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SUBJECT: Law Of Contract

TOPIC: Comparitive analysis of Principal agent Liability with reference

Law of Contract and Law of Torts

SUBMITTED TO:

Asst. Prof. …Jaidev Mahendra………………….

SUBMITTED BY:

………………………Mohd Waris Khan …………

COURSE / SEMESTER

BA.LLB.-(Semester-2)

SESSION: …2019-2024……………..

ACKNOWLEDGEMENT

This project consumed huge amount of work, research and dedication. Still, implementation
would not have been possible if we did not have a support of many individuals and teachers.
Therefore I would like to extend our sincere gratitude to all of them. First of all I am thankful to
Indore Institute of Law for their logistical support and for providing necessary guidance
concerning project completion .I am also grateful to My Professor for provision of expertise, and
support in the implementation. Without their superior knowledge and experience, the Project
would like in quality of outcomes, and thus their support has been essential. Nevertheless, I
express my gratitude towards my friends and colleagues for their kind co-operation and
encouragement which help me in completion of this project. I am also thankful to my parents for
their constant inspiration and moral support.

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 ABSTRACT

The paper talks about the attributes and the job of a specialist under the Indian Contract Act,
1872. A section of the paper also makes a distinction between agency and dealership, as to how a
dealer who may appear to be an agent is not actually an agent. It tries to discuss the relationship
between a principal, an agent, a sub-agent and a servant. It also differentiates between the role
and duties of an agent, a servant, sub-agent and a substituted agent. The central idea behind the
principal-agent relationship is that the principal is too busy to do various jobs so he/she hires an
agent to do the job on his or her behalf. The principal-agent relationship is defined in the paper.

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 DECLARATION

"The text reported in the project is the outcome of my own efforts and no part of this project
assignment has been copied in any unauthorized manner and every part of it has been
incorporated with due acknowledgement.

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 RESEARCH METHODOLOGY

SCOPE OF THE PROJECT

The project sheds light upon the different laws for Principal Agent relationship.
OBJECTIVE OF THE PROJECT

The main objective of the project is to show the difference between the liability of Principal
under the Contract Law and Tort Law.

HYPOTHESIS:

If we use the contract law and tort law in the same case, then on which basis the compensation
will be rewarded?

RESEARCH METHOD

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Research Method applied in this project is Doctrinal. Since the research is a doctrinal one,
therefore the data would be mainly collected from secondary sources of information.
These will include books and internet. Keeping this in view, the researcher has gone through
different books, Web references, E-journal, reports etc. The relevant material is collected from the
secondary sources. Materials and information are collected from sources like internet and books.

SOURCES:

This project is primarily based on secondary sources that include both printed and non-printed
materials. Printed material includes articles and books, whereas non-printed materials include
data obtained from the browser.

INTRODUCTION

In India, the agent and principal share a relationship that is contractual in nature, and therefore it
is governed by the terms and conditions of the contract between them. Chapter X of the Indian
Contract Act, 1872 provides the basic structure of rules and regulations that basically govern the
performance and formation of any type of contract including the agency contract. In agency
contracts there exists a legal relationship between two people whereby one person acts on behalf
of the other. The person acting on behalf of the other is called an agent, and the person from
whom the agent derives authority to act is called the principal. The law of agency is based on the
Latin maxim “qui facit per alium, facit per se,” which means, “he who acts through another is
deemed in law to do it himself”.

Principal &Agent as per Contract Law

[i]. Agent and principal are defined under Section 182 of the Indian Contract Act, 1872.
According to the section “an agent is a person employed to do any act for another or to represent

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another in dealings with third persons. The person for whom such act is done, or who is so
represented, is called the principal”.

[ii] The competent agent is legally capable of acting for the principal vis-à-vis the third party.
Now who can become an agent? Section 184 answers this question. According to this section any
person can become an agent i.e. there is no need to have a contractual capacity to become an
agent. Therefore, a minor can also act as an agent. But the minor will not be responsible to his
principal.

[iii] Different types of commercial agents have been identified under Indian law like brokers,
auctioneers, persons entrusted with money for obtaining sales and insurance agents.

Rights and Duties of an Agent:

Creation of an agency:

 By express or implied contract- A principal may implicitly or expressly employ an agent.

The appointment may be expressed in writing or it may be oral.
 By conduct of party or situation– E.g. estoppel- Whereby a person allows another to act
for him to such an extent that a third party reasonably believes that an agency relationship
exists between the two.
 By ratification- assent is given either to an act done by someone who had no previous
authority to act or to an act that exceeded the authority granted to an agent.
 By Necessity- a person acts for another in an emergency situation without express
authority to do so.
Duties of an Agent:
i. Duty to execute mandate
ii. Duty to follow instructions or customs
iii. Duty of reasonable care and skill

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 iv. Duty to avoid conflict of interest
v. Duty not to make secret profit
vi. Duty to remit sums
vii. Duty to maintain accounts
viii. Duty not to delegate
Rights of an Agent:

1. Right to remuneration– an agent is entitled to get an agreed remuneration as per the

contract. If nothing is mentioned in the contract about remuneration, then he is entitled to
a reasonable remuneration. But an agent is not entitled for any remuneration if he is
guilty of misconduct in the business of agency.
2. Right of retainer– an agent has the right to hold his principal’s money till the time his
claims, if any, of remuneration or advances are made or expenses occurred during his
ordinary course of business as agency are paid.
3. Right of lien– an agent has the right to hold back or retain goods or other property of the
principal received by him, till the time his dues or other payments are made.
4. Right to indemnity– an agent has the right to indemnity extending to all expenses and
losses incurred while conducting his course of business as agency.
5. Right to compensation– an agent has the right to be compensated for any injury suffered
by him due to the negligence of the principal or lack of skill.
Difference between Agency and Dealership:

In the law of agency, the relationship that matters the most between an agent and the principal is
the legal relationship. A person cannot become an agent of another merely because he gives
advice to the other. Any person acting on behalf of the other cannot be an agent for another until
there is an implied or explicit agreement between them, which leads to a legal relationship
between them. Also not all those who describe themselves as agents will, in law, be considered
as agents. The dealer of a particular make of cars, e.g. Mercedes, may be called as an agent, but
the dealer in law is not an agent for the manufacturer. This is because, in practice, the dealer
purchases vehicles from the manufactures and sell them on the dealer’s own account.

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 No privity of contract exists between the manufacturer and the buyer. This example highlights
the difference between agency and dealership. An agent markets his principal’s products for a
fixed commission, which can be determined according to the contracts. But, a dealer buys the
product of a company directly from its manufacturer on its own name. So, rather than matching
up the principal and the third party, the dealer acts as a principal and buys or sells stock for the
dealer’s own inventory. An agent acts as an intermediary and receives a commission for its
services. But, a dealer acts on behalf of the firm rather than acting as an intermediary. As
mentioned in the above car example, no contract exists between the dealer and the manufacturer,
thus, there is no legal relationship, which is the most important thing in the law of agency.

The description of an agent looks quite similar to that of a servant or a bailee but their duties,
role and liabilities are entirely different. The Supreme Court has clearly underlined the
distinctions between an agent and a servant in the case Lakshminarayan Ram Gopal & sons .
Hyderabad government.

Agent Servant

An agent is authorized to act on behalf of his A servant does not have the authority to create
principal and create contractual obligations contractual obligations between the principal and
between the principal and a third party. a third party.

The principal has the authority to direct the agent

The master can direct a servant as to what has to
as to what he has to do but he cannot direct how it
be done and also how it should be done
is to be done.

An agent is paid in terms of commission A servant gets his salary or wages.

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An agent can work for different principals at the A servant usually works under one master at a
same time given point of time.

The agent offers and accepts new proposals from

the third party on behalf of his principal and thus A servant cannot create any such legal relations
new legal relations are created in law of agency.

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 Section 191 of the Indian Contract Act, 1872 defines sub-agent. According to this
section “a sub-agent is a person employed by, and acting under the control of, the
original agent in the business of the agency.” The appointment of an agent may be done
properly or improperly, which determines the relationship between the principal and the
sub-agent.

Thus there are two types of delegation–

1. Proper delegation– This comes under section 192 of the Indian Contract Act,
1872. This is when an agent having the authority to do so, appoints a sub-agent.
2. Improper delegation– This comes under section193 of the Indian Contract Act,
1872. This is when an agent without any authority appoints a sub-agent.

Agent Sub-agent

An agent is appointed by a principal and is under A sub-agent is appointed by an agent and as such is
his control. under the control of the agent.

An agent acts under the principal. A sub-agent acts under an agent.

A privity of contract exists between a principal No privity of contract exists between a principal and
and an agent. a sub-agent.

An agent can ask for remuneration from the A sub-agent cannot ask for remuneration from the
principal. principal.

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 Sub-agent Substituted agent

An agent appoints a sub-agent and therefore a A substituted agent is only named by the agent but
sub-agent is under the control of an agent. is under the control of the principal.

A substituted agent acts independently for his

A sub-agent acts under the agent.
principal.

A sub-agent cannot be held liable by the principal, A substituted agent can be held liable by his
except in case of fraud. principal.

A sub-agent is not entitled to any remuneration A substituted agent can ask for his remuneration
from the principal. from his principal.

No contract exists between a sub-agent and the A contractual relationship exists between the
principal. substituted agent and the principal.

An agent is not liable for the acts of substituted

An agent is liable for the acts of the sub-agent.
agent.

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Sections 194 and 195 talk about substituted agents. When an agent having the authority
to do so, names another person to act for the principal in the business of the agency,
then such a person is called a substituted agent and not a sub-agent. Thus a
contractual relation comes in existence between the principal and the substitute agent
and therefore the substituted agent is directly liable to the principal to perform his
duties.

The distinction between a sub-agent and a substituted agent is important because an

agent is liable in relation to the acts of a sub-agent, but an agent carries no liability to
the principal for the acts of the substituted agent.

Principal & Agent as per Law of Torts:

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When one person authorizes another to commit a tort, the liability for that will be not only of that
person who has committed it but also of that who authorized it. It is based on the general
principle "Qui facit per alium facit per se" which means that "the act of an agent is the act of the
principal." For any act authorized by the principal and done by the agent, both of them are liable.
Their liability is joint and several.

The authority to do the act may be express or implied. The principal generally does not expressly
ask his agent to do the wrongful act, but when the agent acts in the ordinary course of the
performance of his duties as an agent, the principal becomes liable for the same. In Lloyd v.
Grace, Smith & Co. Mrs. Lloyd, who owned two cottages but was not satisfied with the
income therefrom, approached the office of Grace, Smith & Co., a firm of solicitors, to consult
them about the matter of her property. The managing clerk of the company attended her and
advised her to sell the two cottages and invest the money in a better way. She was asked to sign
two documents, which were supposed to be sale deeds. In fact, the documents got signed were
gift deeds in the name of the managing clerk himself. He then disposed of the property and
misappropriated the proceeds. He had acted solely for his personal benefit and without the
knowledge of his principal. It was held that since the agent was acting in the course of his
apparent or ostensible authority, the principal was liable for the fraud. In State Bank of India v.
Shyama Devi, the plaintiff's husband gave some amount and cheques to his friend, who was an
emplovee in the defendant bank, for being deposited in the plaintiff's account. No proper receipt
for the deposits was obtained. The bank employee misappropriated the amount. It was held by
the Supreme Court that the employee, when he committed the fraud, was not acting in the scope
of bank’s employment but in his private capacity as the depositor's friend, therefore, the
defendant bank could not be made liable for the same.

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 CONCLUSION

The principal and agent relationship is only a mutual contract between the principal and the
agent and sub agent. But in Law of Torts it is the whole responsibility of the principal when he
gives any work to his agent as the agent acting under him so, he will liable for the wrong done by
his agent.

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 BIBLIOGRAPHY

The content of the Research is been taken from the Internet and book on Law of Torts by Dr.
R.K. Bangia.

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