CONTRACT OF AGENCY

DEFINITION OF AGENT (S. 182)

• “An agent is a person employed to do an act for another, to

represent another in dealings with third persons. The person
for whom such act is done or who is so represented is called
the principal.”
Does it include servant/ casual employee?
• To be distinguished from person “directed to do an act
• Test of determining existence of agency relationship
• Essential: representative capacity + power to affect legal
relations of principal with third parties (Syed Abdul Khader vs
Rami Reddy (1979) 2 SCC 601)
• Co- agents and co- principals
 ESSENTIALS OF AGENCY

1. Principal to be competent to contract (S. 183)

- Minor cannot appoint an agent
- “Whatever a person can do personally he can do through an
agent”- exception- act to be performed, personal in
character, annexed to public office involving fiduciary
obligation
- Guardian of minor- appoint agent for minor
- Mahendra Pratap Singh v. Padam Kumari Devi (AIR
1993 All 143) – unsound mind
 CONTD.

2. Agent need not be competent (S. 184)

- As between principal and third parties- anyone can become
an agent
- Person incompetent to contract- not responsible to principal
3. Consideration for appointment not necessary (S. 185)
- No Consideration is necessary to create agency- not reqd. at
the time of appointment
- Agent paid commission for services rendered
 CONTD.
• Agent and Servant
- Responsibility of agent similar to servant, bailee, trustee
- Difference between agent and servant- Lakshminarayan Ram
Gopal & Sons v. Hydeerabad Government (AIR 1954 SC 364)
a. Agent has authority to act and create contractual relations for
principal; servant does not enjoy this power
b. Principal directs agent “what to do”; Master directs servant
“what to do’ and ‘how to do”- control of supervision
c. Agent receives commission on basis of work done; servant is
paid salary/wages
d. Master liable for wrongful act of servant in course of
employment; principal liable for act of agent within the scope
of authority
e. Agent may work for several principals at a time; servant usually
 CONTD.

• Agent and Bailee

- Relationship between bailor and bailee- depends on goods
in possession of bailee
- Agent- sometimes bailee; bailee- sometimes agent
- Agent- act on behalf of someone else; bailee doesn’t do so
 KINDS OF AGENT

1. Factor: in possession of goods for purpose of selling them

2. Broker: to negotiate and make contract
3. Del credere agent:
- Ordinary cases: only responsibility to effect contract between principal
and third party; then drops out
- Can neither sue nor be sued on contract
- Extra commission, undertakes liability to be liable to principal for
failure of third party- de crederei agent
- Extra commission: del credere commission
- Couturier v. Hastie, (1852) 8 Exch 40
- Secondary Liability
- Del credere agent not liable to third parties for princpal’s default-
contingent pecuniary liability , not liability to perform contract.
 CREATION OF AGENCY

1. Express appointment
2. Conduct or situation of parties
3. Necessity of the case
4. Subsequent ratification of an unauthorized act
 EXPRESS APPOINTMENT

• Agency created by will of a person

• Appointment may be expressed in writing or oral
• Consent of principal and agent required
• Also includes agent appointed by third party authorized to
make appointment by law
 IMPLIED AGENCY

• Arises from conduct, situation or relationship of parties

• When person is understood to act
Estoppel or Holding out
Ordinary prudence, conversant with business- presumes
someone to be agent
Pickering v. Busk, (1812) KB 15
Kasinath Das vs Nisakar Rout, AIR 1962 Ori 164
 Husband and Wife

- Husband and wife to live together to imply agency

- Living in domestic establishment of which wife is in charge
- Wife living separately from husband without his fault/ wife left
unprovided- agent of necessity, not an implied agent, for necessities
- Wife can run husband into debts only for necessaries
- Reasonable allowance to wife for needs- husband not liable [Girdhari
Lal v. Crawford, (1885) 9 All 147]
- Husband can negative liability by proving
a. Tradesman warned expressly not to supply goods on credit;
b. Sufficient supply to wife of articles in question
c. Sufficient funds with wife for goods in question to avoid pledging
husband’s credit
- Husband not implied agent of wife
 AGENCIES OF NECESSITY

• Agent assuming extraordinary powers under extraordinary circumstances

• Marine adventures: unforeseen emergencies; extended to carriers by land
[Sims & Co. v. Midland Rly Co., (1913) 4 KB 103]
• Principle of General application, extended to Relief of injured persons
• Pre-existing agency not necessary
• Conditions for application of the principle [Prager v. Blastpiel Stamp &
Headcock Ltd., (1924) 1 KB 566]
a. Inability to communicate with principal [Gwilliam v. Twist, (1895)2
QB 84]
b. Act should be reasonably necessary: danger, distance,
accommodation, expense, time, etc. material circumstances [Sachs v.
Milkos, (1948) 2 KB 23; Prager v. Blastpiel Stamp & Headcock Ltd.,
(1924) 1 KB 566]
c. Bonafide in the interest of the party concerned
 AGENCY BY RATIFICATION

• sec. 196 – agent acts without authority and knowledge of

principal – principal can ratify or disown
• sec. 197 - Ratification can be express or implied
• Requirements: on behalf of principal, competent principal,
principal’s knowledge of fact (sec 198)
• What act can be ratified: Lawful act, Not injurious of 3rd
parties (sec 200)
• Effect- sec 196 - establishes the relation between principal and
agent, principal and third party & Impose responsibility of
whole transaction (sec 199)
 DUTIES OF AGENT

1. Duty to execute mandate

- Perform work assigned
- Failure: agent absolutely liable for principal’s loss
- Pannalal Jankidas v. Mohanlal, AIR 1951 SC 144

2. Duty to follow instructions or customs [S. 211]

- Agent acts otherwise- for loss sustained- make good to principal;
profit accrues- account for it [Lilley v. Doubleday, (1881) 7 QBD
510)
- Instructions ambiguous in nature
- Duty to maintain confidence, secrecy and non disclosure of
sensitive information about affairs of principal.
 CONTD.

3. Duty of reasonable care and skill [S. 212]

- Business to be conducted as per skill possessed by people in
similar business
- Agent to act with reasonable diligence and to use skill that he
possesses
- Agent to compensate principal for direct consequences of his own
neglect, want of skill or misconduct [Keppel v. Wheeler, (1927) 1
KB 577]
- Indirect loss or damage by such neglect, want of skill or
misconduct- agent not responsible (Pannalal Jankidas v.
Mohanlal, AIR 1951 SC 144)
- Exception: where principal in notice of want of skill
- Agent’s duty to communicate with Principal [S. 214]
 CONTD.

4. Duty to avoid conflict of interest

- Right of principal when agent deals, on his own account, in
business of agency without principal’s consent- dishonest
concealment/ disadvantageous transaction- transaction may be
repudiated [S.215]
- Principal’s right to benefit gained by agent dealing on his on
account in business of agency [S. 216]
- Fiduciary position of agent- avoidance of conflict of personal
interest with that of principal [De Busche v. Alt, (1878) 8 Ch D
828]
 CONTD.

5. Duty not to make secret profit

- Fiduciary position- good faith
- Secret profit?
6. Duty to remit sums [S. 218]
- Agent to pay all sums received on principal’s account
- Deduction of lawful charges allowed
- Void or illegal transactions do not allow agent to retain
money
 CONTD.

7. Duty to maintain accounts [S. 213]

- Agent to render proper accounts to principal on demand
- Duty to provide access valid discharge or even on
termination of contract
No provision in Indian contract Act, 1872 for agent to sue
principal for accounts; equitable rights under special
circumstances [Narandas v. Pappamma, AIR 1967 SC 333]
 CONTD.

8. Duty not to delegate [S. 190]

- Delegatus non potest delegare
- When agent cannot delegate?
Express or implied undertaking to perform personally
- Exceptions:
a. Nature of work
b. Trade custom
c. Ministerial action
d. Principal’s consent
 SUB AGENT (S. 191)
• A person appointed by, and acting under the control of, the original agent in the
business of the agency
• Improper delegation [S. 193]:
- the agent stands as principal to the sub agent and responsible to principal and
third parties for the act of such person
- principal not liable to such person and vice versa
• Proper delegation [S. 192]:
- Representation of principal by sub agent properly appointed- treated as agent
and principal bound by it
- Agent’s responsibility for sub agent- agent responsible to principal for acts of
sub agent
- Sub agent’s responsibility- responsible to agent and not principal, except in
case of fraud or willful wrong [Calico Printers’ Assn v. Barclays Bank, (1931)
145 LT 51 CA]
SUBSTITUTED AGENT [SS. 194 & 195]

• Relation between principal and person duly appointed by

agent to act in business of agency [S. 194]
- Agent- express/ implied authority to name another person to act
for principal in business of agency
- Other person named accordingly- agent of the principal for such
part of business of agency as entrusted to him, not a sub agent
• Agent’s duty in naming such person [ S. 195]
- Agent bound to exercise same amount of discretion as man of
ordinary prudence would exercise in his own case
- If follows above clause- not responsible to principal for acts/
negligence of agent so selected
 CONTD.

• Remedies of principal for breach of duty

1. To ask for account and also demand payment of secret and
illicit profits earned as an agent
2. Seek damages for disregard of terms of agency as also for
want of skill and care
3. To resist claim of agent for commission and indemnity by
plea that agent acted for himself, i.e., as principal
 RIGHTS OF AGENT

1. Right to remuneration [S. 219]

- In absence of any special contract, payment not due until
completion of such act
- When is the act complete?
- Is the act be a result of the agent’s service?
[Green v. Bartlett, (1863) 14 CB (NS) 681; Tribe v. Taylorn,
(1876) CPD 505]
- Effect of misconduct [S. 220]: agent not entitled to
remuneration for business misconducted; Effect- forfeits
right to commission; liable to pay damages to principal
 CONTD.

2. Right to retain [ S. 217]

- Similar to rights of bailee u/ Ss. 170-171
- Money may be retained wrt sum due in the course of
agency.
- Money wrt past/ previous dues cannot be retained
- If money returned, then right to retain exhausted-
possessory right
 CONTD.

3. Right to compensation [S. 225]

- For injury caused due to principal’s neglect or want of skill
- Contributory negligence- compensation cannot be
claimed/court may apportion compensation between agent
and principal
 CONTD.

4. Right to indemnity [S. 222]

- Indemnity for all lawful acts done by agent in exercise of
authority conferred upon him
- Criminal acts- employer not liable towards agent [S. 224]
- Indemnity principles extend to acts done in good faith also
[S. 223]
 CONTD.

5. Right of lien (s. 221)

• Conditions: lawful charges, got possession under agency
business, only particular lien
• Limited right – possessory right
- Extinction of lien
a. By principal paying dues to agent
b. Waiver by agent
c. By entering into a contrary contract
d. With loss of possession
- Sub-agent’s right to lien [S. 221]
 PRINCIPAL’S AUTHORITY FOR THE
ACTS OF AGENT
1. Agent contracts for named principal
2. Agent contracts for unnamed principal
3. Agent contracts for undisclosed principal
 1. AGENT ACTING FOR NAMED
PRINCIPAL
1. Agent acts within scope of authority (S. 226)
- Contract and obligation arising from acts done by agent
- Assumed to be done by principal himself
2. Agent acts beyond his authority (S. 227)
- Where authority can be separated (S. 227)
- Where authority cannot be separated (S. 228)

Notice given to agent as notice to principal (S. 229)

Principal’s liability for unauthorized acts of the agent (S. 237)-
doctrine of estoppel
Misrepresentation or fraud by the agent (S. 238)
2. WHERE AGENT ACTS FOR UNNAMED
PRINCIPAL
• Discloses the existence of representative character but not the
name of his principal
• Principal bound by contract
• Acts to be within scope of agent’s authority
• Unnamed principal to be in existence at the time of contract
• Agent decline’s disclosing identity of principal- agent
personally liable
3. AGENT ACTING FOR UNDISCLOSED
PRINCIPAL
• Neither discloses the existence of his principal nor his representative
character.
• Rights of parties (Ss. 231- 233)
- Agent makes contract to whom fact of agency not known- principal
may require performance of contract
- Third party contracting with agent has same rights against the
principal as against the agent
- Principal discloses identity before completion of contract- other party
has option of repudiating contract
- Principal requires performance of contract, he can obtain it subject to
rights and obligations between agent and third party
- Agent personally liable- third party may hold either agent or principal
or both liable
 AGENT’S AUTHORITY
(SECTION – 186, 187, 188, 237 & 189)

Express
(written & oral)

Implied
(Incidental, usual, customary &
circumstantial,)
Agent’s authority
Apparent
(authority based on assumption)

Special authority in
emergency
 TERMINATION OF AGENCY
SECTION 201
Termination by act of parties
Termination by operation of law
1. Revocation 1. Efflux of time
2. Renunciation 2. Death of partner or agent
3. Agreement 3. Insanity of partner or
4. Performance agent
4. Insolvency of principal
5. Destruction of subject
matter
6. Agency business
becoming unlawful
TERMINATION BY ACT OF PARTIES

• Revocation by principal
- By express or implied notice (S. 203)
- Principal must give reasonable notice of termination- failing
which liable for damages for unjust termination (S. 206)
- Limitation on right of revocation
a. Where authority is partly exercised (S. 204)
b. Agency coupled with interest (S. 202): interest of the
agent must exist at the time of creation of agency.
 CONTD.

• Renunciation by agent
- Reasonable notice to principal
- Exception- agency for definite duration
- Notice- express or implied
- Agent liable for damages in following cases
a. Agency for fixed time- ends prematurely
b. Renunciation without just and reasonable cause, results
in injury to principal (S. 205)
c. Failure in giving reasonable notice (S. 206)
 CONTD.

- Agent not liable in following cases

a. Illegal and unlawful act
b. Conduct of principal such that it justifies renunciation
c. Non payment of remuneration without reasonable cause
d. Refusal to indemnify agent from consequences of all/any
lawful acts done during course of agency
e. Principal makes it impossible & difficult to continue for
agent
 CONTD.

• Agreement
• Performance by agent
TERMINATION BY OPERATION OF LAW

• Efflux of time: agency for fixed duration; contract to contrary

• Death of parties: unless contract to contrary
• Insanity of the parties: rights/ obligations of third parties not
affected till they receive notice of insanity.
• Insolvency of principal: agent’s acts bona fide and in good
faith before notice of principal’s insolvency- valid
• Destruction of subject matter
• Agency business becoming unlawful
 TERMINATION OF SUB AGENCY

• Agency between principal and agent comes to an end then

agency between agent and sub agent comes to an end
 EFFECT OF TERMINATION (S. 208)

• Termination of agency vis- a vis the agent: termination is

effective, the moment he has notice of it
• Termination of agency vis- a vis third parties: termination
effective, the moment they have notice of it; personal liability
of agent on revocation of agency
 AGENT’S DUTY ON TERMINATION (S.
209)
• Principal- death/ unsound mind- agent bound to take
reasonable steps for protection/ preservation of interest
entrusted to him
• Authority continues till legal heirs of principal revoke
authority
• Doesn’t apply to other kinds of termination; unless contract to
contrary