THE LAW OF AGENCY

What a person does by another, s/he does by

himself. ------
The law of agency is based on this
Principle.
 Agency Defined
An agent is
a person employed
to do any act for another person, or
to represent another in his dealings with
third persons.
The person for whom such an act is done or
who is so represented is called the principal.
(S 182)
 General Rules Governing An Agency
• Whatever a man sui juris
i.e., what ever, a person competent to
contract, may lawfully do by himself, s/he may
also do by an agent.
.
• ‘Maxim qui facit per alium facit per se’ i.e.,
He who acts through an agent is himself
acting.
.
 Essentials of Agency
1. Intention and Power to Act on Behalf of
the Principal
2. Capacity of the Parties
As per Section 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.’
3. Consideration Not Necessary
Section 105 clearly provides, ‘No consideration is
necessary to create an agency.’
 MODES OF CREATION OF AGENCY

The law recognizes various modes to create a

contract of agency, namely:
• Agency by express agreement
• Agency by implied agreement
• Agency by ratification
• Agency by operation of law
 Express Agency

• A contract of agency may be made through an express agreement

between a principal and his/her alleged agent. The said agreement
may be oral, or in writing. The agency so created is called ‘express
agency’. Section 187
• The usual form of a written contract of agency is the Power of
Attorney.
• An oral appointment is also valid even though the contract which
the agent is authorized to make has to be in writing [Heard vs
Pilley].
For example, A of Delhi appoints B of Mumbai by a deed (power
of attorney) to sell the goods supplied from his Delhi office in
Bombay and adjoining areas on commission basis. In this way an
agency relationship has been created between A and B through
an express agreement.
 Implied Agency
• A contract of agency may be implied from the
circumstances of the case, things spoken or written, or
the ordinary course of dealing.
For example, a solicitor, or counsel engaged to
conduct litigation, may have the implied authority to
compromise the suit.
Similarly, a husband who lives with his wife impliedly
authorizes her to pledge his credit for necessary
household expenses.
• An Implied agency may take the following three
distinct forms:
• Agency by Estoppel;
• Agency by Holding out; and
• Agency by Necessity
 Agency by Estoppel
• Estoppel arises when someone is stopped or precluded from
denying the truth of anything that he has represented by his
words or conduct as a fact, although such a state of thing
did not exist at all.
• 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. S 237
Anil tells Babita in presence and within hearing distance of
Pooja that he is Pooja's agent. Pooja does not contradict the
statement. Later on Babita enters into a contract with Anil,
honestly presuming that Anil is Pooja's agent. Pooja will be
bound by this contract for there is an agency by Estoppel
between her and Anil.
 Agency by Holding Out
• The doctrine of 'holding out' is also based on the principal of
Estoppel.
• The alleged principal by his/her words or conduct willfully leads
another person to believe that the alleged agent is representing
him. If someone enters into a contract with the person so
representing on that belief, then the person so represented (i.e.,
the alleged principal) is stopped from denying the truth of such
statements subsequently.

• For example, P allows his servant to purchase certain goods from

B's shop on credit and later on he pays for the goods. It is repeated
many times. Later on, when the servant was not in P's
employment, he purchased goods on P's credit from the same
shop and disappeared. B can recover the price from P on the basis
of the doctrine of holding out.
 Agency by Necessity
• Sometimes, owing to the exigencies of circumstances,
a person may be compelled to act as an agent to the
other without requiring or seeking the consent of the
latter. Such an agency is called the agency by necessity.
• In Sims & Co. vs Midland Rly. Co., Butter was consigned
with the defendant railway company. The goods being
perishable was becoming useless owing to delay in
transit and was therefore disposed of by the station
master for the best price available as it was not
possible to obtain instructions from the principal, the
sale was held binding on the owner. The company's
action was justified on the ground of unforeseen
emergency, arisen in the course of transit.
 Agency by Ratification
• Where a person without being authorized to do so,
purports to act as agent, or a duly authorized agent
acts beyond his/her authority, the principal may
elect to ratify or disown such acts. If he chooses to
ratify the agent's transactions supposedly based on
his behalf, an agency by ratification arises.
• The effect of ratification is that it renders the
ratifier (i.e., the principal) bound to the contract as
if he had expressly authorized the person to
transact the business on his behalf.
• An agency by ratification is also known as ex post
facto agency i.e., agency arising after the event.
 Agency by Operation of Law
• An agency, under certain circumstances, also comes
into existence by operation of law. Such an agency
comes into existence neither by an express agreement
nor by Estoppel and ratification, but by the provisions
of law of land.
• Partnership firm is a universal example of this type of
agency. When a partnership is formed, every partner,
by operation of law, automatically becomes the agent
of other partners and the firm.
• Similarly, the promoters becomes agents of the
company they promote, MPs and MLAs become
agents of their respective constituencies, ministers
become agents of governments and so on.
 RIGHTS OF AN AGENT

1. Right to Remuneration (Section 220).

2. Right of Retainer (Section 217). An agent may retain, out of any
sums received on account of the principal in the business of the
agency the following:
– all moneys due to him/her in respect of advances made;
– expenses properly incurred by him/her in conducting such business; and
– such remuneration as may be payable to him/her for acting as an agent
[Section 217].
3. Right of Lien [Section 221]. An agent is (unless otherwise agreed)
entitled to a lien on all property (including papers) of the principal,
which has come into his/her possession in the course of the agency.
4. Right to be Indemnified against Consequences of Lawful Acts
[Section 222]. The employer of an agent is bound to indemnify
him/her against the consequences of all lawful acts done by such
agent in exercise of the authority conferred upon her/him.
 RIGHTS OF AN AGENT

5. Right to be Indemnified against Consequences of Acts done in Good Faith [Section

223]
An agent's right to be indemnified also extends for the consequences of the acts done
in good faith even though they turn out to be injurious to the rights of third persons.
6. Right to compensation [Section 225]
An agent is also entitled to compensation in respect of injury or loss suffered by
him/her due to the principal's neglect or want of skill. For example, A employs B as a
bricklayer in building a house, and puts up the scaffolding himself. The scaffolding is put
up unskillfully and B is hurt. A must make compensation to B.
 DUTIES OF AN AGENT
1. Duty to Act within the Scope of the Authority . The first and foremost
duty of every agent is to act within the scope of the authority conferred
upon him/her.
2. Duty to Follow Instructions or Customs [Section 211] . An agent is
bound to strictly carryout the instructions of the principal. In the
absence of express instructions, s/he must follow the prevailing
custom in the same kind of business at the place where the
agent conducts the business.
3. Duty to Act With Due Care and Skill [Section212] . 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 is
aware of his/her lack of skill .
4. Duty to Render Accounts [Section 213] . An agent is bound to render
proper accounts to his/her principal on demand.
5. Duty to Communicate [Section 214] . In case of difficulty, an agent must
use reasonable diligence in communicating with his/her principal and to
obtain instructions from the employer.
6. Duty to Remit Sums [Section 218] . The agent is bound to pay to the
principal all sums received on the latter’s account.
 TERMINATION OF AGENCY

Agency as a contract gets terminated by any

event, which terminates a contract such as, by
performance, revocation, or destruction of
subject matter etc., and also in certain special
ways. Accordingly, the various modes of
terminating an agency can broadly be
classified into the following two categories:
• By act of the parties
• By operation of law
 Irrevocable agency
• Where the part of contractual obligations have
already been performed by the agent, agency
cannot be terminated.