Law of Contracts II

Module 3
Jino M Kurian
Assistant Professor in Law
TNNLU
 Module 3
• Meaning of 'Agent’ –
• Classification of Agents –
• Creation of Agency –
• Rights and Duties of Agent and Principal –
• Delegation of Authority –
• Personal liability of Agent -
• Relation of Agent with Third Parties –
• Relation of Principal with Third Party –
• Ratification –
• Termination of Agency.

jinomkurian
 Points
• Illustrations
• Sec 182
• Sec 238

jinomkurian
jinomkurian
jinomkurian
jinomkurian
 If Ram a minor?

jinomkurian
jinomkurian
 Appellants:Lakshminarayan Ram Gopal and Son Ltd. Vs. Respondent:The
Government of Hyderabad AIR1954SC364

• Remuneration paid was subjected to tax

• N.H. Bhagwati, J.

jinomkurian
 Agent and Servant
Agent Servant

The Principal directs that work the agent has to do but The master has the right to direct not only what work
not how it is to be done is to be done but also how it is be done.

An agent receives instructions from the principal but
carry them out of his discretion
An agent makes contract on behalf of the principal
A servant is subject to his master’s right to control the
manner in which instructions are carried out. He is
under more complete control than an agent.
A servant, qua servant, has no authority to make
contracts on behalf of his master

An agent is usually remunerated by commission on a A servant is usually paid wages or salary

percentage basis

jinomkurian
jinomkurian
 Points
• Brief of sections
• Not exhaustive
• Essentials
• Principles
• Legal maxims
• Exceptions
• Kinds
• Sec 182
• Definition
jinomkurian
 Sections
• Appointment of agents (sections 182–185);
• Authority of an agent (sections 186–189);
• Appointment of sub-agent (sections 190–193) and
• substituted agent (sections 194–195);
• ratification of acts done without authority (sections 196–200),
• revocation and renunciation of authority and its consequences
(sections 201–207, 209–210);
• when termination of authority takes effect (section 208);

jinomkurian
 • effect of termination, agent's duties to the principal (sections 211–
216);
• agent's rights (sections 217–221);
• the principal's duties, towards the agent (sections 222–225);
• the effect of agency on contracts with third persons (sections 226–
230); and
• presumptions of personal liability of the agent (section 230); and
• presumptions in such cases (sections 231–238).

jinomkurian
 Principles
• Qui facit per alium, facit per se
• Whatever a person has power to do himself, he may do so by appointing an
agent. What a person cannot do himself he cannot do by means of an agent
•

jinomkurian
 Essentials
• Principal Should be competent to contract (sec 183)
• Agent need not be competent (Sec 184)
• Consideration for appointment not necessary (sec 185)
• Distinguish from bailee
• Distinguish from buyer
• an agent is his power of making the principal answerable to third
persons, viz. enabling the principal to sue third parties directly, or
render him liable to be sued directly by the third party

jinomkurian
 Exceptions
• The right to appoint an agent is subject to well-known exceptions,viz.:
• (i) where the act to be performed is personal in character;
• (ii) where the transaction is required by statute to be done by or to be
evidenced by the signature of the principal himself; or
• (iii) where the competency to do the act arises by virtue of the holding of
some public office or to an office involving any fiduciary obligation; or
• (iv) the competency arises by virtue of some power, authority, or duty of a
personal nature and requiring skill or discretion for its exercise; or
• (v) where a statute imposes on a person a duty which he is not free to
delegate

jinomkurian
 Kinds
• Mercantile agent
• Who has in the customary course of his business, authority to sell goods, to consign goods for
purposes of sale or to buy goods or to raise money on the security of goods on behalf of his
principal.
• Factor
• Wide powers regarding selling of goods. Factor can deal on his own name, receive money, pay money, right to
lien, -Bonafide purchaser acquires title
• Broker
• Cannot deal on his own name- no possession – cannot receive money on his name- particular lien while Factor
has general lient
• Auctioneer
• Agent to sell goods on public auction to highest bidder- receive money- can sue for it in his own name- having
particular lien
• Del credere agent
• Agent employed to sell goods and who undertakes that purchasers he procures will pay for goods they take- in
case they do not pay he indemnifies the principal for the loss- He gets extra commission for bearing this risk
• Del credere is not liable to the buyer for any default on the part of his principal- Not for disputes – Not liable for
performance

jinomkurian
 Del credere Agent
• Couturier v Hastie (1856) 5 HLC 673
• The defendants acting as del credere agents sold the plaintiff’s goods which
were supposed to be on a voyage but which unknown to the parties had
already been sold by the captain owning to damage by heat. The buyer
repudiated the contract and therefore the agents were sued for the buyer’s
failure to perform.
• Champa Ram v Tulsi Ram (1927 ) 26 ll LJ 81
• A del credere agent incurs only a secondary liability towards the principal. His
legal position is partly that of an insurer and partly that of a surety for the
parties with whom he deals to the extent of any default by reason of any
insolvency or something equivalent. His liability does not go to the extent of
making him responsible to the principal where there can be no profit by
reason of any stringency in the market.
jinomkurian
 Creation of agency
• Expressly (sec 187)
• Impliedly (conduct or situation) (sec 187)
• Partners, servants, wife
• Agency by Necessity (necessity of the case)
• Agency by estoppel (sec 237)
• Holding out
• Agency by operation of law
• Agency by ratification (sec 196 to 200)

jinomkurian
 Wife as an implied agent
• The presumption that a wife who lives with her husband has his
authority to purchase necessaries is rebutted if the husband expressly
forbids her to pledge his credit. Jolly v Rees (1864) 15 C.B(NS) 628
• Husband and Wife must be living together in a domestic
establishment of their own Denham v Mellon (1880) LR 6 AC 24
https://archive.org/details/jstor-3304184/page/n5/mode/2up
• Where the wife lives apart from husband without any of her own
fault, she shall have an implied authority to bind the husband for
necessaries, if he does not provide for her maintenance.
• But she lives part at her own will
jinomkurian
 Husband can challenge
• Expressly forbidden the wife
• He must inform the traders also
• The articles did not constitute necessities
• Husband is giving wife sufficient funds
• The creditor had been expressly told not to give credit to the wife

jinomkurian
 Question
• M is working as the manager of a Hotel. His wife is also working in the
same hotel as manageress. They lived together in the same hotel but
not in a domestic establishment of their own. The wife purchased
certain clothes for which the husband was demanded to settle the
debts.

jinomkurian
 • It was held that the mere fact of cohabitation did not give rise to
presumption of agency, unless it was in a domestic establishment.
Denham v Mellon (1880) LR 6 AC 24

jinomkurian
 Pollock s.188.13.10
• A husband has no authority by virtue of marriage to make a contract
on behalf of his wife. In the absence of any express or implied
authority, the husband cannot enter into a contract of sale of land
belonging to his wife alone; or a contract for sale of shares.

jinomkurian
 Agency by estoppel
• Sec 115 of IEA
• Sec 237
• Induced such third person to believe that….
• Illustration

jinomkurian
 Illustration
• Mohan says to Sohan in the presence of Rohan the owner of the car,
that Mohan is Rohan's agent and is authorized to sell the car. Rohan
listens this statement of Mohan and remains silent, subsequently,
Mohan sales the car to Sohan.

jinomkurian
 • Agency by estoppel

jinomkurian
 By holding out
• Sec 28 of partnership act
• Trueman v. Loder (1840) 11 Ad & El 589

jinomkurian
 28. Holding out.—
• 1) Anyone who by words spoken or written or by conduct represents
himself, or knowingly permits himself to be represented, to be a
partner in a firm, is liable as a partner in that firm to anyone who has
on the faith of any such representation given credit to the firm,
whether the person representing himself or represented to be a
partner does or does not know that the representation has reached
the person so giving credit.
• (2) Where after a partner’s death the business is continued in the old
firm name, the continued use of that name or of the deceased
partner’s name as a part thereof shall not itself make his legal
representative or his estate liable for any act of the firm done after his
death
jinomkurian
 Trueman v. Loder (1840) 11 Ad & El
589
• X appointed Y as his agent to purchase some goods from Z on credit.
After some time X terminated service of Y without informing Z
subsequently Y purchased some goods in X's name on credit from Z. It
was held that X was liable to pay the price of the goods purchased by Y.
Because X has not informed Z about the termination of Y's Agency.

jinomkurian
 Agency by necessity
• In an emergency
• Sec 189
• Illustrations
• Conditions
• Great Northern Rly Co v Swafield (1874)

jinomkurian
 Conditions
• Agent should not be in a position or have any opportunity to
communicate with his principal within the time available
• There should have been actual and definite commercial necessity for
the agent to act promptly
• The agent should have acted bona fide and for the benefit of the
principal
• The agent should have adopted the most reasonable and practicable
course under the circumstances, and
• The agent must have been in possession of the goods belonging to his
principal and which are the subject of contract

jinomkurian
 Great Northern Rly Co v Swafield (1874)
• X consigned a horse with the Railway Company. When the horse
reached the destination, nobody came to take its delivery. The
Railway Company had no arrangement of its own to keep the horse.
Therefore, it delivered the horse to a stable-keeper for its
maintenance and safe custody. It was held that the Railway Company
was an agent by necessity. Therefore, it was allowed to recover
charges of the stable keeper

jinomkurian
 Agency by ratification
• Sec 196 to 200
• Once it is ratified, the same effects will follow as if they have been
performed by his previous authority
• essentials

jinomkurian
 Essentials
• On account of the principal not for the agent.
• Keighley v Maxsted & Co v Durant (1901) AC 240
• Principal must be in existence and competent to contract at the time when the
agent acted
• Kelner v Baxter (1866) LR 2 CP 174
• The act must be legal
• Cannot be void ab-initio
• Brook v Cook 1871 (6) Ex. 89
• Ratification must be with the knowledge of full facts (sec 198)
• Damodar v Sheoram 1907 (29) All. 730
• Not to a part of the act but the whole sec 199
• Cannot injure third person Sec 200
• Within the time fixed or reasonable time
jinomkurian
 Keighley v Maxsted & Co v Durant
(1901) AC 240
• R authorized by K to buy wheat at a certain price, exceeded his
authority and bought at a higher price from D. R bought in his own
name, but intended to buy for K. K agreed with R to take wheat at the
price, but failed to take delivery. Held K was not liable to D as he
could not ratify R’s contract.

jinomkurian
 Kelner v Baxter (1866) LR 2 CP 174
• A enters into a contract with A on behalf of a company intended to be
brough into existence, the question arises whether after the company
is formed and registered it can ratify the contract. IT cannot do so
because for ratification the principal must be in existence at the date
of the contract. A would be liable personally.

jinomkurian
 Brook v Cook 1871 (6) Ex. 89
• It was held that in such a case of criminal conduct (forgery) A cannot
be said to have professed to act on behalf of B and for that reason
also the doctrine of ratification cannot be invoked.

jinomkurian
 Damodar v Sheoram 1907 (29) All.
730
• An agent who had authority to buy at the market price bought at a
higher price and the principal acquiesced in the purchase.
Subsequently, the principal came to know that the goods belonged to
the agent himself and the agent had sold to him his own goods
instead of buying for him in the open market. It was held that in such
circumstances, the ratification was not binding on the principal.

jinomkurian
 Effect of ratification
• Establishes the relationship of principal and agent insofar as the act
ratified is concerned between the person ratifying and the person
doing the act
• Ratification establishes the relationship of contract between the
principal and the third party.

jinomkurian
 Doctrine of relation back
• Ratification relates back to the date on which the agent first
contracted.
• Bolton v Lambert (1889) LR 41 Ch D 295
• Watson v Davies (1931) 1 Ch 455

jinomkurian
 Bolton v Lambert (1889) LR 41 Ch D
295
The defendant made an offer to the managing director of a company,
who having no authority to do so, accepted it. That gave the company
an option to ratify the contract. But the company ratified only after the
defendant had withdrawn his offer. The company sued the defendant
for specific performance.
The company was held entitled to it

jinomkurian
 Watson v Davies
• The defendant offered to sell his property to a charitable institution.
The offer was accepted by a few members of the board “subject to
approval by full members of the board”. The day on which the board
was to meet, the defendant withdrew his offer. The board ratified it
and brought an action for specific performance.
• The ratification was held to be too late, and the revocation effective.

jinomkurian
 • The doctrine of ratification does not come into play where the
contract made by the agent says that it is “subject to approval or
ratification”. In such cases the other party would have the option to
withdraw until ratification.

jinomkurian
 Agency by operation of law
• Sec 18 of Indian Partnership Act

jinomkurian
 Sec 18 of PA
• 18. Partner to be agent of the firm.— Subject to the provisions of this
Act, a partner is the agent of the firm for the purposes of the business
of the firm

jinomkurian
 • R authorized by K to buy a secondhand car at a certain price,
exceeded his authority and bought at a higher price from D. R bought
in his own name, but intended to buy for K. K agreed with R to take
the car at the price, but failed to take delivery. Whether K is liable?

jinomkurian
 Points
• Extend of agent’s authority sec 186 and 187
• An authority to be implied when it is to be inferred from the circumstances of the
case
• illustrations
• Ostensible authority of an agent sec 188
• Illustration
• Delegatus non potest delegare
• Sec 190
• A delegate cannot further delegate
• Can delegate at certain instances
• Sub agent
• Substituted agent

jinomkurian
jinomkurian
 Sub Agent
• Sec 191
• Agent can employ sub agent at
• Whether the sub agent properly appointed?
• If not proper no responsibility
• Sec 192
• Sec 193
Proper Agent and Improper agent

jinomkurian
 Agent can employ sub agent at
following cases:
• When the ordinary custom of trade permits the appointment of a sub
agent
• When the nature of the agency business requires the appointment of
An agent employed on a ship by owner – sub agents in each
a sub agent port
• When the act to be done is purely ministerial and involves no exercise
of discretion or confidence such as the signing of a letter or the giving of a notice where
such act requires no personal skill or confidence
• When the principal agrees to the appointment of such a subagent
expressly or impliedly
• When some unforeseen emergency has arisen.

jinomkurian
 Substituted agent
• Sec 194
• Where an agent holding an express or implied authority to name
another person to act in the business of the agency, has accordingly,
named another person, such a person is not a sub agent but a
substituted agent.
• The substituted agent shall be taken as the agent of the principal for
such part of the work as is entrusted to him

jinomkurian
jinomkurian
 differences
• Substituted - Suggesting the name and acting under the principal
• Sub agent – under the control of agent
• No privity between sub agent and principal
• But substituted
• Sub agent - Agent is responsible to the principal for the acts of sub
agent
• Not for substituted

jinomkurian
 Polling
• Ganapathi, an architect appointed Reghu, a surveyor to estimate the
quantity of materials required for completing the construction of a
park under the ownership Malgudi municipal corporation. Reghu
sued against Malgudi Muncipal Corporation for the settlement of his
professional fees. Will this case maintainable against Malgudi
Muncipal Corporation?

jinomkurian
 • Moon v Witney Union, (1837) 3 Bing NC 814

jinomkurian
 Rights of an agent
• Right to claim reimbursement for expenses (sec 217)
• Right to receive remuneration (sec 219)
• In case of more than one business, then for each
• Commission
• Reghu Nanndan v Madan Mohan, 38 CLJ 139
• Green v Barlett (1863) 14 CB (NS) 681
• Guilty of misconduct Sec 220
• Right of particular lien sec 221
• Sub agent (proper/ authorized)
• Conditions
• Right to indemnification against consequences of all lawful acts Sec 222
• Illustration a
• Right of indemnification against consequences of acts done in good faith Sec 223
• Illustration a
• Sec 224
• Right to claim compensation sec 225
• illustration
jinomkurian
 Reghu Nanndan v Madan Mohan, 38
CLJ 139
• A broker, who was engaged to negotiate a lease deed succeeded in
getting a lessee to agree to the terms of the lessee, but the lease
could not be put through as the defendant (the employer of the
broker) has failed to make out a title to the premises. It was held that
the broker was entitled to recover his brokerage.

jinomkurian
 Green v Barlett (1863) 14 CB (NS)
681
• An agent was appointed to sell a house. He held an auction but failed
to find a purchaser. Once of the persons attending the auction
obtained from him the address of the principal and purchased the
house from him without intervention of the agent. Even so the
transaction held to be a result of the agent’s effort entitling him to his
commission.

jinomkurian
 Right of particular lien
• (i) commission; (ii) disbursements; and (iii) services are paid to him, or
accounted for, to him.
• Conditions
• Pestonji Bhicaji v Ravji Javerchand, AIR 1933 Sind 235 .

jinomkurian
 Pestonji Bhicaji v Ravji Javerchand,
AIR 1933 Sind 235 .
• (i) The agent must have lawful possession of the goods;
• (ii) There should be no arrangement inconsistent with the exercise of
his lien as to retention of such property;
• (iii) The property should belong to the principal to the knowledge of
the agent;
• (iv) It should have been received by the agent in his capacity as agent
during the course of his ordinary duties as agent;
• (v) The agent should be holding the property for and on behalf of his
principal and not for and on account of any known third party
jinomkurian
 Question
• Swaraj an auctioneer was employed to conduct auction of furniture at
the house of Ramkumar on an agreed commission. Whether the non
payment of commission entitle Swaraj to have right of lien over the
furniture?

jinomkurian
 • Similar facts: Williams v Millington, (1788) 1 Hy Bl 81

jinomkurian
 Baksiram Rodmal Akola v Jasroop
Shrinath Harda (1948) Nag 409
• In Baksiram Rodmal Akola v Jasroop Shrinath Harda, a pucca adatia
was held entitled to recover, under this section, the amount of
liabilities he had suffered while settling the deals carried out by him
according to the principal's instructions, irrespective of whether he
had discharged those liabilities.

jinomkurian
 Duties of an agent
• To follow the instruction of his Principal sec 211
• custom to be followed
• Duty to act with skill and diligence sec 212
• question
• Duty to render account sec 213
• KC Skaria v Govt of Kerala AIR 2006 SC 811
• Duty to communicate with the principal Sec 214
• Communication was possible but did not make
• Duty not to deal on his own account sec 215
• Right of the principal to repudiate
• U. Vijaya Kumar v Malini V. Rao, AIR 2016 SC 337
• Duty not to delegate his authority
• exceptions
• Duty to protect the interest of principal or his legal representative in the event of principal’s unsoundness of mind or his death sec
209
• Duty to pay sums received for principal sec 218

jinomkurian
 KC Skaria v Govt of Kerala AIR 2006
SC 811
• A contractor engaged to execute a particular work, cannot file a suit
for accounts against employer in regard to payment for work done, as
the independent contractor is not an agent of the employer

jinomkurian
 Question
• Tom assigned Krishna to buy a secondhand car for him. Krishna
bought a car without paying attention to the condition of the car. Tom
found the car useless. He wants to keep Krishna compensate. Will the
suit maintainable?

jinomkurian
 U. Vijaya Kumar v Malini V. Rao, AIR
2016 SC 337
• where an agent employed to sell, becomes the purchaser himself,
then he must show beyond reasonable doubt, that this was with the
knowledge and consent of theprincipal and that the price paid was
the full value of the property so purchased

jinomkurian
 Group Activity
• Rights and Duties of Principal

jinomkurian
 Effect before third person
• When the agent expressly contracts as an agent for a named principal
• When the agent expressly contracts as an agent for an unnamed
principal
• When the agent acts for an undisclosed principal

jinomkurian
 When the agent expressly contracts
as an agent for a named principal
• Acts within authority of agent
• Ostensible or apparent authority
• Acts beyond agent’s authority
• Does more than authorized
• A part authorized will be binding (if separated)
• Sec 227
• A part authorized will be binding (if not separated)
• Sec 228
• Induced another to believe sec 237
• Notice to the agent sec 229
• Information received by agent is same as it is received by principal
• But not before his engagement
• Misrepresentation or fraud by an agent sec 238
• Admission made by an agent
• Eg: Railway
jinomkurian
 When the agent contracts for an
unnamed principal
• An agent is not personally liable to third parties when he has
disclosed the fact that he is an agent but has not disclosed the name
of the principal
• Third party can ask for the identity of the principal

jinomkurian
 When the agent contracts for an
undisclosed principle.
• Sec 231,
• Premji Trikamdas v Madhowji Munji, (1880) 4 Bom 447, 445
• Second para
• Right of the third party to repudiate the contract
• Sec 232,
• Law Commission
• Sec 234,
• Choice of remedy
• Addison v Gandesequi (1812) 4 Taunt 574
• Sec 235
• May ratify
jinomkurian
 Premji Trikamdas v Madhowji Munji,
(1880) 4 Bom 447
• It is to be observed that the first portion of this paragraph of the
section gives the principal the right to specific performance of the
contract without any qualifications whatever. But on the other hand,
the second portion gives the other contracting party, as against the
principal, the same rights only as he would have against the agent.

jinomkurian
 Polling
• A enters into a contract with B to sell him 10 bales of cotton and
received Rs. 500 in advance from B. Afterwards A discovers that B was
acting as agent for C. Whether C is entitled for the credit made by B?

jinomkurian
 Sec 232
• The 13th Report of the Law Commission of India, 1958, para 175,
agreed with this criticism and recommended that section 232, being
covered by the provision in section 231, be omitted.

jinomkurian
 Addison v Gandesequi (1812) 4 Taunt
574
• G authorized L& Co, to buy goods for him from A. Later on G himself
approached A for purchasing them. A knew that L & Co. were buying
goods for G but preferred to treat L& Co. As principal and debited
their account. L&Co. failed to pay the money and A sued G for
payment. It was held that A was not entitled to recover payment from
G because A had shown clear intention from the beginning that he
had given credit to the agent alone and he also knew of the principal.

jinomkurian
 Personal liability
• Sec 230

jinomkurian