Agency

Introduction
• 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.
• In an agency one person (principal) employs another person (agent) to
represent him or to act on his behalf in dealing with third persons. The
agent is conferred with an authority by the principal for doing certain acts
on behalf of the principal.
• For example if I authorize my agent to sell my house to a third person and
he does so, I become bound for the sale of the house to the third person.
The agent is a connecting link between his principal and the third party.
Contacts entered into through an agent and obligations arising from acts
done by agent may be enforced in the same manner and will have the
same legal consequence as if contract has been entered into and the acts
done by the principal in person.
 Who is an agent
• Justice Ramaswamy in the case of Krishna V/s. Ganpati
AIR 1955 Mad explained the point in the following
words “ every person who acts for another is not an
agent. A domestic servant renders to his master a
personal service, a person may work in a shop or factory
or one may act for another in aiding in the performance
of his legal or contractual obligations of third persons. In
neither of these cases he is an agent and he is not acting
for another in dealing with third persons. It is only when
he acts as a representative of the other in business
negotiations, that is to say, in creation, modification or
termination of contractual obligations between that
other an the third person that he is an Agent.
 KINDS OF AGENT

• Auctioneer
• An auctioneer is an agent whose business is to sell goods or other property by public
auction. The authority vested in him is to sell the goods only and not to give warranties
on behalf of the seller.
• Factor
• A factor means a mercantile agent who is entrusted with the possession of the goods for
the purpose of selling them.
• Broker
• He is an agent who has an authority to negotiate the sale or purchase of goods on behalf
of his principal with a third person. Unlike a Factor he has no possession of goods. He
merely makes the two parties to enter into a contract. He gets his commission whenever
any transaction materializes through his efforts.
• Del Credere Agent
• In ordinary cases the only function of an agent is to effect a contract between the
principal and third party. The agent then drops out. But where an agent undertakes on
the payment of some extra commission to be liable to the principal for the failure of the
third party to perform the contract, he is called del credere agent and his extra
commission for the guarantee is called del credere commission.
 ESSENTIALS OF AGENCY
1. The principal should be competent to contract
– According to Sec. 183 “any person who is of the age of majority according to the
law to which he is subject and who is of sound mind, may employ an agent”
– If a person is not competent to contract and therefore he is incapable of making
a contract he cannot make a contract through an agent either. A person can do
only such things through an agent which he is himself personally capable of
doing. Therefore if the principal is a minor or of unsound mind he is incapable of
being bound through the act of his agent.
2. The agent may not be competent to contract
– According to Sec. 184 “as between the principal and a third person any person
may become an agent, but no person who is not of the age of majority and of
sound mind can become an agent, so as to be responsible to his principal”.
– If an agent is a minor through him a valid contractual relationship will be created
between the principal and the third party, through such agent will not himself be
responsible for his acts to his principal.
3. No consideration is necessary
– Sec. 185 provides that no consideration is necessary to create an agency. An
agent is remunerated by way of commission for services rendered, but no
consideration is immediately necessary at the time of appointment.
 CREATION OF AGENCY
An agency is created by the following
• By Express or implied authority
• By Estoppel
• By Ratification
• By Necessity
• By Husband and Wife Relationship
 CREATION OF AGENCY
1. By Express or implied authority
– A person who is competent to contract has the power to appoint an agent. He
may do so by expressly authorizing an agent to act on his behalf or such an
authority may be implied from the circumstance of the case.
– .
2. By Estoppel
– When the agent does not possess actual authority to act on behalf of the
principal, but the principal by his conduct creates an impression in the mind of
a third person that the agent has the power to do so, the principal is bound
because of the doctrine of estopple.
– In the case of Kashinath Das V/s. Nisakar Raut AIR 1962 Orissa, the landlord
appointed a Tahsildar to manage his agricultural lands. He let out the lands to
tenants on certain terms.
– An authority of this kind was not given to him and therefore the question was
whether the tenancy agreement would bind the landlord. It was held that the
landlord had, by making the tahsildar incharge of the lands created an
appearance of authority which included a right to let.
3. By Ratification

• Even though no authority has been conferred on a person to

act as agent, the principal could create an agency with
retrospective effect, by according a subsequent approval to an
act which has been done on his behalf.
• In the case of Badri Prasad V/s. State of Madhya Pradesh, AIR
1965 SC, in a sale by auction held on 24th December 1956, the
highest bid which was accepted on that date was approved by
the Chief Conservator of Forests subsequently, and the
contract deed was signed on May 3rd 1957, the date of making
the contract was deemed to be December 24th 1956, and in
such case the property in the goods having passed at the time
of making the contract, the buyer’s surety could be asked to
pay the balance of the price due.
4. By Necessity
• In emergency a person may have the power to act on behalf of another so
as to bind the other. Such power is presumed to be there when the agent
does not have time to communicate with the principal and the act by him
is done in order to protect the property of the principal.
• The principal of agency was first applied to cases of marine adventures.
Unforeseen emergencies arose in the course of marine adventures which
threatened the goods and the master of the ship was not able to
communicate with the principal. In such circumstances the master got
power and it was also his duty to sell in order to save their value.
• The principal of agency was also applied to carriers by land.
• In the case of Sims & Co. V/s. Midland Railway Company, a quantity of
butter was consigned with the defendant railway company. It was delayed
in transit owing to a strike. The goods being perishable the company sold
them.
• The sale was held binding on the owner. The Companies action was
justified by the necessities of the case and it was also not practicable to
get instructions from the owner.
5. By Husband and Wife Relationship
• A wife living with her husband has the implied authority of the husband to buy articles
of household necessity.
• A wife’s implied authority to bind her husband by her credit purchases is however
subject to some important limitations.
• It is necessary that the husband and wife should be living together. If the wife is living
apart from the husband without his fault and if she has been left unprovided for, she
may become an agent of necessity of her husband to pledge his credit to the extent to
which a reasonable maintenance makes it necessary.
• They must be living together in a domestic establishment of their own. The mere fact
of marriage does not make the wife an agent in law of her husband, nor the fact of
living together is sufficient. There must be a domestic establishment of which the wife
is the incharge.
• In the case of Debenham V/s. Mellon,
• The defendant was the manager of a hotel, where his wife acted as a manageress.
They live together in the same hotel, but had no domestic establishment of their own.
The wife incurred with a tradesman a debt for clothes, payment for which was
demanded from the husband.
• He was held to be not liable as the court held that mere fact of cohabitation did not
give rise to presumption of agency,. Unless it was in a domestic establishment.
 DUTIES OF AGENT
1. Duty to follow principles directions
2. Duty to show proper skill and care
3. Duty not to delegate his duties
4. Duty to render proper accounts
5. Duty to pay sums received for principal
6. Duty not to deal on his own account
7. Duty to communicate with principal
 Duty to follow principles directions

• According to Sec. 211 an agent has a duty to follow the directions given by
the principal. If there are no directions given by the principal, the agent
should conduct the business according to the customs which prevail in doing
business of the same kind at the place where the agent conducts such
business. When the agent does not act as per the directions of the principal,
if any loss is sustained by the principal, he must make it good to his
principal, and if any profit accrues, he must account for it.
• In the case of Pannalal Jankidas V/s. Mohanlala, AIR 1951 SC
• A commission agent purchased goods for his principal and stored them in a
godown pending their dispatch. The agent was under instructions to insure
them. He actually charged the premium for insurance, but failed to insure
the goods. The goods were lost in an explosion in the Bombay harbour. The
agent was held liable to compensate the principal for his loss.
 Duty to show proper skill and care

• According to Sec. 212 an agent is bound to conduct the business of the agency with
as much skill as is generally possessed by persons engaged in similar business
unless the principal has notice of his want of skill. The agent is bound to act with
reasonable diligence and to use such skill as he possesses and to make
compensation to his principal in respect of the direct consequence of his own
neglect, want of skill or misconduct, but not in respect of loss or damage which is
indirect or remotely caused by such agent, want of skill or misconduct.
• In the case of Keppel V/s. Wheller, 1927 the principal instructed an estate agent to
find a buyer for his estate.
• The agent communicated an offer of a prospective purchaser who was willing to
buy the estate for £ 6150. Before the contract for the sale was concluded, the agent
got an offer of £ 6750 from another buyer. The agent did not communicate about
the second offer to the principal.
• It was held that the agent did not show proper skill and care in the matter and
therefore he was liable to pay damages to his principal for the loss suffered by him.
 Duty not to delegate his duties
• The principal chooses a particular agent because he has trust and confidence
in his integrity and competence. Therefore the agent cannot further delegate
the work which has been delegated to him by his principal. The rule is
contained in the maxim “ Delegatus non potest delegare” which means an
agent to whom some authority has been delegated cannot further delegate
the authority to another person.
• According to Sec. 190 An agent cannot lawfully employ another to perform
acts which he has expressly or impliedly undertaken to perform personally
unless by custom or nature of agency .
• Sec. 192 states that a sub agent properly appointed binds the principal as
regards third person as if he were an agent ordinarily appointed by a principal.
The agent is responsible to the principal for acts of the sub agent. The sub
agent is responsible for his acts to the agent, but not to the principal except in
case of fraud or wrongful acts.
 Duty not to delegate his duties
In the case of John McCain and Co. V.s. Pow, 1975 it was laid down that unless
so authorised by the principal, an estate agent has no right to appoint a sub –
agent and delegate to him his power which requires special skill and care.
• In this case an implied authority was pleaded as the sub agent had effected a
sale on his own account.
• When the agent the plaintiff sued for commission the court negatived the claim
as the contract of agency did not permit appointment of sub agent.

In the case of Summan Singh V/s. N.C. Bank of New York, AIR 1952 Punj.
• The Plaintiff in a foreign country appointed the N.C. Bank to deliver a sum of
money to one Pritam Singh of Jullundur, whose address was given. The Bank
instructed it Bombay branch accordingly. The Bombay branch appointed the
Punjab National Bank which delivered the money to a wrong person.
• The Plaintiff’s action against either bank failed. The Punjab National Bank was
held not liable on principle that a sub agent is not liable to the principal except
when he is guilty of fraud or willful wrong. The wrong delivery was due only to
negligence. The NC Bank had exempted itself from the consequences of wrong
delivery.
Duty to render proper accounts
• An agent is bound to render proper accounts to his principal
on demand. He should maintain proper accounts of the
sums belonging to the principal which are in his hands, he
should not mis-utlise and mis-appropriate them.

Duty to pay sums received for principal

• The agent is bound to pay to his principal all sums received
on his account subject to deductions.
• 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.
Duty not to deal on his own account
• An agent is under a duty not to deal on his own account in the business of agency, unless the
principal consents thereto. If in any transaction an agent deals on his own account without the
principals prior consent the principal has the following tow rights:
• To repudiate the transaction by showing either
– That any material fact has been dishonestly concealed from him by the agent
– That the dealings of the agent have been disadvantageous to him
• For example :
• 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 inform A that he wishes to buy the estate 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 brought the estate, may either repudiate or
adopt the sale at his option.
• To claim from the agent any benefit which may have resulted to him from the transaction.
• In the case of De Bussche V/s. Alt, an agent was entrusted with the task of selling a ship at a
stated price. He could not find a customer for the same and without the consent of the principal
he purchased that ship at the stated price, himself. Later he sold the ship on profit.
• It was held that the agent was bound to account to the principle for profit made by him in the
transaction.

Duty to communicate with principal

• It is the duty of the agent, in cases of difficulty to use all reasonable diligence of communicating
with his principal and in seeking to obtain his instructions.
 RIGHTS OF AGENT

1. Right of Remuneration
2. Right to retain sums
3. Right to lien on principal’s property
4. Right to be indemnified
5. Right to claim compensation for damages
 Right of Remuneration
• In absence of special contract, payment for performance of any act is not due to the
agent until the completion of such act, but an agent may detain moneys received by him
on account of goods sold, although the whole of goods consigned to him for sale may
not be sold, or the sale may not be actually complete.
• In the case of Sellers V/s. London Country Newspaper, 1951 an agent was appointed to
secure orders for advertisement in a newspaper, the commission in respect of an
advertisement being payable when it was published, the agent was held entitled to
commission on orders actually obtained by him although the advertisement to which
the orders related were not published until the termination of employment
• In the case of Sheikh Farid Baksh V/s. Hargulal Singh, AIR 1937, an agent was appointed
to introduce a purchaser willing to purchase the defendants property. He introduced
one and even the sale was settled and earnest money paid, but it could not be
completed through the purchaser’s inability to find money.
• The Allahabad High Court held that the agent was nevertheless entitled to his agreed
consideration.
• In the case of Green V.s. Barlett, an agent was appointed to sell a house. He held an
auction but failed to find a purchaser. One of the persons attending the auction
obtained from his the address of the principal and purchased the house from him
without intervention of the agent. Even so the transaction was held to be a result of the
agent’s efforts.
Right to retain sums
• 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
business, and also such remuneration as may be payable to him for acting
as agent.

Right to lien on principal’s property

• An agent us entitled to retain goods, papers and other property whether
moveable or immoveable of the principal received by him, until the
amount due to himself for commission, disbursement and services has
been paid or accounted for him.

Right to claim compensation for damages

• The principal must make compensation to his agent in respect of injury
caused to such agent by the principals neglect or want of skill
• 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.
 Right to be indemnified
• The employer of an agent is bound to indemnify him against consequences of lawful
acts done by the agent in exercise of the authority conferred upon him.
• B at Singapore under instructions from A at 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.
• When an act is done by the agent in good faith, the employer is liable to indemnify
the agent against the consequence of that act.
• In the case of Adamson V/s. Jarvis the plaintiff an auctioneer, sold certain goods in
good faith on behalf of the Defendant. It turned out that the defendant has no right
to sell the goods, and the plaintiff was made to compensate the true owner. The
Plaintiff was held entitled to be indemnified by the Defendant for loss caused.
• However when one person employs another to do an act which is criminal, the
employer is not liable to indemnify the agent against the consequences of that act.
• B, the proprietor of a newspaper, publishes at A’s request, a libel (defamation) upon
C in 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 B upon the indemnity.