Contract of Agency
By: Dr. Pinky Bangarh
Definition
• 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”. (Sec.182)
• A person who act on behalf of another person is
called an agent.
• The contract which creates the relationship of
principal and agent is called “an agency”.
Conti…..
• The agent is authorize to create a contract
between his principal and a third party. After
entering into a contract, the agent drops out and
ceases to be a party to the contract and the
contract binds the principal and third party.
Example: A appoints B to buy 10 bags of sugar on
his behalf. A is the principal and B is the agent
and the contract between the two is agency.
Essentials of Agency
1. Agreement. The relationship of agency is the result of an
agreement between the principal and the agent. It may be
express or implied from the conduct of the parties.
2. Who can be Principal. Any person who is of the age of
majority according to law to which he is subject and who is
of sound mind, may employ and agent (Sec 183).
3. Who can be an Agent. Any person may be an agent. It means
a minor or a person of unsound mind can be appointed as an
agent . A minor as agent can bind the principal to third
parties. But a minor is not himself liable to his principal. (Sec
184).
Conti…..
4. Consideration not necessary. To create an agency the
consideration is not necessary. It may or may not exist
agency. The fact that principal has agreed to be
represented by the agent is consideration for principal
to support the contract. (Sec 185).
5. Intention. The agent must have intention to act on
behalf of the principal. When the agent enters into a
contract for himself , then the principal will not be liable.
The principal shall be liable only when agent contracts
with the intention to act on behalf of principal.
Establishing Agency
• The use of word “agent” for a person is not a
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.
Cases: Loon Karan v. John and Co.
Sakthi Sugars Ltd. V. Union of India
Kinds of Agents
1. Auctioneer: He is an agent whose business is to sell goods
or other property by public auction (open sale).
2. Factor: He is a mercantile agent who is entrusted with the
possession of the goods for the purpose of sale.
3. Broker: An agent who has the authority to negotiate the sale
or purchase of goods on behalf of his principal, with the
third person.
4. Del Credere agent: He is a mercantile agent, who, on
payment of some extra commission, guarantees the
performance of contract by the third person.
5. Sub-Agent: He is an agent’s agent. (Section-191)
Creation of Agency
1. Agency by Express Agreement: One can enter into
the contract of agency through an express agreement
i.e. oral or written. In a written contract of agency, the
power of attorney is transferred in the name of the
agent, conferring him the authority and power to act
on behalf of the principal, subject to the terms and
conditions specified in the contract.
When the purpose of creation of agency is to transfer
the immovable property, it is required to be
registered,
Contii..
2. Agency by Implied Agreement: When
something is not directly or clearly stated, it is
said to be implied. Therefore, the implied
agency is created by way of conduct, the
situation of the parties, i.e. principal and
agent, or necessity of the case. (includes by
estoppel also)
3. Agency in Emergency: Agent can act on behalf
of principal in a situation of emergency.
Conti..
4. Agency by Ratification: A principal may
subsequently ratify an act done by a person who
acted on his behalf without his permission or
knowledge. If the act is ratified, a relationship of
the agency will come into existence and it will be
as if he had previously authorized the person to
act his agent. Ratification may be express (by
speech or writing) or implied (by act or conduct).
5. By a Husband-wife relationship
Essentials of Ratification
(Sec.196-200)
1. The act should be done on behalf of another person (sec.196)
Case: Keighly, Maxsted & Co. v. Durant
2. The principal should be in existence, and competent to contract
when the act is done.
Case: Kelner v. Baxter
3. Ratification may be express and implied (sec. 197)
4. Ratification with full knowledge of facts (sec. 198)
5. Ratification of whole transaction (sec. 199)
6. Ratified act should not be injurious to a third person
(sec. 200)
7.Ratification within a reasonable time
Effect of Ratification
• If we look Sec.196 again it says that when the
principal ratifies an act, which has been done
on his behalf but without his authority, the
same effects follow as if the act had been
performed with the principal’s prior authority.
• This is also called doctrine of Relations Back.
Cases:Badri Prasad v. State of Madhya Pradesh,
Bolton Partners v. Lambert
Duties of Agent
1. Duty not to delegate authority (Sec.190): An agent cannot in ordinary
circumstances delegate the duty that was delegated to him. The principle is based
upon the idea that when a Principal appoints an agent, he does so by placing his
confidence and trust in the agent and might not have similar trust in the work of
another person.
Exceptions to Sec.190: when custom of the trade allows, nature of agency requires, when
act does not require personal skill of agent and lastly when principal has given the
authority to sub-agent.
Sub-Agent (Sec.191)
An agent may sometimes delegate the duty that has been delegated to him by the
Principal to somebody else. Ordinarily, an agent cannot delegate the duty he is
supposed to perform himself to another person (delegatus non potest delegare-
discussed below), except in particular circumstances where he must, out of necessity,
do so. Section 191 of the Indian Contract Act, 1872 defines a sub-agent to be a person
employed by and acting under the control of the original agent in the business of the
agency.
Conti…..
The position when the sub-agent is properly appointed (Sec.192):
The principal is bound by and responsible for the acts of the sub-
agent, the agent is responsible for the acts of the sub-agent and
sub-agent is responsible for his acts to the agent but in case of
tortuous act, sub-agent is directly answerable to the principal.
The position when the sub-agent is not properly appointed
(Sec.193): The principal is not bound by and responsible for the
acts of the sub-agent. The sub-agent is also not responsible for
his acts to the principal.
Substituted Agent (Sec.194): He is an agent of the principal. The
sub-agent appoint substituted agent because the principal has
given the authority to the sub-agent for naming such person
Conti….
2. Duty to follow directions (Sec. 211): He has to conduct the business of
the Principal according to the directions of the Principal.
3. Duty to work with reasonable skill (Sec.212): An agent is bound to
conduct the business he is supposed to conduct with as much skill as a
person on his position ordinarily holds.
4. Duty to render accounts (Sec. 213): An agent is supposed to show the
relevant accounts to the Principal as and when the Principal demands.
5. Duty to communicate (Sec. 214): An agent has the duty to communicate
any difficulty whatsoever he may come across while doing the Principal’s
business. He is supposed to perform due diligence in this regard.
6. Duty not to deal on his own account (Sec. 215-216)
7. Duty to pay sums received (Sec. 217-218)
Rights of Agent
1. Right to receive remuneration (sec.219)
2. Right to retain money (sec.217-218)
3. Right of lien (sec.221)
4. Right to be indemnified (sec.222-224)
For lawful acts (sec.222)
For civil wrongs (sec.223)
No indemnity in case of criminal wrongs (sec.224)
5. Right to compensation for injury (sec.225)
Termination of Agency
1. Revocation of authority by Principal: Rules of revocation:
Expressly or impliedly (Sec.207)
No revocation if the agent has interest in the subject matter (Sec.202)
Principal may revoke the authority before the agent has exercised the
same (Sec.203)
If premature revocation of agency without sufficient cause, the
principal must make compensation to the agent (Sec.205)
Principal must give reasonable notice to the agent he has the
justification for the revocation (Sec.206)
By termination of agent’s authority, the authority of the sub-agent is
also terminated (Sec.210)
Conti…..
2. Renunciation of business of agency by the agent
3. Completion of business
4. Expiry of time
5. Death or insanity of Principal or Agent
6. Insolvency of Principal
7. Destruction of subject matter
8. Becoming an alien enemy
9. Change of law
Thank You
