surveys due to lack of time and
vague understanding of the topic. The project is limited to books and Internet content.
Despite the ubiquity of agents in the modern world, agency law does not have a coherent
explanation. The attempts to explain the agency law have drawbacks, as they are limited in
scope and at times unpersuasive.


It was enacted mainly with a view to ensure reasonable fulfillment of expectation created by
the promises of the parties and also enforcement of obligations prescribed by an agreement
between the parties. The Third Law commission of British India formed in 1861 under the
stewardship of chairman Sir John Romilly, with initial members as Sir Edward Ryan, R.
Lowe, J.M. Macleod, Sir W. Erle (succeeded by Sir. W.M. James) and Justice Wills
(succeeded by J. Henderson), had presented the report on contract law for India as Draft
Contract Law (1866). The Draft Law was enacted as The Act 9 of 1872 on 25 April 1872
and the Indian Contract Act, 1872 came into force with effect from 1 September 1872.
Before the enactment of the Indian Contract Act, 1872 , there was no codified law governing
contracts in India. In the Presidency Towns of Madras, Bombay and Calcutta law relating to
contract was dealt with the Charter granted in 1726 by King George I to the East India
Company. Thereafter in 1781, in the Presidency Towns, Act of Settlement passed by the
British Government came into force. Act of Settlement required the Supreme Court of India
that questions of inheritance and succession and all matters of contract and dealing between
party and party should be determined in case of Hindu as per Hindu law and in case of
Muslim as per Muslim law and when parties to a suit belonged to different persuasions, then
the law of the defendant was to apply. In outside Presidency Towns matters with regard to
contract was mainly dealt with through English Contract Laws; the principle of justice,
equity and good conscience was followed.

Contract of Agency is based on two principles namely :
1) Whatever a person can do personally shall also be allowed to be done through except in
case of contracts involving personal services such as painting, marriage, singing, etc
2) He who does not act through a duly authorized agent does it by myself, i.e., the act of the
agent are considered the acts of the principle (Sec.226)1

However every person, who acts on behalf of another, is not necessarily an agent, for
example, a contractor employed to carry on some construction work is not necessarily the
agent of the principal. An employee technically, could be a representative of the employer
but he or she may not be authorized to act on behalf of the principal.
In order to determine whether a person is an Agent, it is necessary to check whether he acts
for himself or for and on behalf of the Principal because an agent never acts on his behalf
but always on behalf of another. In a contract, if a person undertakes to be personally liable,
he is not an Agent. An Agents authority is not limited to the acts that are expressly granted
under authority but he or she also has the implied authority to do all acts which are
incidental to the main powers. The Act provides that an agent also has powers to do all acts
for the purpose of protecting the principal in an emergency as would be done by a person of
prudence in his or her own case.
It is interesting to note that a written document is not necessary to create a contract of
agency and it may be inferred from the circumstances and conduct of the parties; and is
valid even if there is no consideration. A person who merely receives and transmits
communications is not an agent and this can be ascertained from the facts of the case.
Similarly, the fact that the remuneration payable to a party is described as a commission is
not decisive of the existence of an agency.


It would be difficult to function in a modern economy for more than a few hours without
interacting with an agent of some kind. The atmosphere is so thick with agents that most
people rarely think about them; we willingly hand money to a stranger we meet in a store

and carry away goods without questioning whether a sale has occurred. Basically all of us
enter into a number of contracts everyday knowingly or unknowingly. Each contract creates
some rights and duties on the contracting parties.
In legal terminology, every person who acts for another is not an Agent. A domestic servant
renders to his master a personal service; a person may till anothers field or tend his flock or
work in his shop or factory or may be employed upon his roads or ways; one may act for
another in aiding the performance of his legal or contractual obligations of third persons. In
none of these capacities, he is an agent and he is not acting for another in dealings with the
third person. It is only when he acts as a representative of the other in business negotiations,
that is to say in the creation, modification or termination of contractual obligations, between
that other and third persons, that he is an agent. Representative Character and Derivative
Authority may briefly be said to be the distinguishing feature of an agent2.



The law relating to contracts in India is contained in Indian Contract Act, 1872. The Act was
passed by British India and is based on the principles of English Common Law. It is
applicable to all the states of India except the state of Jammu and Kashmir. It determines the
circumstances in which promises made by the parties to a contract shall be legally binding
on them. Indian Contract Act of 1872, being of skeletal nature, deals with the enforcement
of these rights and duties on the parties in India.
At present the Indian Contract Act may be divided into two parts:
Part 1:deals with the General Principles of Law of Contract Sections 1 to 75

Part 2:deals with Special kinds of Contracts such as

(1 )Contract of Indemnity and Guarantee
(2) Contract of Bailment and Pledge
(3) Contract of Agency
Sec. 182 of the ICA defines the terms Agent and Principal as :An agent is a person
employed to do any act for another, or to represent another in dealings with third person. The
person for whom such act is done, or who is so represented, is called the principal"3


In law, the relationship that exists when one person or party (the Principal) engages another
(the Agent) to act for him, e.g. to do his work, to sell his goods, to manage his business. The
law of agency thus governs the legal relationship in which the agent deals with a third party on
behalf of the Principal. The competent Agent is legally capable of acting for this Principal vis-vis the third party.
Hence, the process of concluding a contract through an agent involves a two-fold relationship.
On the one hand, the law of agency is concerned with the external business relations of an
economic unit and with the powers of the various representatives to affect the legal position of
the principal. On the other hand, it rules the internal relationship between Principal and Agent
as well, thereby imposing certain duties on the representative (diligence, accounting, good
faith, etc.).

of Agency as a Contract :

The Principle should be competent to contract. ( Sec. 10 of the ICA)

Any person who s a minor or is of unsound mind cannot employ An Agent.
The Agent may not be competent to contract.
The capacity of an Agent should be looked at from two angles:
a) The capacity of the Agent to act on behalf of the Principle and to bind his Principal
and third persons.
b) The capacity to bind himself by a contract between himself and his Principle.
As far as the Agents capacity to bind the Principal and the third person is concerned, any person
can become an Agent including a minor. In this context, the Agent is only a connecting link between
the two parties.

No consideration is necessary to create an Agency.

The law does not require any consideration for the contract of Agency to be valid.

Modes of creating Contract of Agency :



Agency contracts are created in basically the following ways:

Express Agency:
A person may be appointed agent by word of mouth or by writing. No particular form is
required for appointing an Agent.4
Implied Agency:
An Agency which arises from the conduct, situation or relationship of parties.5 The
following fall are different ways of implied agency :
Agency by Estoppel:
When a person has by his conduct or statement induced others to believe that a
certain person is his Agent, he is estopped from subsequently denying it.6 Eg. A tells
B that he is Cs Agent, this he does in the presence of C and within his hearing. C
does not object to the statement of A is actually not his Agent. Later B makes deal
with A as Agent of C. C shall be bound by this deal.
Agency by Holding Out:
Though part of law of estoppel, some affirmative conduct by the principal is
necessary in creation of Agency by holding out.7 Eg. A child purchases goods from a
shop and desires the shopkeeper to collect payment from his parents later. The
parents though not bound to pay make the payment. After a few days the child makes
another purchase on credit of his parents. The parents would be bound to pay this
time because, by making payment earlier without raising any objection, they had

Section 187

held their child out as their agent for making such payments.
Agency of Necessity:
This arises where there is no express or implied appointment of a person as Agent for
another but he is forced to act on behalf of a particular person.8 Eg. A horse was sent
by rail at the destination it was not taken delivery by the owner. The stationmaster
had to feed the horse. Held, station master became the agent by necessity and hence
the owner must compensate him.
Agency by Ratification:
Where an agent does an act for his Principal but without the knowledge or authority or
where he exceeds the given authority, the Principal is not held bound by the transaction. Eg.
L made an offer to X, MD of a company. X accepted the offer though he held no authority to
do so. L subsequently withdrew the offer, but the company ratified Xs acceptance. It was
held that L was bound.

Agents Authority:


1. In normal circumstances: An Agent having an authority to do an act , has the authority to do

every lawful thing which is necessary in order to do such an act.9 Eg. A is employed by B
residing in London, to recover at Bombay a debt due from B. A may adopt any legal process
necessary for the purpose of recovering the debt, and may give a valid discharge for the
2. An Agent having all the authority to carry on business, has authority to do every lawful thing
necessary for the purpose, or usually done in the course of conducting such business10. Eg: A
constitutes B his agent to carry on his business of a shipbuilder. B may purchase timber and
other materials, and hire workmen, for the purpose of carrying on the business.
3. In an emergency , an agent has the 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 circumstances11.

Rights of an Agent
The following are some important rights of an Agent:
Right to Remuneration:
When Agents remuneration becomes due then 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
10 SECTION 188
11 SECTION 189

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.12
Right of Retainer:
An Agent may retain, out of any sums received on account of the principal in the business of
the Agency, all moneys due to himself in respect of advances made or expenses properly
incurred by him in conducting such business, and also such remuneration as may be payable
to him for acting as Agent.13
Right of Lien:
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.14
Right to Indemnity:
The employer of an Agent is bound to indemnify him against the consequences of all lawful
acts done by such agent in exercise of the authority conferred upon him.15 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 may cause an injury to
the rights of third persons.16
Right to Compensation:
The Principal must make compensation to his agent in respect of injury1 caused to such
Agent by the Principals neglect or want of skill. Eg. A employs B as a bricklayer in building
a house, and puts up the scaffolding himself. The scaffolding is unskilfully put up, and B is
in consequence hurt. A must make compensation to B.
Duties and Liabilities of Agents:
An Agent owes certain duties towards his Principal and a principal owes certain duties
towards Agent. The scope of an Agents duty to the Principal is determined by:



the terms of the agreement between the parties; and


extent of the authority conferred and the obligations of loyalty to the interests of the

An Agents primary duties are:

act on behalf of and be subject to the control of the Principal;

act within the scope of authority or power delegated by the Principal;
discharge his duties with appropriate care and diligence; and
avoid conflict between his personal interests

Other duties of an Agent include:

not to acquire any material benefit from a third party in connection with transactions
conducted or through the use of his positions as an Agent
to act with the care, competence, and diligence normally exercised by Agents in
similar circumstances.
to take action only within the scope of the his actual authority
to comply with all lawful instructions received from the Principal and persons
designated by the principal concerning Agents actions on behalf of the Principal
to act reasonably and to refrain from conduct that is likely to damage the Principals
An Agent is liable to a Principal when he acts without actual authority, but with apparent
authority. An Agent is liable to indemnify a Principal for loss or damage resulting from his
A Principal owes certain contractual duties to his Agent. Correlative with the duties of an
Agent to serve a Principal loyally and obediently, a Principals primary duties to his Agent
To compensate the Agent as agreed; and
To indemnify and protect the Agent against claims, liabilities, and expenses incurred
in discharging the duties assigned by the Principal
Because of the fiduciary relationship, a Principal owes his Agent a duty of good faith and
fair dealing. However, a Principal can be relieved of contractual obligations by an Agents
prior breach of contract. A Principal has a duty to act in accordance with the express and
implied terms of any contract between a Principal and an Agent.
Ways to End Contract of Agency:

By Agreement
Agency may be terminated by an agreement at any time between the Principal and the Agent
by mutual consent.
Revocation of the Agents Authority
Agency may be terminated by the Principal revoking the Agents authority and by giving
notice to the Agent
Where the Agent renounces the contract of Agency
When the Agent renounces the business of Agency, the Agency is terminated.
By Completion of Performance
When the business for which the agency was constituted is completed, the agency is terminated.
Eg: when an Agent is appointed to sell a house, the agency is completed when the house is sold.
By the Death/Insanity of the Principal/Agent
When the Principal/Agent dies or becomes of unsound mind, the agency is terminated with
notice to the other party.
By Insolvency of the Principal
If the Principal has been adjudicated an insolvent under the provisions of any act for the time
being in force, the agency is terminated.
By Efflux of Time

Where agency is for a fixed period of time, it is terminated on the expiry of time irrespective
whether the purpose for which the agency is constituted is accomplished or not.
By Destruction of Subject Matter
When the subject matter of the agency is destroyed, the agency is terminated.
By the Principal/Agent Becoming an Alien Enemy
Where the Principal/Agent belongs to different countries and a war is declared between the
countries, they become alien enemies and the agency is terminated.
By the Object of the Agency Becoming Unlawful
When the happening of an event renders the object of the agency unlawful, the agency is

A number of issues in the common law arise when Agents make contracts on behalf of their
principals. Should a principal be bound when his Agent makes a contract with some third
party on his behalf which the principal would immediately wish to disavow? The tradeoffs
resemble those in tort, so the least-cost-avoider principle is useful for deciding when
contracts are valid, and may be the underlying logic behind a number of different doctrines
in agency law. In particular, an efficiency explanation can be found for the undisclosed
principal rule, under which the principal is bound even when the third party is unaware that
the agent is acting as an agent.
Generally, a person is liable for his own wrongful acts and one does not incur any liability
for the acts done by others. In certain cases, however, vicarious liability, that is the liability
of one person for the act of another person, may arise. In order that the liability of A for the
act done by B can arise, it is necessary that there should be certain kind of relationship


between A and B, and the wrongful act should be, in certain way, connected with that
relationship. The common examples of such a liability are:
(1) Liability of the principal for the tort of his Agent;
(2) Liability of partners for each others tort;
(2) Liability of the master for the tort of his servant.
So Vicarious Liability deals with cases where one person is liable for the acts of others. In
the field of Torts, it is considered to be an exception to the general rule that a person is liable
for his own acts only. It is based on the principle of Qui Facit per se per Alium Facit per
se, which means, He who does an act through another is deemed in law to do it himself.
So in a case of vicarious liability both the person at whose behest the act is done as well as
the person who does the act are liable. Thus, Employers are vicariously liable for the torts of
their employees that are committed during the course of employment.
Reasons for vicarious liability:
Several reasons have been advanced as a justification for the imposition of vicarious
(1) The master has the deepest pockets. The wealth of a defendant, or the fact that he has
access to resources via insurance, has in some cases had an unconscious influence on the
development of legal principles.
(2) Vicarious liability encourages accident prevention by giving an employer a financial
interest in encouraging his employees to take care for the safety of others.
(3) As the employer makes a profit from the activities of his employees, he should also bear
any losses that those activities cause.
In the words of Lord Chelmsford : It has long been established by law that a master is
liable to third persons for any injury or damage done through the negligence or
unskilfulness of a servant acting in his masters employ. The reason of this is, that
every act which is done by servant in the course of his duty is regarded as done by his
masters order, and, consequently it is the same as if it were masters own act.



1. Chairman L.I.C v. Rajiv Kumar Bhaskar 2003 ACJ 86

FACTS: As per L.I.C salary saving scheme the employer was to deduct the premium from
the salary of the employee and deposit with L.I.C. All the related procedures were the
responsibility of the employer. Upon death of the concerned employee, the heirs found the

employer had defaulted in payment causing policy to lapse. L.I.C relied on a clause in the
acceptance letter by the employer which said he would act not as the agent of L.I.C but as an
agent of his employees.
ISSUE: Whether the employer can be treated as the agent of the L.I.C despite the express
agreement to the contrary?
CONTENTIONS: L.I.C: As the policy was in the name of individual employee, in the
event of non-payment of premium either by employee or employer, would result in lapse of
the policy.
HELD: The expression agent in this case may not mean to be one within the meaning of
the LIC of India (Agents) Regulation, 1972; but would mean an agent in ordinary sense of
the term. The use or omission of the word agent is not conclusive to determine the legal
nature of the relationship.
Keeping in view the fact that the Corporation did not make any offer to the employees nor
would directly make any communication with them regarding payment or non-payment of
the premium or any other matter in relation thereto and the inability of the employee to
approach the insurer directly, show that they were to treat their employers as agents of the
Corporation and the employer had a key role to play in this whole affair. Furthermore, even
the terms and conditions of the policy were to be performed only through the employer.
This only points to the fact that the employers would be the agents of the insurer. When the
existence of an agency relationship would help to decide an individual problem and the fact
permits a court to conclude that such a relationship existed at a material time, then whether
or not any express or implied consent to the creation of an agency may have been given by
one party to another, the court is entitled to conclude that such relationship was in existence
at that time for the purpose in question.17

2. Ishaq Abdul Karim And Anr. vs Madan Lal on 2 January, 1964

FACTS: In this case, the plaintiff, a wholesale dealer of potatoes from Fatehpur, U.P sold and
dispatched a truck full of potatoes to the defendants, a dealor of potatoes at Khanwa. The
defendant refused to take delivery of the goods. The plaintiff sent his munim (agent) to
Khandwa, authorizing the munim to take delivery of the potatoes and sell them there at any
price he chooses. The truckload of potatoes was worth Rs. 1000/-. The munim contacted the
17 SECTION 186 AND 187

defendant and other dealers in Khandwa, who were in the business of trading potatoes. The
munim accepted the payment by the highest bidder for Rs. 800/-. The highest bidder turned out
to be the defendant himself. The munim gave in writing that the payment was of full settlement
of the claim of the plaintiff against the defendant.

HELD: It was held that the munim had an implied authority to act on behalf of his principal.

3. Badri Prasad v. State of Madhya Pradesh & Anr. 1969 SCR (2) 380
FACTS: The appellant (A) entered into a contract in respect of certain forests and became
entitled to cut teak trees with some specifications. After a legislation vesting the estate in the
State, A was prohibited from cutting timber in exercise of his rights under the contract. On
Feb, 1, the State said that As claim to cut trees would be considered only if he gave up his
claim to a sum of Rs. 17,000 which he had already paid under the contract and was willing
to pay a further sum of Rs. 17,000 to the state. On February 5, 1955, A expressed his
willingness to pay the additional sum but reserved his right to claim a refund of the first
sum. The State rejected As right to cut trees. A then filed a Suit claiming specific
performance of the contract.
ISSUE: Whether the property was vested in the state by the Act or transferred to the

1. The forest and trees did not vest in the State under the Act
2. Even if they vested, the standing timber, having been sold to A, did .not vest in the State
3. In any event a new contract was completed on February 5, 1955, and the appellant was
entitled to its specific performance.
Supreme Court: (SIKRI, J.) (favoured the State)
1. The forest and trees vested in the State under the Act.


2. Under the contract A had not become the owner of the trees as goods. The property in the
timber could pass to A only when the trees are felled, but before they were felled, the trees
had vested in the State.
3. Under the terms of the contract, there was no sale of the whole of the trees[3], and, it had to
be ascertained which trees fell within the description of trees which the appellant was
entitled to cut.
4. Till that was done they were not ascertained goods within s. 19 of the Sale of Goods Act
5. Even if the letter of Feb 1 could be treated as an offer, there was no unconditional
acceptance of the offer, because, there was a reservation by the appellant of his right to
claim refund in his letter dated 5th Feb and hence there was no concluded contract.


In Australia there is no distinct concept, either statutory or at common law, of a commercial
agent. Australia has a federal legal system. Accordingly, both Commonwealth (federal) and


State or Territory legislation will apply to commercial arrangements. The common law
applied in Australian jurisdictions contains the broader concept of an 'agent', being a person
with an authority or capacity to create or affect legal relations between a principal and third
parties. The common law governs the formation, operation and termination of the agency
relationship, as well as the rights and duties of the agent, the principal and the third party. In
particular circumstances an agent's activities are, under the law applicable in Australian
States and Territories, regulated by statutes.
Some examples of such agents and the corresponding statutes are:
Auctioneers: Auction Sales Act 1958 (Victoria);
Estate Agents: Estate Agents Act 1980 (Victoria);
Finance Brokers: Consumer Credit (Victoria) Act 1995 (Victoria);
Travel Agents: Travel Agents Act 1986 (Victoria);
Mercantile Agents: Goods Act 1958 (Victoria); and
Insurance Agents: Instruments Act 1958 (Victoria), Credit Act 1984 (Victoria)
The term 'Commercial Agent' is used in legislation in Australia in relation to activities such
as security and investigative activities (serving a writ or summons, repossessing or locating
goods, or collecting or requesting payment of debts). The term 'Commercial Agent means
the holder of a master licence or operator licence with respect to one or more commercial
agent activities. 'Commercial Agent activity' means debt collection, process serving or
repossession of goods. The broader common law concept of an Agent would encompass
the sale and purchase of both goods and services.
Principal: Under Australian law, a Principal is defined at common law as a person who
confers upon an Agent the authority to act on the person's behalf for the purpose of creating
or affecting legal rights and duties between the person and third parties.
Termination under Australian law: There is no statutory requirement in terms of notice
period to be given or the form the notice of termination should take. Termination of an
agency arrangement will usually be determined according to the terms of the relevant agency
contract. Any rights to damages or unpaid commission following termination of the agency
contract would be determined under common law principles. On termination of the agency
contract, an Agent will not have any other non-contractual entitlements specifically relating
to the agency relationship.


However, there may be other rights generally available in the circumstances of contractual
termination. The ability of an Agent to assign his rights and duties to another person as well
as the remedies for breach of contract is governed by Australian common law.
Choice of Law and Jurisdiction : Generally speaking, express choice of law and choice of
forum provisions in contracts are effective under the law applicable in Australian States and
Territories. Parties have a wide discretion to choose the proper law and forum of the contract.
Accordingly, provisions in an agency agreement stipulating that English law is to govern the
contract (and that English courts are to have jurisdiction) are likely to be given effect. Where
an agency contract has a jurisdiction clause, but is silent with respect to choice of law, there is
a strong presumption under Australian law that the parties have chosen the law of the
jurisdiction as the proper law of the contract.
However, in certain circumstances the law applicable in Australian States and Territories will
be applied regardless of the existence of a choice of law/forum provision in an agency
contract, including where:

there is an initial question as to whether a valid contract has come into existence;
it would be unconscionable to enforce the choice of law provision; or
the choice of law provision was designed to evade the application of a mandatory
Australian law (eg. an obligation imposed by statute).

In India, as in most other jurisdictions Agency signifies a relationship, which exists where
one person has an authority to act on behalf of another (the Principal) to create legal
relationships between the Principal and third parties.The similarity between these two
countries is quite evident in the above research conducted.



Agent and Servant: There is too much of similarity between an agent and a servant as both
are employed to act for and on behalf of a person. However, there is a lot of difference
between an agent and a servant.
The Supreme Court clearly explained the distinction between an agent and a servant in
Lakshminarayan Ram Gopal and Sons v. Hyderabad Government. The points of
distinction are summarized as follows:
1. An agent has an authority to create contractual relationship between the principal and a
third party.
2. An agent is not subject to the direct control or supervision of the principal. As such, he has
greater discretion in his actions. A principal has the right to direct what the agent has to do
but the master has also the right to say how it is to be done.
3. An agent is paid commission on the basis of work done.
4. A principal is liable for only those acts which are within the scope of the authority given
to the agent.
5. An agent may work for a number of principals at the same time.
1. A servant has no such authority
2. A servant acts under the direct control and supervision of his master, and is bound to carry
out all reasonable orders given to him in the course of his work.
3. A servant is paid by way of salary or wages.
4. A master is liable for the wrongs of his servants committed in the course of employment.
5. A servant usually serves only one master.
The agent helps both sides of the transaction, and an efficient legal rule benefits both buyer
and seller. As a result, it is wrong to try to decide whether someone is the buyer's agent or
the seller's agent by discovering who is the beneficiary of his actions. Everyone is a
beneficiary. A better approach is to ask who has control over the agent, which in fact is the
usual legal rule. Both parties, however, have some control over him, as in the model above,


where both principal and third party can take care to prevent agent mistakes. The principal
has authority, and usually has more control, but his power is limited by his absence from the
time and place of the transaction.
This research has attempted to analyze the central doctrines of agency as they apply to
contracts made by agents and to apply them to both the most common kinds of disputes and
a few of the many equally interesting if less common situations that can arise. The style of
analysis may also be usefully applied to other areas of the law such as partnership, criminal
conspiracy, and marriage, in which one person bears responsibility for the actions of another.
A unifying theme has been the view of the agent as a means to reduce transaction costs, a
role in which he is useful to both parties in the transaction, the principal and the third party.
This view of the agent leads naturally to the idea that issues of liability should be related to
providing each of the two transactors with incentive to monitor the agent. The least-costavoider principle has great unifying power, and reduces the complexity of assigning liability,
which must otherwise be done by applying a number of distinct doctrines such as apparent
authority and inherent agency power. Indeed, the decisions of the common law, while
doctrinally somewhat confused and easy to mock, make considerable sense when viewed as
allocating blame to the party who was the least- cost-avoider of agent mistakes or
The idea also gives insight into the undisclosed principal problem. Binding an undisclosed
principal to pay for contracts made by agent, though a windfall for the third party, becomes
much more reasonable once one realizes that the principal has a lower cost of preventing the
agent from making inefficient contracts.


A written contract for agency helps to minimise risks

It is much safer to have something in writing than to rely on someone's word. A written
contract will give you more certainty and minimise your business risks by making the
agreement clear from the outset.

Read every word before you sign

Read the fine print carefully and get advice about any terms you don't understand before you
sign. Once you sign a contract you are bound by all of its terms. If there is an indemnity
clause, don't sign until you understand the risks you are agreeing to accept if something goes

Cross out any blank spaces

Don't leave any spaces blank. If you don't need to fill in a blank space, always cross it out so
the contract can't be changed after you sign it.



You have the right to negotiate any contract before signing, including a standard form
contract. But remember that both parties must agree to any changes and record them in the
contract you sign. Your union or industry association or a lawyer can help you prepare for

Keep a copy
You should always have a copy of any contract you sign. It is best if you and the other party
sign two copies of the contract, so that you can both keep an original. If this isn't possible,
ask for a photocopy and check that it is an exact copy. Remember to keep your copy
somewhere safe for future reference.
A lawyer, your union or industry association might be able to provide you with information
about some common standard terms used in contracts in your industry. They may also be able
to provide you with a standard form contract for you to use.

Make yourself clear

A contract should clearly and accurately reflect what you and the other party have agreed
and set out exactly what you expect from each other. If you cannot agree about a matter, you
may need to discuss it in more detail so you better understand each other's point of view. Do
not enter into a contract hoping to sort it out later, because once it is signed the terms will be
legally binding. A dispute is less likely if you and the hirer are happy with the terms of a
contract from the start.

Know your responsibility

As an Agent and Principal one needs to be very clear about ones liability, responsibility and

Recovery of loss
Inform the Agent about his liability to repay the Principal on behalf of any losses occurring
due to the acts of the Agent.

Make the correct choice:

The Principal should be wise enough to choose his agent as he acts on his behalf. The Agent
must be a trusted person. Agents may take undue advantage as the Principal is vicariously


liable for his Agents act. Fraud may cause severe damages to the Principal ; thereby making
the right choice is essential.

Description of services or results

Every contract should include a description of the agreed work to be done or the result to be
achieved. This should be as detailed as necessary to make it clear.
It should state:
o what work will be done or what result will be achieved
o when the work will start and when it will be completed (specific dates)
o where the work will be done (the Agent's business premises, your home office or
another location).