Agency
Agency
Agency
PRAMA MUKHOPADHYAY
(1) What is an agency and how is it created?
(2) How can an agent bind a principal?
(3) What is ratification?
(4) What are sub-agents and substitute agents, and what is the difference between them?
(5) What are the duties and rights of the agent and the principal vis-à-vis each other?
(6) What is the extent of the principal’s vicarious liability, and the agent’s personal
liability, to third parties?
(7) How is an agency terminated?
Sections 182-238
Section: 182. "Agent" and "principal"
defined.
Use of the word “agent” for a person is not conclusive proof of the fact that
there is agency in law between the parties.
The Court must examine the true nature of the agreement and the subsequent
dealings between the parties and then decide whether it established a
relationship of agency under the law.
It is common experience that the word ‘agent’ is frequently used to describe a
relationship which is not agency.
A domestic servant renders to his master a personal service is not agent.
Agency will be created only when a person acts as a representative of the
other in the creation, modification or termination of contractual obligations
between that other and third persons.
Lakshminarayan Ram Gopal v. Gov’t of Hyderabad,
AIR 1954 SC 364
The SC in this case referred to and quoted, two authors. The first author is Powell.
The SC quoted the following paragraph from Powell’s Law of Agency:
(a) Generally, a master can tell his servant what to do and how to do it;
(b) Generally, a principal cannot tell his agent how to carry out his instructions;
(c) A servant is under more complete control than an agent;
Lakshminarayan Ram Gopal v. Gov’t of
Hyderabad, AIR 1954 SC 364
The SC then referred to and quoted from Halsbury’s Laws of England. The SC quoted the
following paragraph:
A principal has the right to direct what work the agent has to do; but a master has the further
right to direct how the work is to be done.
An agent is to be distinguished… from a servant… A servant acts under the direct control and
supervision of his master, and is bound to conform to all reasonable orders given to him in the
course of his work;
An agent, though bound to exercise his authority in accordance with all lawful instructions
which may be given to him from time to time by his principal, is not subject in its exercise to
the direct control or supervision of the principal. An agent, as such is not a servant, but a
servant is generally for some purposes his master’s implied agent, the extent of the agency
depending upon the duties or position of the servant.
Agency
Mercantile Agent
1) Auctioneers
2) Factors
3) Brokers
4) Del Credere Agents
Del Credere Agents
Those agents who do not fall within the definition of mercantile agent. For
example- advocate, wife.
Some Features of a Contract of
Agency
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.
Section 184: The agent may not be
competent to contract
As between the principal and third persons, 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 according to
the provisions in that behalf herein contained.
Section 185: Consideration not
necessary
A principal is bound by the acts done by his agent with his authority. The
authority of an agent may be expressed or implied.
Section 187 defines express and implied authorities.
Section187. Definitions of express and implied authority.—An authority is said
to be express when it is given by words spoken or written. An authority is said
to be implied when it is to be inferred from the circumstances of the case;
and things spoken or written, or the ordinary course of dealing, may be
accounted circumstances of the case.
Illustration A owns a shop in Serampore, living himself in Calcutta, and visiting
the shop occasionally. The shop is managed by B, and he is in the habit of
ordering goods from C in the name of A for the purposes of the shop, and of
paying for them out of A’s funds with A’s knowledge. B has an implied
authority from A to order goods from C in the name of A for the purposes of
the shop.
188. Extent of agent’s authority.—An agent, having an authority to do an act,
has authority to do every lawful thing which is necessary in order to do such
act.
An agent having an authority to carry on a business, has authority to do every
lawful thing necessary for the purpose, or usually done in the course, of
conducting such business.
(a) A is employed by B, residing in London, to recover at Bombay a debt due
to B. A may adopt any legal process necessary for the purpose of recovering
the debt, and may give a valid discharge for the same.
(b) A constitutes B his agent to carry on his business of a ship-builder. B may
purchase timber and other materials, and hire workmen, for the purpose of
carrying on the business.
Section 189: Agent’s authority in an
emergency
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.
Illustrations
a) An agent for sale may have goods repaired if it be necessary.
b) A consigns provisions to B at Calcutta, with directions to send them
immediately to C, at Cuttack. B may sell the provisions at Calcutta, if
they will not bear the journey to Cuttack without spoiling.
Principal bound by Estoppel
When an agent has, without authority, done acts or incurred obligations to third
persons on behalf of his principal, the principal is bound by such acts or
obligations, if he has by his words or conduct induced such third persons to
believe that such acts and obligations were within the scope of the agent’s
authority.
Illustrations
(a) A consigns goods to B for sale, and gives him instructions not to sell under a
fixed price. C, being ignorant of B’s instructions, enters into a contract with B to
buy the goods at a price lower than the reserved price. A is bound by the
contract.
(b) A entrusts B with negotiable instruments endorsed in blank. B sells them to C in
violation of private orders from A. The sale is good.
Ostensible authority.—This section can be called "agency by estoppel".
This section requires that the principal should have by his conduct or words
induced a third person and the third person was induced to act on the
basis of such conduct or words.
Ostensible authority comes about where the principal by words or
conduct has represented that the agent has the requisite actual authority,
and the party dealing with the agent has entered into a contract with him
in reliance on that representation.
The words or conduct on the part of the principal and inducement of
belief in the third person thereby create an estoppel against the principal
vis-a-vis the third person.
This form of estoppel is called ostensible authority or apparent authority.
The principal in these circumstances is estopped from denying 6that
actual authority existed.
The ostensible authority is general in character, arising when the principal
has placed the agent in a position which in the outside world is generally
regarded as carrying authority to enter into transactions.
The words "by his words or conduct induced such third persons to believe"
refer to specific representation and not a representation to the world.
In other words "holding out to the world" is ruled out.
If a third person who is not induced to believe that such acts or obligations
were within the scope of the agent’s authority, this section would not
apply.
In Hely Hutchinson v. Brayhead Ltd. (1967) 3 All ER 98 it was held as
follows, “… when the board of directors appoint one of their members
to be a managing director they invest him not only with implied
authority, but also with ostensible authority to do all such things as fall
within the usual scope of that office. Other people who see him acting
as managing director are entitled to assume that he has the usual
authority of a managing director. But sometimes ostensible authority
exceeds actual authority. For instance, when the board appoints the
managing director, they may expressly limit his authority by saying he is
not to order goods worth more than £500 without sanction of the
board. In that case his actual authority is subject to £500, but his
ostensible authority includes all the usual authority of a managing
director. The company is bound by his ostensible authority in his
dealings with those who do not know of the limitation…”
Harshad Shah v. LIC, (1997) 5 SCC 64
Jaswantrai G. Shah, (`the insured') took out four insurance policies for Rs.25,000/- each with double
accidental benefits on March 6, 1986 through Shri Chaturbhuj H. Shah, a general agent of the LIC.
Premium under the said policies was payable on half yearly basis.
The insured deposited the first half yearly premium on September 6, 1986 and the second half yearly
premium fell due on March 6, 1987 but it was not deposited within the prescribed period.
On June 4, 1987 the agent met the insured and obtained from him a bearer cheque dated June 4, 1987 for
Rs.2,730/- towards the half yearly premium on all the four policies.
The said amount of premium was deposited by the agent with the LIC on August 10, 1987.
On August 9, 1987 the insured died in an accident.
The widow of the insured, as the nominee under the policies, submitted a claim to the LIC on the basis of
the said four policies but the claim was repudiated by the LIC on the ground that the policies had lapsed on
account of non-payment of the half yearly premium which fell due on March 6, 1987 within the period of
grace.
Harshad Shah v. LIC, (1997) 5 SCC 64
Issue-Whether or not the premium was paid by the insured to LIC on June
04, 1987 when the bearer cheque was delivered to the general agent OR
on August 10, 1987 when the amount realized by encashing the cheque
was deposited with the LIC?
Harshad Shah v. LIC, (1997) 5 SCC 64
Held
We, however, find that in the complaint that was filed on behalf of the appellants before
the State Commission no such case was set up by the appellants that the LIC, by its
conduct, had induced the policyholders, including the insured, to believe that the agents
[including respondent No.3] were authorised to receive the premium on behalf of the
LIC. Nor is there any material on record which may lend support to the submission urged
on behalf of the appellants that by its conduct the LIC had induced the policyholders,
including the insured, to believe that agents were authorised to receive premium on
behalf of the
Harshad Shah v. LIC, (1997) 5 SCC 64
LIC. We are, therefore, unable to hold that the doctrine of apparent authority underlying
Section 237 of the Indian Contract Act can be invoked in the facts of this case especially
when the LIC has been careful in making an express provision in the Regulations/Rules,
which are statutory in nature, indicating that the agents are not authorised to collect any
moneys or accept any risk on behalf of the LIC and they collect so only if they are
expressly authorised to do so.
Harshad Shah v. LIC, (1997) 5 SCC 64
But keeping in view the facts and circumstances of the case we direct the LIC to refund
the entire amount of premium paid to the LIC on the four insurance policies to appellant
No. 2 along with interest @ 15% per annum. The interest will be payable from the date of
receipt of the amounts of premium.
We are also of the opinion that having regard to the fact that the appellants had
succeeded before the State Commission and the questions raised by them are of
sufficient importance requiring a decision by this Court respondent No.1 shall pay to
appellants a sum of Rs. 10,000/- [Rupees ten thousand only] as costs.
The amount of premiums with interest and the costs shall be paid within a period of one
month. The
Principal bound by ratification
When the agent does an act for which he does not have authority, the
principal is not bound by the same.
There is an exception when the principal may be bound even for acts
done without any authority.
If the principal ratifies, i.e., accords subsequent approval to an act done
without his authority, but on his behalf, the principal would be bound in
respect of such act.
When an act has been done by one person on behalf of another , though
without the authority or knowledge, the person on whose behalf the act is
done has the following options:
Either : i) to disown the act, or
ii) To ratify the same
Essentials of Valid Ratification
Where acts are done by one person on behalf of another, but without his
knowledge or authority, he may elect to ratify or to disown such acts. If he
ratify them, the same effects will follow as if they had been performed by his
authority.
According to section 196, for the act to be ratified, it is necessary that the
same has been done on behalf of the person who seeks to ratify the same.
A person cannot ratify an act done by his wife.
Section 197: Ratification May be
Expressed or Implied
The object of this provision is that no principal may ratify only those parts of
the transaction which are favourable to him, and disown others.
If he makes a ratification, it is deemed to be the ratification of the whole of
the act.
Section 200:Ratification of
unauthorized act cannot injure third
person
An act done by one person on behalf of another, without such other person’s
authority, which, if done with authority, would have the effect of subjecting a third
person to damages, or of terminating any right or interest of a third person,
cannot, by ratification, be made to have such effect.
Illustrations
(a)A, not being authorized thereto by B, demands, on behalf of B, the delivery of a
chattel, the property of B, from C, who is in possession of it. This demand cannot
be ratified by B, so as to make C liable for damages for his refusal to deliver.
(b)A holds a lease from B, terminable on three months’ notice. C, an unauthorized
person, gives notice of termination to A. The notice cannot be ratified by B, so as
to be binding on A.
Ratification Within a Reasonable Time
In order that the ratification is valid, it is necessary that the same must be
done within a reasonable time.
Delay in ratification could prejudice the interest of the third person, and,
therefore, undue delay in ratification should not be there.
Effect of Ratification: The Doctrine of
Relating Back
When the principal ratifies an act, which has been done on his behalf but
without his authority or knowledge, the same effects follow as if the act
had been performed with the principal’s prior authority.
The validity of the act relates back to the time of the doing of the act.
The effect of ratification of a contract entered into by the agent without
the principal’s prior authority is, that the contract is deemed to have been
made when the agent made the agreement rather than the date of
ratification by the principal of that agent.
Agency in Husband-Wife Relationship
Agency by Co-habitation
A married woman cohabiting with her husband is presumed to have
power to pledge the credit of her husband for necessaries.
She may receive the supply of goods and services which may be required
for domestic use or which may be of use to her husband, herself, or
children.
If such goods or services are necessary, according to the condition of life
of that family, the husband becomes bound to pay for them.
Delegation of Authority (Sub-Agent)
Section 190: When agent cannot delegate.—An agent cannot lawfully
employ another to perform acts which he has expressly or impliedly
undertaken to perform personally, unless by the ordinary custom of trade a
sub-agent may, or, from the nature of the agency, a sub-agent must, be
employed.
General rule is that an agent cannot further delegate.
Delegation of authority means appointment of sub-agent.
Agency arises on the basis of trust and confidence.
A person employs another to act as his agent, only because he has
confidence in the agent, and relies upon the competence and integrity of
such pa erson.
Therefore, the agent cannot employ another and entrust the work which
he has himself undertaken to do.
Having derived the authority to act on behalf of his principal, the agent
cannot, in turn, transfer the authority to another person.
This rule is based on the maxim delegatus non potest delegate ( a
delegate cannot further delegate).
The maxim is founded on the confidential nature of the contract of
agency.
Accordingly, auctioneers, factors, brokers, estate agents and other agents
in whom confidence is reposed, generally speaking, have no power to
delegate their authority.
But there are exceptions to this general rule.
An agent can delegate his authority to another person, that is to a sub-
agent.
1. Nature of Agency- when the nature of agency demands it or permits the
appointment of a sub-agent. For example- an agent is permitted to file a suit
against a debtor then he can appoint an advocate to file a suit.
2. Custom of trade- when the ordinary custom of trade in a particular business
allows appointment of sub-agent. For example- architects appoint surveyors
to assist them.
3. Principal’s express permission: Where the principal has expressly permitted
the agent to appoint a sub-agent the agent can appoint a sub-agent.
4. principal’s implied permission- where the principal has impliedly permitted
the delegation of authority the agent can appoint a sub-agent. For example-
where the principal knows the intention of the agent to appoint a sub-agent
but does not object to it.
5. Unforeseen emergencies- where unforeseen emergencies arises which
make the appointment of sub-agent necessary. For example, where an
agent is injured in an accident, he may appoint a sub-agent for the time
being.
6. Ministerial or clerical acts: where the acts to be done are purely ministerial
in nature and thus not involving any discretion. For example, an agent may
appoint a sub-agent for doing clerical work.
Section 191: “Sub-agent” defined
A “sub-agent” is a person employed by, and acting under the control of, the
original agent in the business of the agency.
Section 192: Representation of principal
by sub-agent properly appointed.
(a)A directs B, his solicitor, to sell his estate by auction, and to employ an
auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C
is not a sub-agent, but is A’s agent for the conduct of the sale.
(b)A authorizes B, a merchant in Calcutta, to recover the moneys due to A
from C & Co. B instructs D, a solicitor, to take legal proceedings against C &
Co. for the recovery of the money. D is not a sub-agent, but is solicitor for A.
Section195: Agent’s duty in naming
such person.
In selecting such agent for his principal, an 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 agent so selected.
Illustrations
(a)A instructs B, a merchant, to buy a ship for him. B employs a ship-surveyor
of good reputation to choose a ship for A. The surveyor makes the choice
negligently and the ship turns out to be unseaworthy and is lost. B is not, but
the surveyor is, responsible to A.
(b)A consigns goods to B, a merchant, for sale. B, in due course, employs an
auctioneer in good credit to sell the goods of A, and allows the auctioneer to
receive the proceeds of the sale. The auctioneer afterwards becomes
insolvent without having
Agent’s Duty to Principal
Section 211: Agent’s duty in
conducting principal’s business.—
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 always 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 consequences of his
own neglect, want of skill, or misconduct, but not in respect of loss or damage
which are indirectly or remotely caused by such neglect, want of skill, or
misconduct.
Illustrations
An agent is under 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 principal’s
prior consent, the principal has the following two rights:
(i) To repudiate the transaction by showing either:
(a) That any material fact has been dishonestly concealed from him by the agent,
or
(b) That the dealings of the agent have been disadvantageous to him. (Section
215).
(ii) To claim from the agent any benefit which may have resulted to him from
transaction. (Section 216)
Section 215: Right of principal when agent deals, on his own
account, in business of agency without principal’s consent
If an agent deals on his own account in the business of the agency, without
first obtaining the consent of his principal and acquainting him with all
material circumstances which have come to his own knowledge on the
subject, the principal may repudiate the transaction, if the case shows, either
that any material fact has been dishonestly concealed from him by the
agent, or that the dealings of the agent have been disadvantageous to him.
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.
(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 estate, may either repudiate or
adopt the sale at his option.
Section 216: Principal’s right to benefit gained by agent
dealing on his own account in business of agency .
If an agent, without the knowledge of his principal, deals in the business of the
agency on his own account instead of on account of his principal, the principal is
entitled to claim from the agent any benefit which may have resulted to him from
the transaction.
Illustration
(i) A directs B, his agent, to buy a certain house for him. B tells A 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.
(ii) A, an agent purchased goods for his principal obtaining some discount on the
transaction. He tried to charge the principal with the full price of the goods.
The principal is not bound to pay to the agent more amount than the agent
had actually paid while purchasing the article.
Duty To Pay Sums Received For
Principal (Sections 217 & 218)
In the absence of any special contract, payment for the 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 the goods consigned to him for sale may not have been sold, or
although the sale may not be actually complete.
Section 220:Agent not entitled to remuneration
for business misconducted
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
misconducted.
Illustrations
(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 2,000
rupees to B.
(b)A employs B to recover 1,000 rupees from C. Through B’s misconduct the
money is not recovered. B is entitled to no remuneration for his services, and must
make good the loss
Section 221: Agent’s lien on principal’s
property.—
The plaintiff instructed the defendants, a firm of estate agents, to sell his house and agreed to
pay them a percentage of the selling price as commission.
The owner of an adjacent house also instructed the defendants to sell that house.
The defendants showed both houses to a prospective purchaser, whose offer to purchase the
adjacent house was accepted.
He then offered to buy the plaintiff's house. The defendants did not inform the plaintiff of the
agreement to buy the adjacent house.
The plaintiff accepted the purchaser's offer. Sales of both houses were completed. The plaintiff
then instituted proceedings against the defendants claiming damages for their breach of duty in
failing to disclose material information to him and placing themselves in a position where their
duties and interests conflicted. The defendants counterclaimed for their commission on the sale
of the plaintiff's house.
Kelly v. Cooper, [1993] AC 205
Issue- Whether or not an estate agent is liable to disclose information to Principal 1, that
comes to his knowledge from his dealings with Principal 2?
Held
The business of estate agents is to act for numerous principals, several of whom might be
competing and whose interests would conflict, a term was to be implied in the contract
with such an agent that he was entitled to act for other principals selling similar properties
and to keep confidential information obtained from each principal and that the agent's
fiduciary duty was determined by the contract of agency.
Kelly v. Cooper, [1993] AC 205
Since the plaintiff knew that the defendants would be acting for other vendors of
comparable properties and would receive confidential information from them, the agency
contract could not have included terms requiring them to disclose that confidential
information to him, or precluding them from acting for rival vendors, or from trying to
earn commission on the sale of another vendor's property; and that, accordingly, although
the purchaser's interest in acquiring both properties was material information which could
have affected negotiations for the sale price of the plaintiff's house, the defendants were
not in breach of their duty in failing to inform the plaintiff of the agreement to buy the
adjacent house, which was confidential to the owner thereof, and the defendants' financial
interest in that sale did not give rise to a breach of fiduciary duty.
Relations of Principal And Agent With Third Parties
Section 226: Enforcement and
consequences of agent’s contracts
Contracts entered into through an agent, and obligations arising from acts 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 person.
Illustrations
(a)A buys goods from B, knowing that he is an agent for their sale, but not knowing
who is the principal. B’s principal is the person entitled to claim from A the price of
the goods, and A cannot, in a suit by the principal, set-off against that claim a
debt due to himself from B.
(b)A, being B’s agent, with authority to receive money on his behalf, receives from
C a sum of money due to B. C is discharged of his obligation to pay the sum in
question to B
Section 227. Principal how far bound,
when agent exceeds authority
When an agent does more than he is authorized to do, and when the part of
what he does, which is within his authority, can be separated from the part
which is beyond his authority, so much only of what he does as is within his
authority is binding as between him and his principal.
Illustration
A, being owner of a ship and cargo, authorizes B to procure an insurance for
4,000 rupees on the ship. B procures a policy for 4,000 rupees on the ship, and
another for the like sum on the cargo. A is bound to pay the premium for the
policy on the ship, but not the premium for the policy on the cargo.
Ahammed v Mamad Kunhi, AIR 1987 Ker. 228,- An agent was authorized by
power of attorney to sell half right over certain property. He, however,
entered into an agreement with purchaser-plaintiff to sell the entire property.
The authorized and unauthorized portions were separable. It was held that
specific performance of that half portion of the property could be claimed by
the purchaser under the Specific Relief Act, in respect of which the authority
for sale was given to the agent.
Section 228:Principal not bound when excess of agent’s authority is
not separable.
Where an agent does more than he is authorized to do, and what he does
beyond the scope of his authority cannot be separated from what is within it,
the principal is not bound to recognize the transaction.
Illustration
A authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for
one sum of 6,000 rupees. A may repudiate the whole transaction.
Section 229:Consequences of notice
given to agent
The deposits were of certain different amounts over a period of 1 year which were also
shown in the entries of her passbook. Upon requesting a statement of account from the
bank, she discovered that only a deposit of some Rs. 1932 had been ratified and
accepted, while the other deposits were denied.
Consequently, she filed a suit in the trial court claiming the remaining amount. The trial
court in its judgement allowed the deposition of some amount to which the bank
appealed.
The High court of Allahabad dismissed bank’s appeal and hence, the matter reached
Supreme Court of India.
State Bank of India v. Shyama Devi, AIR
1978 SC 1263
Issue- Whether Mr. Shukla acted in his capacity as an agent of the bank
while receiving money for deposit from Shyama Devi? Whether his actions
were in the usual course of business?
Held
The Court Held in favour of State Bank of India.
The court, while exploring vicarious liability of the principal where the
agent misuse his responsibility, observed that it is applicable only when the
agent is acting within the course of his employment.
State Bank of India v. Shyama Devi, AIR
1978 SC 1263
However, Mr. Shukla’s embezzlement of funds was an act that was done
outside the designated responsibilities vested in him and beyond his
course of employment. The court also emphasized that the official banking
procedure of verification and ratification to be done by bank employees
was not followed when the said deposition of the disputed amount
occurred, therefore, the bank is not liable to pay damages.
It concluded that if a bank employee receives some cash and cheques
from his friend, in his capacity without taking any proper receipts for
depositing the same with the bank, the bank cannot be made liable and
the agent acted outside the course of employment.
Section 230.Agent cannot personally enforce, nor
be bound by, contracts on behalf of principal
If an agent makes a contract with a person who neither knows, nor has
reason to suspect, that he is an agent, his principal may require the
performance of the contract; but the other contracting party has, as against
the principal, the same rights as he would have had as against the agent if
the agent had been principal.
If the principal discloses himself before the contract is completed, the other
contracting party may refuse to fulfil the contract, if he can show that, if he
had known who was the principal in the contract, or if he had known that the
agent was not a principal, he would not have entered into the contract.
Section 232: Performance of contract
with agent supposed to be principal
Where one man makes a contract with another, neither knowing nor having
reasonable ground to suspect that the other is an agent, the principal, if he
requires the performance of the contract, can only obtain such performance
subject to the rights and obligations subsisting between the agent and the other
party to the contract.
Illustration
A, who owes 500 rupees to B, sells 1,000 rupees worth of rice to B. A is acting as
agent for C in the transaction, but B has no knowledge nor reasonable ground of
suspicion that such is the case. C cannot compel B to take the rice without
allowing him to set-off A’s debt.
Section 233: Right of person dealing
with agent personally liable
In cases where the agent is personally liable, a person dealing with him may
hold either him or his principal, or both of them, liable.
Illustration
A enters into a contract with B to sell him 100 bales of cotton, and afterwards
discovers that B was acting as agent for C. A may sue either B or C, or both,
for the price of the cotton.
Section 234: Consequence of inducing agent or principal to
act on belief that principal or agent will be held exclusively
liable
When a person who has made a contract with an agent induces the agent
to act upon the belief that the principal only will be held liable, or induces the
principal to act upon the belief that the agent only will be held liable, he
cannot afterwards hold liable the agent or principal respectively
Section 235: Liability of pretended
agent
A person with whom a contract has been entered into in the character of
agent, is not entitled to require the performance of it, if he was in reality
acting, not as agent, but on his own account.
Termination of Agency (Sections 201-210)
Section 201: Termination of Agency
Where the agent has himself an interest in the property which forms the
subject-matter of the agency, the agency cannot, in the absence of an
express contract, be terminated to the prejudice of such interest.
Illustrations
(a) A gives authority to B to sell A’s land, and to pay himself, out of the
proceeds, the debts due to him from A. A cannot revoke this authority, nor
can it be terminated by his insanity or death.
(b) A consigns 1,000 bales of cotton to B, who has made advances to him on
such cotton, and desires B to sell the cotton, and to repay himself out of the
price, the amount of his own advances. A cannot revoke this authority, nor is
it terminated by his insanity or death.
Section 203: When principal may
revoke agent’s authority
The principal cannot revoke the authority given to his agent after the
authority has been partly exercised, so far as regards such acts and
obligations as arise from acts already done in the agency.
Illustrations
(a)A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for
it out of A’s moneys remaining in B’s hands. B buys 1,000 bales of cotton in his
own name, so as to make himself personally liable for the price. A cannot
revoke B’s authority so far as regards payment for the cotton.
(b) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay
for it out of A’s moneys remaining in B’s hands. B buys 1,000 bales of cotton in
A’s name, and so as not to render himself personally liable for the price. A
can revoke B’s authority to pay for the cotton.
Section 205:Compensation for revocation by
principal, or renunciation by agent.
The termination of the authority of an agent does not, so far as regards the
agent, take effect before it becomes known to him, or, so far as regards third
persons, before it becomes known to them.
Illustrations
(a) A directs B to sell goods for him, and agrees to give B five per cent. commission
on the price fetched by the goods. A afterwards, by letter, revoke B’s authority.
B, after the letter is sent, but before he receives it, sells the goods for 100
rupees. The sale is binding on A, and B is entitled to five rupees as his
commission.
(b) A, at Madras, by letter, directs B to sell for him some cotton lying in a
warehouse in Bombay, and afterwards, by letter, revokes his authority to sell,
and directs B to send the cotton to Madras. B, after receiving the second letter,
enters into a contract with C, who knows of the first letter, but not of the
second, for the sale to him of the cotton. C pays B the money, with which B
absconds. C’s payment is good as against A.
(c) A directs B, his agent, to pay certain money to C. A dies, and D takes out
probate to his will. B, after A’s death, but before hearing of it, pays the money
to C. The payment is good as against D, the executor.
Section 209:Agent’s duty on termination of
agency by principal’s death or insanity
A is founder and CEO of company XYZ Pvt. Ltd. He is terminally ill and now
wants to take a few months off. Accordingly, he appoints B (his trusted
employee for several years) as his agent by executing a POA in his favour.
This POA essentially gives B the general authority to carry on A’s business
and to receive and expend money therein. Few months after taking over,
XYZ Pvt. Ltd. starts running into losses. B takes a loan in the name of XYZ Pvt.
Ltd. to keep the business running. When A returns, he argues that B was not
entitled to borrow money under the POA and therefore the Bank ought
not to have granted the loan. Do you think Section 188 will come to the
rescue of the Bank / B under the circumstances?
Answer the Question
A finds an old Apple I computer lying in his house that was released by the
then Apple Computer (now Apple Inc.) in 1976. He approaches an
auction house to sell the said antique. The auction house demands a
commission of 5% of the total sale proceeds. A agrees. The Apple I is put to
auction. Is the auction house an agent of A?
Answer the Questions
A Pvt. Ltd. appointed B Pvt. Ltd. as a distributor for the sale of Diesel
Engines, Pumps and Pumpsets. Under the agreement between the two, B
Pvt. Ltd. would first purchase Diesel Engines, Pumps and Pumpsets from A
Pvt. Ltd. and then sell it off to a third person at a margin. Is there a
relationship of agency between A & B?
A employed B as his agent (under a valid contract of agency) for the
specific purpose of completing his part of the contract with C. A, in his
contract with C had to deliver some goods to him. Accordingly, A
instructed B to send the goods to C via train. However, B sent those goods
to C by truck. The goods were lost in transit. Is B liable to compensate for
the losses of A?
A employed B as his agent (under a valid contract of agency) for the
specific purpose of completing his part of the contract with C. A, in his
contract with C had to deliver some goods to him. Accordingly, A
instructed B to immediately send the goods to C via train. A, after issuing
such instruction boarded a plane to the US so that he was unreachable for
the next 24 hours. Before B could dispatch the goods via train, he saw on
TV that a rail roko protest had been planned by some people the very next
day on the route of his interest. In keeping with the interest of the principal,
B sent those goods to C by truck. The goods were lost in transit. Is B liable to
compensate for the losses of A even though he was acting in the interest
of the principal?
Answer the Question