CONTRACT OF

AGENCY
Mr. Abhijit Chanda
Assistant Professor of Law
Asian Law College
 Concept of Agency

When a person employs another person to do any act

for himself or to represent him in dealing with third
persons, it is called a ‘Contract of Agency’. The person
who is so represented is called the ‘principal’ and the
representative so employed is called the ‘agent (Sec.
182). The duty of the agent is to enter into legal
relations on behalf of the principal with third parties.
But, by doing so he himself does not become a party to
the contract to the contract not does he incur any
liability under that contract. Principal shall be
responsible for all the acts of his agent provided they
are not outside the scope of his authority.
 Definition of Agency
• 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 so represented, is called the “principal”. (s.
182)
• Principal: 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. (s. 183)
• An agent is an individual between principal and
third person, may or may not attained the age of
majority (i.e. 18 years) and should be of sound mind.
• No consideration is necessary to create an agency
(s. 185)
 Concept of Sub-Agent & Substitute Agent

• Definition of Sub-Agent (s. 191): Is a person employed by,

and acting under the control of, the original agent in the
business of the agency.
• Representation of principal by sub-agent properly
appointed (s. 192)—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.
• Agent’s responsibility for sub-agent—The agent is
responsible to the principal for the acts of the sub-agent.
• 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 willful wrong.
Continuation
• Like a sub-agent, the appointment of the substituted
agent is made by an agent. Sub-agent is the agent of
the agent, whereas a substituted agent is an agent of
the principal, though he is appointed by the principal
himself but through the efforts of an agent. An agent,
having been so authorized by the principal, may name
a person (substituted agent) to act for the principal in
the business of agency. There is a privity of contract
between the principal and the substituted agent. The
principal becomes bound by the acts of the
substituted agent against the third party, and the
substituted agent is directly responsible towards the
principal.
Continuation…

• Relation between principal and person duly appointed by

agent to act in business of agency (s. 194)—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.
• Agent’s duty in naming such person (s. 195)—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.
 Features of Contract of Agency

• The Principal should be competent to contract (s.

183)
• The agent may not be competent to contract (s. 184)
• No consideration is necessary to create an agency
(s. 185)
• Mohd. Moinuddin v. Mir Ahmed, AIR 1965 A.P. 409-
Generally, an agent is remunerated by way of
commission for services rendered, but no
consideration is immediately necessary at the time of
his appointment. Though, formally not required, the
provision of s. 185 cannot deprive an agent, e.g. a legal
practitioner of his remuneration, where an agreement
to work without remuneration has not been proved.
 Modes of Creation of Agency
Acts done with Principals Actual Authority (s. 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
Agent’s authority in an Emergency (s.. 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
Principal bound by Estoppel (s. 237)
• Liability of principal inducing belief that agent’s unauthorized acts were
authorized— 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.
Continuation
Principal Bound by Ratification (s. 196-200)
By presumption of agency in Husband-wife relationship
• Agency by Co-habitation- When a man and woman are living together
and they appear to be husband and wife to a third person, the woman
will be able to bind the man in the same way as if she was his wife
[Debenham v. Mellon, (1880) 6 A.C. 24]. The implied authority to the
wife to bind the husband arises when the husband and wife are
cohabiting. If they are living separately, there is presumed to be no
such authority in wife to pledge the credit of her husband [Jewsbury
v. Newbold, (1857) 26 L.J. Ex. 247]. If the third person gives credit to
the wife only [Lane v. Ironmonger, (1844) 113 M. & W. 368], or when
the husband revokes the authority by giving a notice to a third person
[Blades v. Free (1829) 9 B& C 167], he is not bind by the wife’s act.
• Agency of Necessity: Even the husband and wife are not living
together, the common law permits the wife to pledge the credit of the
husband in respect of necessaries suitable to the style of living to
which she was accustomed. Such is not practiced in India, as the
maintenance are being governed through personal and secular
legislation.
 Essentials of Valid Ratification

• The acts should be done on behalf of another person

(s. 196)
• The principal should be in existence and competent to
contract when the act is done
• Ratification may be express or implied (s. 197)
• Ratification should be with full knowledge of the facts
(s. 198)
• Ratification should be of the whole transaction (s. 199)
• Ratified acts should not be injurious to third person (s.
200)
• Ratification should be made within a reasonable time
 Duties of Agent

• Duty not to delegate his duties (s. 190)

• Duty to follow Principals directions (s. 211)
• Duty to show proper skill and care (s. 212)
• Duty to render proper accounts (s. 213)
• Duty to communicate with principal (s. 214)
• Duty not to deal on his own account (s. 215 &
216)
• Duty to pay sums received for principal (s. 217
and 218)
Rights of Agent & Duties of Principal

• Right to Remuneration (s. 219)

• Right to Retain Sums (s. 217 & 218)
• Right of Lien on Principal’s Property (s. 221)
• Right to be Indemnified (s. 222-224)
 Liability of Principal

• When Agent exceeds authority (s. 227)

• Ahammed v. Mamad Kunhi, AIR 198 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 the
unauthorized portions were separable. It was held that specific
performance on 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.
• When Agent receives notice on Principal’s Behalf (s.
229)
• When agent commits a fraud or some other wrong
against a third person (s. 238)
Personal Liability of Agent (s. 230)

• When agent acts on behalf of a foreign Principal

• When agent acts for an Undisclosed Principal
• When the Principal, though disclosed, cannot be
sued
• When there is a contract for the agent’s personal
liability
• When an agent makes a breach of some legal
obligation
• Liability of pretended agent
 Termination of Agency (s. 201)
• By revocation of agent’s authority
• Revocation may be express or implied (s. 207)
• No revocation of agency when agent has interest
in the subject-matter (s. 202)
• Revocation possible before the authority has been
exercised (s. 203)
• Principal to compensate, if there is premature
revocation without justification (s. 205)
• Principal should give reasonable notice of
revocation (s. 206)
• Termination of agency terminates sub-agency also
(s. 210)
Continuation…

• Agent’s duty on termination of agency by

principals death or insanity (s. 209)
• Time from which the termination of agent’s
authority becomes effective (s. 208)
• By renunciation of the business of agency by the
agent
• By the completion of the business of agency
• By the death or insanity of either the principal or the
agent
• By insolvency of the principal
THANK YOU