Study Notes

Indian Contract Act, 1872

Special Contract-
Agency- Part 2
Contract Act Agency

 Sub-Agent S. 190-195:
 Section 191 of the Contract Act defines sub-agent as: A person employed by,
and acting under the control of, the original agent in the business of the agency.

 Section 190 of the Contract Act lays down that 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.
o Generally, an agent cannot delegate the duty that he is entrusted with by
the principal in a contract of agency as the agent is supposed to perform
himself those (delegatus non potest delegare).
o However, in certain exceptional circumstances an agent may delegate his
duty to sub-agent which may arise out of necessity, do so.

 Representation of principal by sub-agent properly appointed S. 192:

o Where a sub-agent is properly appointed, the principal is, so far as
regards third persons, represented by the sub-agent, and is bound by
and responsible for his acts, as if he were an agent originally appointed
by the principal.
o Agent's responsibility for sub-agent: The agent is responsible to the
principal for the acts of the sub-agent.
o Sub-agent's responsibility: The sub-agent is responsible for his acts to
the agent, but not to the principal, except in cases of fraud or wilful
wrong.

 Agent's responsibility for sub-agent appointed without authority S. 193:

Where an agent, without having authority to do so, has appointed a person to act
as a sub-agent, the agent stands towards such person in the relation of a
principal to an agent, and is responsible for his acts both to the principal and to
third persons; the principal is not represented, by or responsible for the acts of
the person so employed, nor is that person responsible to the principal.

 Relation between principal and person duly appointed by agent to act in

business of agency S. 194:
o Where an agent, holding an express or implied authority to name another
person to act for the principal in the business of the agency, has named
another person accordingly, such person is not a sub-agent, but an agent
of the principal for such part of the business of the agency as is entrusted
to him.
o Example:
-- 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.

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Contract Act Agency

-- 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.

 Agent's duty in naming such person S. 195:

o 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.
o Example:
-- 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.
-- 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 accounted for the
proceeds. B is not responsible to A for the proceeds.

 Difference between Sub- Agent & Substituted Agent:

Sub-Agent Substituted Agent

A person employed by, and acting undue the Person who is named by the Agent for
control of, the original agent in the business of performing such part of the business of the
the agency agency as is entrusted to him
Works under the control of the Agent and is the Works under the control of the Principle and is
agent of the original agent the agent of the Principle

Responsible to the Agent Responsible to the principal

Agent is responsible for the acts of the sub- Agent is not responsible for the acts of the
agent substituted-agent
No Privity of contract between the Principle and Privity of Contract between the Principal and
sub-agent substituted-agent

 Modes of Termination of Agency S.201:

 Termination of agency: An agency is terminated by the principal revoking his
authority; or by the agent renouncing the business of the agency; or by the

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Contract Act Agency

business of the agency being completed; or by either the principal or agent dying
or becoming of unsound mind; or by the principal being adjudicated an insolvent
under the provisions of any Act for the time being in force for the relief of
insolvent debtors.

Principal revoking his

authority

By Act of the Parties

By the agent
renouncing the
business of agency

Modes of Termination of
Agency
S. 201 Business of Agency
being completed

By the Operation of Either party dying or

Law becoming unsound

Principal being
adjudicated an
insolvent

 Termination of agency means when the relationship between principle and

agent comes to an end. The various ways in which an agency can be terminated
are:

o By Act of the Parties

 Principal revoking his authority: The Contract of Agency can be

terminated by Principal by revoking the Agent's authority. This can
be done by the Principle only when it has not been exercised by
the Agent. Also, Reasonable notice must be given for such
revocation. Revocation may be express or implied.
 By the agent renouncing the business of agency: Agency can
be renunciated by the agent is the same manner in which the
principal can revoke the agent's authority.

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Contract Act Agency

o By the Operation of Law:

 Business of Agency being completed: When the business of

agency is completed, the relationship between Principal and agent
also comes to an end automatically. Apart from this when an
agency is created for a fixed time it is automatically terminated on
the expiry of that time period.
 Either party dying or becoming unsound: In cases where either
the principal or the agent dies or becomes insane the contract of
agency is automatically terminated.
 Principal being adjudicated an insolvent: When the Principal is
declared as an insolvent, the agency relationship is terminated.

 Rules of Revocation of Authority:

Rules of Revocation of Authority

Compensation
Revocation
Any time before for revocation by Notice of Termination of
where authority
the authority has principal, or revocation or sub-agents
has been partly
been exercised renunciation by renunciation authority
exercised
S.203 agent S. 206 S. 210
S. 204
S. 205

 When principal may revoke agent's authority S. 203: The principal may, save
as is otherwise provided by the last preceding section, revoke the authority given
to his agent at any time before the authority has been exercised so as to bind the
principal.

 Revocation where authority has been partly exercised S. 204: The principal
cannot revoke the authority given to his agent after the authority has been partly

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Contract Act Agency

exercised, so far as regards such acts and obligations as arise from acts already
done in the agency.
Example: -- 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.
-- 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.

 Compensation for revocation by principal, or renunciation by agent S. 205:

Where there is an express or implied contract that the agency should be
continued for any period of time, the principal must make compensation to the
agent, or the agent to the principal, as the case may be, for any previous
revocation or renunciation of the agency without sufficient cause.

 Notice of revocation or renunciation S. 206: Reasonable notice must be given

of such revocation or renunciation, otherwise the damage thereby resulting to the
principal or the agent, as the case may be, must be made good to the one by the
other.

 Termination of sub-agent's authority S. 210: The termination of the authority

of an agent causes the termination (subject to the rules herein contained
regarding the termination of an agent's authority) of the authority of all sub-
agents appointed by him.

 Other Important Aspects:

 Termination of agency, where agent has an interest in subject-matter S.
202: 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.
-- 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.
-- 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.

 When termination of agent's authority takes effect as to agent, and as to

third persons S. 208: 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.

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Contract Act Agency

Example:
-- 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.
-- 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.

 Enforcement and consequences of agent's contracts S. 226: 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.
Example:
-- 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.
-- 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.

 Principal how far bound, when agent exceeds authority S. 227: 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.
Example:
-- 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.’

 Agent cannot personally enforce, nor be bound by, contracts on behalf of

principal S. 230: In the absence of any contract to that effect, an agent cannot
personally enforce contracts entered into by him on behalf of his principal, nor is
he personally bound by them. Presumption of contract to contrary—Such a
contract shall be presumed to exist in the following cases: —
(1) where the contract is made by an agent for the sale or purchase of goods for
a merchant resident abroad;
(2) where the agent does not disclose the name of his principal;
(3) where the principal, though disclosed, cannot be sued.

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Contract Act Agency

 Effect, on agreement, of misrepresentation or fraud by agent S. 238:

Misrepresentation made, or frauds committed, by agents acting in the course of
their business for their principals, have the same effect on agreements made by
such agents as if such misrepresentations or frauds had been made or
committed by the principals; but misrepresentations made, or frauds committed,
by agents, in matters which do not fall within their authority, do not affect their
principals.
Example:
-- A, being B's agent for the sale of goods, induces C to buy them by a
misrepresentation, which he was not authorized by B to make. The contract is
voidable, as between B and C, at the option of C.
-- A, the captain of B's ship, signs bills of lading without having received on board
the goods mentioned therein. The bills of lading are void as between B and the
pretended cosignor.