CONTRACT OF AGENCY

A research prepared submitted in partial fulfilment of the course Law of

Contract II for obtaining the degree BBA LLB (Hons.) doing the
academic year 2019-2020.
Submitted by
RAHUL KUMAR
2032
Submitted to
Dr. Vijay Kr. Vimal
Assistant Professor

August 2019
Chanakya National Law University, Patna
Mithapur Nayaynagar, Patna

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 CONTENTS

SL.No. Topics Page No:

1 Introduction 4
2 Definition 5
3 Principles of Contract 5
of Agency
4 Difference between an 5-6
Agent and a Servant
5 Nature of Authority of 6-7
Agent
6 Essential features of 7-9
Agency
7 Rights of Agency 9-13
8 Duties of Agency 13-17
9 Delegation of 17-20
Authority
10 Termination or 20-23
Determination of
Agency
11 Bibliography 24

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DECLARATION

I hereby declare that the project entitled “CONTRACT OF AGENCY” submitted

by me at CHANAKYA NATIONAL LAW UNIVERSITY is a record of bona fide
project work carried out by me under the guidance of our mentor Dr. Vijay Kr.
Vimal. I further declare that the work reported in this project has not been
submitted and will not be submitted, either in part or in full, for the award of any
other degree or diploma in this university or in any other university.
----------------
RAHUL KUMAR
ROLL NO. 2032
3RD SEMESTER
2ND YEAR

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 ACKNOWLEDGEMENT

It is a fact that any research work prepared, compiled or formulated in isolation is

inexplicable to an extent. This research work, although prepared by me, is a
culmination of efforts of a lot of people who remained in veil, who gave their
intense support and helped me in the completion of this project.

Firstly, I am very grateful to my mentor Dr. VIJAY KR. VIMAL, without the
kind support and help of whom the completion of this project was a herculean task
for me. She donated her valuable time from her busy schedule to help me to
complete this project. I would like to thank her for her valuable suggestions
towards the making of this project.

I am highly indebted to my parents and friends for their kind co-operation and
encouragement which helped me in completion of this project. I am also thankful
to the library staff of my college which assisted me in acquiring the sources
necessary for the compilation of my project.

Last but not the least, I would like to thank the Almighty who kept me mentally
strong and in good health to concentrate on my project and to complete it in time.

I thank all of them !

RAHUL KUMAR
ROLL NO. 2032
3RD SEMESTER
2ND YEAR

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 OBJECTIVE OF THE STUDY
To understand the working of the contract of agency and its construct.

 HYPOTHESIS
Researcher hypotheses’ that
o There should be the intention on the part of the agent to act on behalf of
the principal.
o No consideration is necessary to create an agency.
o There should be the intention on the part of the agent to act on behalf of
the principal.

 RESEARCH MTHODOLOGY

A Research Methodology defines the purpose of the research, how it

proceeds, how to measure progress and what constitute success with respect
to the objectives determined for carrying out the research study.

The research design is given as below –

Exploratory Research: This kind of research has the primary objective of

development of insights into the problem. It studies the main area where the
problem lies.
The project involves doctrinal and non-doctrinal forms of sources. As far as
the doctrinal sources are concerned, they primarily include the web, books
and newspaper articles.

The research methodology for the present study has been adapted to reflect
these realties and helps reach the logical conclusion in an objective and
scientific manner.

 SOURCE OF THE DATA

1) Primary data –
Data which is collected through direct interviews and by raising
questionnaires in this case to a few car dealers.

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 2) Secondary data –
Secondary data that is already available and published. Various internet sites,
newspaper, magazines were searched in order to find information useful for
completion of this project.

It can be of internal and external source of data:

1) Internal source –
Which originates from the specific field or area where research is carried out?
E.g. Publish brochures, official reports etc.
2) external source –
This originates outside the field of study like books, periodicals, journals,
newspapers and the internet.

 LIMITATIONS OF THE STUDY

The researcher being a student doesn’t have the source or access to

resources beyond his capacity. He however, has collected the data from
book, internet sites, newspaper, magazines and interviews. Some of the
limitations researcher has faced or is bound to face are:
1. Money : one of the most influential limitation for researcher, for
researcher is a student.
2. Time period: the allocated period of time is not sufficient to collect
and analyse the data for more accurate judgement of the subject.
3. Research Area: the provided place for conducting the data
collection is very small and the scope for collection of information
is narrow.

 SCOPE OF STUDY

To understand and achieve knowledge regarding one of the prominent law

relating to contract.

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 Contract of Agency

Introduction

Agency is a special type of contract. The concept of agency was developed as one cannot
possibly do every transaction himself. Hence, he should have opportunity or facility to
transact business through others like an agent. Principles of contract of agency- (a)
Expecting matters of a personal nature, what a person can do himself, he can also do it
through agent (e.g. a person cannot marry through an agent, as it is a matter of personal
nature). (b) A person acting through an agent is acting himself, i.e. act of agent is act of
principal. Since agency is a contract, all usual requirements of a valid contract are
applicable to agency contract also except to the extent excluded in the Act. One important
distinction is that as per Sec. 185, no consideration is necessary to create an agency.

Who may employee an agent- 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 employee an agent (Sec. 183).
Thus any person competent to contract can appoint an agent.

Who may be an agent- As between the principal and third person any person can 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 (Sec. 184). The significance is that a principal can appoint a minor or
person of unsound mind as agent. In such case, the principal is responsible to third parties.

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Definition

According to Sec 182 defines an ‘Agent’ as “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 represented is called the principal. The relationship between the agent and
the principal is called “agency”.

Principles of Agency

Contracts of agency are based on two important principles, namely:

a) Whatever a person can do personally shall also be allowed to be done through an

agent except in case of contracts involving personal services such as painting,
marriage, singing, etc.
b) He who does not act through a duly authorized agent does it by himself, i.e., the act
of the agent are considered the acts of the principal (Sec. 226).

Difference between an Agent and a Servant

1) Scope of authority: An agent can create a contractual relationship between the

principal and third parties. But a servant cannot create contractual relationship
between its employer and third parties.
2) Remuneration: An agent receives commission for his services. A servant is
generally paid wages or salary.
3) On whose behalf: An agent may work for several principals at the same time. A
servant can serve only one master at a time.
4) Control: An agent is not subject to direct control and supervision of the principal.
He is often discretion. But a servant acts under the direct control and supervision of
his master and must follow all his reasonable order.

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 5) Liability of principal: The principal is liable for all the wrongful acts of his agent
which are within the “scope of his authority.” But the master is bound by the
wrongful acts of his servant if done in the course of servant’s employment.

Nature of Authority of Agent

According to Sec. 226, the contracts entered into through an agent, and obligation arising
from an act 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 the person. In other words, the principal is liable for the acts of the agent in the
same manner as if he himself has done those acts.

The authority of the agent to bind the principal may be of the following types:

1) Actual or real authority: It is the authority conferred by the principal on the agent.
It may be expressed or implied (Sec. 186).

Example: A of London employed B of Mumbai to recover a debt due. B may adopt

any legal process that may be necessary for the purpose of recovering the debt and
may give a valid discharge for the same. (Illustration (a) Sec.188).

In terms of Sec. 188, an agent has the authority to do every lawful thing which is
necessary to do the act. He can do every lawful thing for the purpose.

2) Ostensible or apparent authority: It is the authority of an agent which appears to

others. When an agent is employed to do a particular business, those dealing with
him can presume that he has the authority to all such acts as are necessary, or
incidental to such business. This authority may coincide with actual authority and
may even exceed it.

Example: The kerala high court has held in Valappad Cooperative Society Ltd. vs.
Srinivasa Iyer AIR 1964 Ker. 176, that a person authorized to carry on the business

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 of a cooperative society must be deemed to have the authority to purchase goods on
credit not with standing that the society had advanced high enough money for the
purpose.

Section 237 incorporates the principle of the ostensible authority which covers cases
where agent has acted without authority of the principal.

3) Agent’s Authority in an emergency: According to Sec. 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.

Example: An agent for sale may have the goods repaired if it be necessary. (Illustration
9a) to Sec. 189).

Essential features of agency

Agency has certain essential features. They are as follows:

1) Agency implies that one person (i.e. an agent) brings two other persons (i.e. a
principal and a third person) into contractual relationship.

That means an agent is a connecting link between the principal and the third
person.

2) An agent is not a mere a connecting link between the principal and the third
party. He also creates a legal relationship between the principal and the third
party.

That is he makes the principal answerable to the third party for his acts and
also entitles the principal to all the benefits accruing from his acts.

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3) An agency can be established to do any act which the principal could do
lawfully.

That means an agency can be established only for lawful acts. If an agency is
established for an unlawful act it cannot be enforced by law.

4) Agency can be created only for those acts which can be delegated by a person
to another.

That means agency cannot be created for acts which must be done by a person
himself and cannot be delegated to an agent say painting, marrying, singing.

5) The agency relationship may be established by a contract between the

principal and the agent which may be written or oral, or may be established
by implications, as in the case of husband and wife, master and servant etc.

6) Though a valid contract requires that both the contracting parties must be
competent to contract, for a contract of agency, it is enough if only the
principal is competent to contract.

The agent need not be competent to contract. In other words an agent may be
incompetent to contract, say a minor, lunatic, idiot etc.

7) There should be the intention on the part of the agent to act on behalf of the
principal.

As such, if a person intends to act on behalf of another an agency arises even if the
contract between the parties provides that there is no such relationship. On the other
hand if a person intends to act on his own behalf and not on behalf of another there
cannot arise any agency, even if the person contends that he is an agent

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 8) No consideration is necessary to create an agency.

The fact that the principal has agreed to be represented by the agent is a sufficient
detriment to the principal to support the contract the contract of agency. Though no
consideration is necessary to support a contract of agency, an agent may be paid for.
That means an agent may be paid for his services.

9) An agent is appointed with specific instructions and is authorized to act

within the scope of the instructions (i.e. the authority).

As such the agents within the scope of his authority are regarded as the acts of the
principal and such acts bind the principal as if the principal has done them himself.

Rights of Agent

An agent has the following rights against the principal:

1. Right to receive remuneration (Sees. 219 and 220):

The agent is entitled to receive his agreed remuneration, or if nothing is agreed, to a

reasonable remuneration, unless he agrees to act gratuitously. In the absence of any special
contract, the right to claim remuneration arises only when the agent has done what he had
undertaken to do. It is important that the agent can claim remuneration once he has
completed his work even though the contract is never executed on account of breach either
by the principal or the third party. For example, where an agent is appointed to secure order-
s for the manufacturer, he can claim commission on orders actually obtained by him
although the manufacturer is unable to execute them owing to a strike by the workmen.

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Effect of misconduct:

An agent who is guilty of misconduct in the business of the agency is not entitled to any
remuneration in respect of that part of the business which he has misconduct. In addition,
he is liable to compensate the principal for any loss caused by the misconduct.

ILLUSTRATIONS (appended to Sec. 220):

(a) A employs B to recover 1, 00,000 rupees from C, and to lay it out on good security. B
recovers the 1,00,000 rupees and lays out 90,000 rupees on good security, but lays out
10,000 rupees on security which he ought to have known to be bad, whereby A loses 2,000
rupees. B is entitled to remuneration for recovering the 1, 00,000 rupees and for investing
the 90,000 rupees, He is not entitled to any remuneration for investing the 10,000 rupees
and he must make' good the loss of 2,000 rupees' to A.

(b) A employs B to recover Rs 1,000 from C. Through B's misconduct the' money is not
recovered (the debt might have become time-barred because of B's negligence or leniency).
B is entitled to no remuneration for his services and must make good the loss to
A. .

2. Right of retainer (Sec. 217):

An agent has the right to retain, out of any sums received on account of the principal, all
moneys due to himself in respect of his remuneration, or advances made or expenses
properly incurred by him in conducting the business of agency.

3. Right of lien (Sec. 221):

An agent has the right 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 right is, however, subject to a contract to the contrary.

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Again, this lien of the agent is a "particular lien" But by a special contract an agent may
have a general lien also. It may be recalled that by virtue of Section 171 factors, bankers,
attorneys of High Court and policy brokers have a "general lien," in the absence of a
contract to the contrary.

It is to be noted that this right of lien of the agent is subject to all rights and equities of third
parties against the principal, that is, if the agent has sold the goods, he will have to give
delivery to the buyer (London and Joint Stock Bank vs. Simmons).

4. Right to be indemnified against consequences of lawful acts. (Sec.222):

An agent has also the right to be indemnified against the consequences of all lawful acts
done by him in exercise of the authority conferred upon him.

ILLUSTRA TIONS (appended to Sec. 222):

(a) B, at Singapore, under instructions from A of Calcutta, contracts with C to deliver

certain goods to him. A does not send the goods to B and C sues B for breach of contract.
B informs A of the suit, and A authorizes him to defend the suit. B defends the suit and is
compelled to pay damages and costs, and incurs expenses. A is liable to B for such
damages, costs and expenses.

(b) B, a broker at Calcutta, by the orders of A, merchant there, contracts with C for the
purchase of 10 casks of oil for A. Afterwards A refuses to receive the oil, and C sues B. B
informs A, who repudiates the contract altogether. B defends, but unsuccessfully, and has
to pay damages and costs and incurs expenses. A is liable to B for such damages, costs and
expenses.

It may be noted that the agent cannot claim indemnity. in respect of acts which are
apparently unlawful or criminal (Sec. 224). .

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ILLUSTRATIONS (appended to Sec. 224):

(a) 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 to C for so doing. A is not liable to indemnify
B for those damages.

(b) B, the proprietor of a newspaper, publishes, at A's request, a libel upon C in the paper
and A agrees to indemnify B against the consequences of the publication and all costs and
damages of any action in respect thereof. B is sued by C and has to pay damages and also
incurs expenses. A is not liable to B upon the indemnity.

5. Right to be indemnified against consequences of acts done in good faith (Sec. 223):

An agent has a right to be indemnified against the consequences of an act done in good
faith though it turns out to be injurious to the rights of third persons.

ILLUSTRATIONS (appended to Sec. 223):

(a) A, a decree holder and entitled to execution of B's goods, requires the officer of the
Court to seize certain goods, representing them to be the goods of B. The officer seizes the
goods, and is sued bye, the true owner of the goods. A is liable' to indemnify the officer for
the sum which he is compelled to pay to C in consequence of obeying A's directions.

(b) B, at the request of A, sells goods on the possession of A, but which A had no right to
dispose of. B does not know this and hands over the proceeds of the sale to A. Afterwards
C, the true owner of the goods, sues B and recovers the value of the goods and costs. A is
liable to indemnify B for what he has been compelled to pay to e and for B's own expenses.

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 6. Right to compensation. (Sec.225):

The agent has a right to be compensated for injuries .sustained by him due to the principal's
neglect or want of skill. .

ILLUSTRATION (appended to Sec. 225):

A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The
scaffolding is unskillfully put up and B is in consequence hurt. A must make compensation
to B.

7. Right of stoppage of goods in transit:

An agent has a right to stop the goods in transit to the principal (just like an unpaid
seller), if

I. He has bought goods either with his own money or by incurring a

personal liability for the price and
II. The principal has become insolvent.

Duties of Agent

An agent has the following duties towards the principal:

1. Duty to follow principal's directions or customs (Sec. 211):

The first duty of every agent is to act within the scope of the authority conferred upon him
and perform the agency work according to the directions given by the principal. When
the\agent acts otherwise, if any loss be sustained, he must make it good to the principal,
and if any profit accrues, he must account for it.

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ILLUSTRATIONS:

(a) Where the principal instructed the agent to warehouse the goods at a particular place
and the agent warehoused them at a different warehouse which was equally safe, and the
goods were destroyed by fire without negligence, it was held that the agent was liable for
the loss because any departure from the instructions makes the agent absolutely, liable
(Lilley vs. Doubleday).

(b) An agent being instructed to insure goods neglects to do so. He is liable to compensate
the principal in the event of their being lost (Pannatal Jankidas vs. Mohanlal).

If the principal has not given any express or implied directions, then it is the duty of the
agent to follow the custom prevailing in the same kind of business at the place where the
agent conducts business. If the agent makes any departure, he does so at his own risk. He
must make good any loss so sustained by the principal.

ILLUSTRATIONS: (appended to Sec. 21 I):

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

(b) B, a broker, in whose business it is not the custom to sell on credit, sells goods of A on
credit to C, whose credit at the time was very high. C, before payment, becomes insolvent.
B must make good the loss to A, irrespective of his good intentions.

2. Duty to carry out the work with reasonable skill and diligence (Sec. 212):

The agent must 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 his
want of skill. Further, the agent must act with reasonable diligence and to the best of his
skill.

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If the agent does not work with reasonable care, skill (unless the principal has notice of his
want of skill) and diligence, he must make compensation to his principal in respect of 'direct
consequences' of his own neglect, want of skill or misconduct. But he is not so liable for
indirect or remote losses.

ILLUSTRATIONS (appended to Sec. 212):

(a) A, a merchant in Calcutta, has an agent B, in London, to whom a sum of money is paid
on A's account, with orders to remit. B retains the money for a considerable time. A, in
consequence of not receiving the money, becomes insolvent. B is liable for the money and
interest from the day on which it ought to have been paid, according to the usual rate, and
for any further direct loss such as loss by variation of rate of exchange, but nothing further.

(b) A, an agent for the sale of goods, having authority to sell goods on credit, sells to B on
credit, without making the proper and usual enquiries as to the solvency of B. B, at the time
of such sale, is insolvent. A must make compensation to his principal in respect of any loss
thereby sustained.

(c) A, an insurance broker, employed by B to' effect an insurance on a ship, omits to see
that the usual clauses are inserted in the policy. The ship is afterwards lost. In consequence
of the omission of the clauses nothing can be recovered from the underwriters. A is bound
to make good the loss to B.

(d) A, a merchant in England, directs B, his agent at Bombay, who accepts the agency, to
send him 100 bales of cotton by a certain ship. B. having it in his power to send the cotton
omits to do so. The ship arrives safely in England. Soon after her arrival the price of cotton
rises. B is bound to make good to A the profit which he might have made by the 100 bales
of cotton at the time the ship arrived, but not any profit he might have made by the
subsequent rise.

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3. Duty to render accounts (Sec. 213).

It is the duty of an agent to keep proper accounts of his principal's money or property and
render them to him on demand, or periodically if so provided in the agreement.

4. Duty to communicate (Sec. 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, before taking
any steps in facing the difficulty or emergency.

5. Duty not to deal on his own account (Sees. 215 and 216):

An agent must not deal on his own account in the business of agency; i.e., he must not
himself buy from or sell to his principal goods he is asked to sell or buy on behalf of his
principal; without obtaining the consent of his principal after disclosing all material facts
to him. If the agent violates this rule, the principal may repudiate the transaction where it
can be shown that any material fact has been knowingly concealed by the agent, or that the
dealings of the agent have been disadvantageous to the principal. The principal is also
entitled to claim from the agent any benefit which may have resu1ted to him from the
transaction. '

ILLUSTRATIONS:

(a) A, directs B to sell A's estate. B buys the estate for himself in the name of C. A, on
discovering that B has bought the estate for himself, may repudiate the sale, if he can show
,that B has dishonestly concealed any material fact or that the sale has been
disadvantageous to him. [Illustration (a) appended to Section 215]

(b) A directs B to sell A's estate. B, on looking over the estate before selling it, finds a mine
on the estate which is unknown to A. B informs A that he wishes to buy the estate for
himself but conceals the discovery of the mine. A allows B to buy, in ignorance of the
existence of the mine. A, on discovering that B knew of the mine at the time he bought the

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estate, may either repudiate or adopt the sale at his option. [Illustration (b) appended to
Section 215]

(c) A directs, B, his agent, to buy a certain house for him. B tells A that it cannot be bought
and buys the house for himself. A may, on discovering that B has bought the house, compel
him to sell it to A at the price he gave for it. [Illustration appended to section 216]

6. Duty not to make any profit out of his agency except his remuneration (Sees. 217
and 218):

An agent stands in a fiduciary relation to his principal and therefore he must not make any
profit (secret profit) out of his agency. He must pay to his principal all moneys (including
illegal gratification, if any) received by him on principal's account. He can, however, deduct
all moneys due to himself in respect of his remuneration or/and expenses properly incurred.
If his acts are not bonafide, he will lose his remuneration and will have to account for the
secret profit to his principal.

7. Duty on termination of agency by principal's death or insanity (Sec. 209):

When an agency is terminated by the principal dying or becoming of unsound mind, the
agent must take, on behalf of the representatives of his late principal, all reasonable steps
for the protection and preservation of the interests entrusted to him. .

8. Duty not to delegate authority (Sec. J 90):

Subject to six exceptions stated earlier (under the heading Delegation of Authority), an
agent must not further delegate his authority to another person, but perform the work of
agency himself.

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Delegation of Authority

The general rule is that an agent is not entitled to delegate his authority to another person
without the consent of his principal. ‘Delegatus non protest delegare’ is the maxim which
means that a person to whom the authority has been given cannot delegate that authority
to another. Sec. 190 also prohibits delegation of such authority. This is because when the
principal appoints a particular agent to act on his behalf, he relies upon the agents’ skill,
integrity and competence.

Sub- agent:

A sub- agent is a person employed by, and acting under the control of, the original
agent in the business of the agency (sec. 191). This means he is the agent of the original
agent. The relation of the sub-agent to the original agent is, as between themselves, that
of the agent and the principal.

Exceptions: sec 190 provides that an agent may appoint a sub-agent and delegate the
work to him if-

(a) there is a custom of trade to that effect, or

(b) the nature of work is such that a sub agent is necessary

Example:

(a) A banker authorized to let out a house and collect rent may entrust the work to an
estate agent [Mahinder v/s Mohan, A.I.R.(1939)all.188]

(b)A banker instructed to make payment to a particular person at a particular

place may appoint a banker who has an office at that place [Summan singh v/s
national city bank, A.I.R.(1952) punj.172]

There are some more exceptions recognized by the English law. These
exceptions are also recognized in India and are as follows:

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(c) Where the principal is aware of the intention of the agent to appoint a sub-
agent but does not object to it.
(d) Where unforeseen emergencies arise rendering appointment of a sub-agent
necessary.
(e) Where the act to be done is purely ministerial not involving confidence or
the use of discretion.
(f) Where the power of the agent to delegate can be inferred from the conduct
of both the principal and the agent.
(g) Where the principal permits appointment of a sub-agent.

Relationship between principal and sub-agent. As a general rule, an agent

cannot delegate his authority to a sub-agent. But in certain exceptional cases,
he is permitted to do so. In such cases, the delegation of authority to a sub-
agent is proper. In all other cases, the appointment of a sub-agent is improper.
The legal relation between the principal and the sub-agent depends upon the
crucial question, as to whether the appointment of the sub-agent is proper or
improper.

(1) Where a sub-agent is properly appointed.

(a) The principal is bound by the acts of the sub-agent as if the sub-agent were
an agent originally appointed by the principal (sec 192, para1)

(b) The agent is responsible to the principal for the acts of the sub-agent
(sec.192, para2)

Example: A, a carrier, agreed to carry 70 bags of cotton waste from

morvi to bhavnagar by a truck. A asked A1, another carrier to carry the
goods. The goods were damaged in transit. Held, A was liable even
though it was proved that A1 was the carrier [jugaldas v/s harilal, A.I.R
(1956) guj.88]
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 (c) The sub-agent is responsible for his act to the agent, but not to the
principal, except in the case of fraud or willful wrong (sec.192, para 3)

(2) Where a sub-agent is not properly appointed.

Where an agent, without having authority to do so, has appointed a sub-agent, the
agent is responsible for the acts of the sub-agent to the principal and to the third
parties. The principal, in such a case, is not represented by or responsible for the acts
of the sub-agent, nor is the sub-agent is responsible to the principal (sec.193).

Co-agent or a substituted agent:

A co-agent or a substituted is a person who is named by the agent, on an express or

implied authority from the principal, to act for the principal. He 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.
He is the agent of the principal, though he is named, at the request of the principal by the
agent (sec.194)

Example:

(a) P directs A, his solicitor, to sell his estate by auction and to employ an auctioneer for
the purpose. A name A1, an auctioneer, to conduct the sale. A1 is not a sub-agent but
P’s agent for the conduct of the sale.

(b) P authorizes A, a merchant in Calcutta, to recover moneys due to P from T. A

instructs A1, a solicitor, to take legal proceedings against T for the recovery of the money.
A1 is not a sub-agent, but is a solicitor for P.

In selecting a co agent for his principal and 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 co agent (sec.
195).

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Termination or Determination of Agency

Agency may be terminated in any of the following ways:

I. By act of parties: ( Sec. 201) Agency may be terminated by act of the parties in any of
the following ways:

i. By Mutual Agreement: Agency may be terminated by the parties by an

agreement at any time by mutual consent. An agency may be terminated by the
terms of the original agency agreement or by a subsequent agreement acceptable
to both the principal and the agent. Termination may be predetermined by the
passing of a specified period of time or by the completion of certain designated
tasks.
ii. By Breach of one of the parties: Should either the principal or the agent breach
the agency agreement by renunciation of future obligation or by failure to
perform as agreed in the contract, the agency will have been terminated. The
party creating the breach, as in all other types of contracts will be liable to the
other for damages.

Example: Suppose an engineer – designer in the employ of Data Processing

Corporation quit the job without obtaining a company release. The corporation
could hold the engineer liable for any damages suffered by his breach of the
employment contract.

iii. By Revocation of the agency by the Principal: Contracts of agency containing

no terms as to duration are said to exist at will. The principal has the right to
revoke the agency agreement and discharge the agent for incompetence,
disloyalty, or similar shortcomings. If the principle exercises his right of
revocation, he must pay the agent what is due him under the agreement.

Example: An extra salesman was employed by Data Processing Corporation to

help out during the showing off new equipment that was being released to

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 the trade. When the salesman’s services were no longer needed, Data Processing
revoked the agency by notifying the salesman that he was no longer needed and
paid him for his services. As no duration was mentioned in the original contract
agreement, the agency was said to exist as well.

iv. By completion of performance: When the business for which the agency was
constituted is completed or performed, the agency is terminated.

Example: when an agent is appointed to sell a house is sold.

II. By operation of Law: Agency agreements may be terminated for reasons beyond the
control of either the principal or the agent. In such cases termination is said to result from
operation of law.
i. Death: With the exception of an agency coupled with an interest, the death of
either party terminates the agency immediately. Notice to a third party is not
necessary, as the law assumes notice to all at the time of death.
ii. Illness: An agency relation is terminated if the Agent is too ill to perform his
duties. Under ordinary circumstances, the illness of the principal has no effect
upon the operation or the termination of the agency.
iii. Insanity: The insanity of either the principal or the agent terminates the agency.
If the principal becomes insane, however, and the agent makes a valid
agreement with a third party who has no knowledge of the insanity, the contract
will be allowed to stand. In this way, insanity differs from death as a terminating
factor.
iv. Bankruptcy: the bankruptcy of either party terminates the agency. In case of
bankruptcy of the principal, the agency is terminated because title to the
principal’s property is vested in a trustee for the benefit of his creditors.
v. Impossibility of Performance: the destruction of the subject matter or the
imprisonment of the agent makes performance impossible. Therefore, the agent
is terminated.

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 Example: Burke was hired by Data Processing Corporation to make a series of
photographs of a new computer which had been recently been completed for
overseas shipment. Before Burke could take the pictures, he was arrested as a
suspect involving a capital crime. Failure to secure bail resulted in Burke’s
imprisonment. Impossibility of performance owing to Burke’s imprisonment
will terminate the agent agreement.

vi. War: A contract of agency is inoperative in time of war if the agent or the
principal is an enemy alien.

Example: Data Processing Corporation engaged an electronic engineer who

had entered the United States as a displaced person from a European country.
Hostilities broke out between the United States and the country of which he was
a citizen. Because the engineer was an enemy alien and in a position to aid the
enemy through work being done by his employer, he is subject to dismissal. The
revocation of the agency agreement by Data Processing cannot be used by the
engineer as a cause of action for breach of contract.

III. Other modes of termination of agency:

i. By efflux of time: Where an agency is for a fixed period of time, it is terminated

on the expiry of time whether the purpose for which the agency is constituted is
accomplished or not.
ii. By destruction of the subject matter: when the subject matter of the agency is
destroyed, the agency is terminated.
iii. By incapacity of principal or agent: where a principal or a agent possesses any
disqualification essential to a contract, agency is terminated.
iv. Principal or agent becoming an alien enemy: where the principal or the agent
belongs to different countries and they become alien enemies, the agency is
terminated.
v. By object of agency becoming unlawful: when by the happening of an event
which renders agency or its object unlawful, the agency is terminated.

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 BIBLIOGRAPHY

Kapoor N. D, “Elements of Merchentile Law”

Bansal C. L, “Business and Corporate Laws”, Excel Books Publishers, 2006.

www.dateyvs.com/gener03.htm

www.wekepedia.org/wiki/agency(Law)

www.scribd.com/doc/2441357/General

www.amicustheunion.org/default.asp

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