DEFINITION (Sec 182)

• “An agent is a person employed to do any act for

another or to represent another in dealings with
third persons. The person for whom such act is
done, or who is represented, is called Principal.”

• The contract which creates the relationship of

‘principal’ and ‘agent’ is called ‘agency.’

• After entering into a contract on behalf of

principal with third party, the agent drops out
and ceases to be a party to the contract and the
contract binds the ‘principal’ and the ‘third party’
as if they have made it themselves.
 General Rules for Agency
• Whatever a person competent to contract may do by
himself, he may do through an agent, except for acts
involving personal skill and qualifications. In fact, where the
work to be done is obviously personal, no agent can be
employed. For example, a person cannot marry through an
agent, cannot paint a picture through his agent etc.

• The rule “He who does through another, does by himself,”

applies in case of agency. In other words the acts of agent
are, for all legal purposes, the act of the principal and are
enforceable by and against him(Principal). (Sec 226) ----
 Test of Agency
• Agency exists when a person has an authority to
act on behalf of another to create contractual
relationship between the other and the third
party.

• Only existence of close relationship, like advising

in matters of business, or rendering personal
service to his master, or working in his factory, do
not constitute agency because in these cases he
is not authorized to deal with third persons.
 Who May Employ Agent (Sec 18)
• Any person who is of the age of majority, of
sound mind and competent.
• A minor, lunatic or drunken person cannot
employ an agent.
 Who May Be An Agent (Sec184)
• Any person can be appointed as agent including a
minor or a person of unsound mind.

• The reason being since the act of agent is

considered as the act of principal hence he may
appoint any person as his agent.

• But in case of appointing a minor or a person of

unsound as his agent he runs the great risk
because he cannot hold such an agent liable for
his misconduct or negligence.
 KINDS OF AGENTS
(AUTHORITY POINT OF VIEW)
• General Agent:

– One who is employed to do all acts connected to the

business, e.g. a manager of a firm. He can bind the
principal by doing anything which falls within the
ordinary scope of business, whether he is actually
authorized for any act or not, is immaterial, provided
the third party acts bonafide i.e. they assume that
such an agent has power to do all that which is usual
for a general agent to do in a business concerned.
• Special Agent:

– A special agent is one who is employed to do some

particular act or represent his principal in some
particular transaction, e.g. an agent employed to sell
a motor car.

– As soon as the act is performed, the authority of such

an agent comes to an end.

– If a special agent does anything outside his authority,

the principal is not bound by it, and the third parties
are not entitled to assume that the agent has
unlimited powers. They should therefore, make
proper enquiry to the extent of authority before
entering any contract with him.
• Universal Agent:

– A universal agent is said to be one whose

authority is UNLIMITED i.e. who is authorized to
do all the acts which the principal can lawfully do
and can delegate.

– He enjoys extensive powers to transact every kind

of business on behalf of his principal.
 KINDS OF AGENTS
(NATURE OF WORK POINT OF VIEW)
• Mercantile Agent:
– A mercantile agent is one who has authority either to
sell goods or to raise money on the security of goods
– The various kinds of mercantile agents are as under:
• Factor:
– He is entrusted for sale of goods.
– He enjoys high discretionary powers in relation to sale of goods.
– He sells goods in his own name upon such terms and conditions as
he thinks fit.
– He may pledge the goods as well.
• Commission Agents:
– He buys and sells goods for his principal on the best possible terms
in his own name.
– He receives commission for his task.
– He may have possession of goods or not.
• Del Credere Agent:

– He is the one who in consideration of extra commission, guarantees his

principal that the third person with whom he enters into contract on
behalf of the principal shall perform their financial obligations.

– This entails that if the buyer does not pay, he(Agent) will pay.

– Thus he occupies the position of surety as well as of an agent

• Broker:

– He is one who is employed to make contracts for the purchase and sale
of goods.

– He is not entrusted with the possession of goods.

– He simply acts as a connecting link and brings the two parties together
to bargain and if the transaction materializes he becomes entitled to his
commission called brokerage.

– He makes contracts in the name of his principal.

• Non-Mercantile Agents:
– They include
• Advocates
• Attorneys
• Insurance Agent,
• Wife.
 WAYS TO CREATE AGENCY
• 1. Agency by Express Agreement:

– Normally agency is created by an express agreement

specifying the scope of authority of agent.

– The agent may be appointed by word of mouth or by

an agreement in writing.

– However in certain cases such as to execute a deed

for sale or purchase of land, the agent must be
appointed by executing a formal ‘power of attorney’
on a stamped paper.
• 2. Agency by Implied Agreement:

– Not express agreement employing an agent but

because of circumstantial situations , or from the
conduct of parties on a particular occasion, or
from the relationship between the parties
existence of Agency is inferred.

– Such an agency may take the following forms:

• (a) Agency by estoppel

• (b) Agency by holding out
• (c) Agency by necessity
• (a) Agency by Estoppel:

– “When an agent has, without authority, has done acts or

incurred obligations to the third persons on behalf of his
principal, the principal is bound by such acts of 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
agent’s authority.” (Sec 237) ----

• (b) Agency by Holding Out:

– In this case also the alleged principal is bound by the acts of the
supposed agent, if he has induced the third person to believe
that they are done with authority.

– But unlike in ‘agency of estoppel’ an ‘agency of holding out’

requires some affirmative or positive act or conduct by the
principal to establish agency subsequently.

– However in case of agent of held out nature he has only a limited

authority to do acts, the principal is not bound by the act outside
the authority. ----
• (c) Agency by Necessity:

– In certain circumstances the law confers an authority on one

person to act as agent of another without any regard to the
concent of the other . Such an agency is called an ‘agency of
necessity.’

– Generally the agency of necessity arises in the following cases:

• Where the agent exceeds his authority, bonafide, in an

emergency. ----
• Where the carrier of goods acting as a bailee, does anything
to protect or preserve the goods, in an emergency. ----
• Where a husband improperly leaves his wife without
providing proper means for her sustenance. ----
• 3. Agency by Ratification:

– Ratification means the subsequent adaptation and

acceptance of an act originally done without
instructions or authority.

– Thus where a principal affirms or adopts the

unauthorized act of his agent, he is said to have
ratified the act and there comes into existence an
agency by ratification retrospectively.----

– Ratification can either be express (by words) or

implied(by action). ----
 Essentials of a Valid Ratification
• The agent must purport to act as agent for principal who is in
contemplation:

– The agent must expressly contract as an agent for a principal in

the knowledge of third parties.
– The principal must be named or must be ‘identifiable’ and it is
not sufficient to indicate simply that he is acting as agent of
someone.
– The word ‘identifiable’ here means that there must be such a
description of principal as shall amount to reasonable
designation of him like “on behalf of the Vice-Chancellor,
Lucknow University” , “on behalf of my elder brother”.
– Thus, to be valid, ratification must be done by a person on
whose behalf the agent professed to act.
• There should be an act capable of ratification:

– The act to be ratified must be lawful one.

– There can not be ratification of an illegal act or an act which is void.

• The principal must be in existence:

– For a valid ratification it is essential that the principal must be in

existence at the time when the original contract is made, because
rights and obligations cannot attach to non-existent person.

• The principal must be competent to contract:

– The principal must have contractual capacity both at the time of

original contract and at the time of ratification.
– Thus a person cannot ratify a contract made on his behalf during his
minority.
• The principal must have full knowledge of material facts:

– To constitute a valid ratification the principal must at the

time of ratification must have full knowledge of all
material facts or give such an unqualified acceptance that
the interference may be drawn that he intended to ratify
the contract whatever the facts may be.

• Whole transaction must be ratified:

– Once a part is accepted, it implies acceptance of whole.

– There can not be partial rejection and partial ratification.

• Within reasonable time:

– A ratification to be effective must be made within

reasonable time after the original contract is made.

– Where the time is expressly fixed for the performance

of the contract, ratification must be made within that
time.

• Ratification must not injure the third person:

– A ratification cannot be effective where its effect is to

subject a third person to damages, or terminate any
right or interest of a third person. ----
 AGENT’S AUTHORITY
• 1. Actual Authority:

– An agent can do all such acts as have been assigned to him either
expressly or impliedly and thereby bind the principal to third parties by
acts done within the scope of ‘actual’ or ‘real’ authority.

• 2. Apparent Authority:

– An agent can also bind the principal to third parties by acts done with in
his apparent authority, though it is nor in his actual authority, provided
the third party acts bonafide.

– Apparent authority means that an agent having an authority to do an

act or carry on a business has authority to do every lawful thing which is
necessary in order to do such act, or which is usually done in course of
conducting such business” ----
• 3. Authority in Emergency:

– An agent has authority in 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. ----
 DUTIES OF AGENT
• Duty to follow principal’s directions and customs:(Sec 211)
To perform the agency work according to the directions
given by principal.
– If agent acts otherwise and any loss be sustained, he must
make it good to the principal, and if any profit accrues he
must account for it.----
– If the principal has not given express or implied directions,
then it is the duty of the agent to follow customs
prevailing in the same kind of business at a place where
the agent conducts business.
– If the agent makes the departure he does it at its own risk
and must make good any loss so sustained by the
principal. ----
• Duty to carry out work with reasonable skill and diligence:
(Sec212)

– The agent must conduct the business of agency with as

much skills as generally possessed by persons engaged
in similar business, unless the principal has notice of his
want of skill. Further, the agent must act with
reasonable diligence and to best of his skills else he
must compensate the principal for loss incurred . ----

• Duty to render accounts: (Sec 213)

– To keep proper accounts of his principal’s money and

property and render them to him on demand, or
periodically if so provided in agreement.
• Duty to Communicate: (Sec 214)

– It is the duty of an agent, in cases of difficulty, to use all

reasonable diligence in communicating with his
principal, and in seeking to obtain his instructions,
before taking any steps in facing the difficulty or
emergency.

• Duty not to Deal on his Own Account: (Sec 215, 216)

An agent must not deal on his own account in the
business of agency, i.e. he must not himself buy
from or sell to his principal goods he is asked to sell
or buy on behalf of his principal, without obtaining
the concent of his principal after disclosing all
material facts to him. ----
• Duty not to make any Profit out of his Agency except his
Remuneration: (Sec 217, 218)

– An agent stands in a fiduciary relation to his principal

and therefore he must not make any profit (secret
profit) out of his agency.
– He must pay to his principal all moneys including illegal
gratification, if any, received by him on principal’s
account.
– He can however deduct all moneys due to himself in
respect of his remuneration or/and expenses properly
incurred.
– If his acts are not bonafide, he will lose his remuneration
and will have to account for secret profit to his principal.
• Duty on Termination of Agency by Principal’s Death or
Insanity: (Sec 209)

– When an agency is terminated by the principal’s dying

or becoming of unsound mind, the agent must take,
on behalf of the representatives of his late principal,
all reasonable steps for the protection and
preservation of interests entrusted to him.

• Duty not to Delegate Authority: (Sec 190)

– Other than certain exemptions an agent must not

further delegate his authority to another person, and
perform the work of agency himself.
 RIGHTS OF AN AGENT
• Right to receive Remuneration (Sec 219, 220)
---
• Right of Retainer (Sec 218)
• Right of Lien (Sec 221)
• Right to be Indemnified against consequences
of Lawful Acts (Sec 222 ) but not for Criminal
and Unlawful Acts ----
• Rights to be Indemnified against Consequences
of Acts done in Good Faith (sec 223) ----
• Right to Compensation (Sec 225) ----
 PRINCIPAL’S LIABILITY FOR ACTS
OF AGENT
• when the agent acts within the scope of actual and apparent
authority (Sec 189)
• When agent exceeds his actual as well as apparent authority:
– Where the excess is separable from authorized portion
(Sec 227) ----
– Where the excess is NOT separable from authorized
portion (Sec 228) ----
• Liability for agent’s misrepresentation or fraud (Sec 238)
• Notice given to agent as notice to principal (Sec 229)
• Liability based on doctrine of estoppel (Sec 237) ----
 Liability of Unnamed Principal
• Unnamed principal means whose existence is disclose
but the name is not disclosed.

• Once it is disclosed by the agent that he is an agent, the

contract made by the agent binds the principal, and the
agent drops out of the transaction, despite the fact that
the principal for whom he acted has not been named.

• However in case agent declines the identity of the

principal, he becomes personally liable on the contract.
 Liability of Undisclosed Principal
• Where an agent, having authority to contract on
behalf of another, makes the contract in his own
name (as he himself is principal), concealing not only
the name of his principal but also the fact that there
is a principal, his principal is called “undisclosed
principal.”

• In such a case neither the existence nor the name of

principal is disclosed and the agent gives an
impression to the third party as he himself is the
contracting party and the agent has authority in fact
and is contracting on behalf of another.
• In case of undisclosed principal, the mutual rights and liabilities of
the principal, the agent and the third party are as follows:

– Since the agent has contracted in his own name, he is liable to

the third party personally. The agent may be sued on the
contract and he has the right to sue the third party, if the
undisclosed principal remains undisclosed.

– If the third party comes to know the existence of the principal

before obtaining judgment against the agent, he may sue either
the principal or the agent or the both. ----

– If the principal discloses himself before the contract is

completed, the third party may refuse to fulfill the contract , if
he can show that if he had known who was the principal in the
contract or if he had known the agent was not the principal, he
would not have entered the contract.
 Liability of Pretended Agent
• A person untruly representing himself to be the authorized
agent of another, and thereby inducing the third party to deal
with him as such agent, then such agent is liable to make
compensation to the other party in respect of any loss or
damage incurred to it in such dealing. (provided his alleged
employer does not ratify his act).

• Further such a pretended agent may also be sued for fraud

by the aggrieved party.

• Though the pretended agent is liable to make compensation

to the other contracting party, but he has no right to proceed
against that party for performance of the contract.
Personal Liability of Agent to Third Party
• Generally the principal is liable for all acts performed by an
agent on his behalf.

• However in following cases agent is personally liable for his

conduct:

– Where the agent expressly agrees

– Where the agent acts for a foreign principal
– Where the agent acts for an unnamed principal
– Where the agent acts for an undisclosed principal
– Where the agent acts for the principal who cannot be
sued.
– Where agent’s authority is coupled with interest.
 TERMINATION OF AGENCY

• 1. By act of parties

• 2. By operation of Law
• Self
– Delegation of authority
– Sub-agent
– Substituted agent
– Irrevocable agency