AGENCY

An Agent is defined under section 182 of the Act.

An Agent is a person employed to do any act for another,

or to represent another in dealings with persons. The
person for whom such act is done, or who is so
represented is called the principal.
What is the emphasis? The emphasis is on the power of
the Agent to represent his principal in dealing third persons.
Is servant, or somebody polishing the shoes on a street an
agent? No.
Because the essence of the matter is that the principal
authorised the agent to represent or act for him in bringing
the principal into contractual relation with a third person.

Essentials of Agency:

An agency being a contract of employment to

bring the principal into legal relations with at
third party, the first requisite is that the
principal should be competent to contract.
Who can employ an agent
i) A major person, and sound mind. Therefore it
means a minor cannot appoint an agent?
Because an agreement entered into by a minor
is ----. A question arises whether a minor can
appoint an agent by way of a power of
attorney.?

An infant cannot appoint an agent to act for him

neither by means of a power of attorney, nor by any
other means. If he purports to appoint an agent, not
only is the appointment itself void, but everything
done by the agent on behalf of the infant is also void
and incapable of ratification.
However in a situations where a minor is capable of
binding himself by contract he may appoint an agent
to contract on his behalf. Whatever a person can do
personally he can do thru an agent.
There is nothing in the Act which prohibits the
guardian of a minor from appointing an agent for
him.

Who may be an agent

Between the principal and third persons, any person
may become an agent, but no person who is not of
the age of majority and of sound mind
Whether a consideration is necessary? No
consideration is necessary to create an agency. Why?
Because generally an agent is remunerated by way
of an commission for his services rendered but no
consideration is to be immediately paid at the time of
appointment.
Justice Bhagwati has very clearly explained the
distinction between a servant and an agent in the
landmark case of Laksmi Narayan Ram gopal v
Hyderabad Govt. AIR 1954 SC 364

The main points of distinction are :

1) An agent has the authority to act on behalf of the principal and to
create a contractual relations between the principal and the third party.
This kind of power is not generally enjoyed by the servant.
2) A principal has right to direct what the agent has to do , but a master
has not only that right but also the right to say how it is to be done.
Thus the difference is that the servant acts under the direct control and
supervision of his master and is bound to conform to all reasonable
orders given to him inhis course of work. But an agent though bound
to exercise his authority in accordance with all the lawful instructions
--- is not subject to its exercise to the direct control of supervision of
the principal.
3) A servant is paid by way of salary, however an agent is paid by way
of commission.

Kinds of Agent

Factor: The word factor means an agent entrusted with the

possession of

Of goods for the purpose of selling them.

A broker is also a kind of mercantile agent. He is appointed to
negotiate and make contracts for the sale or purchase of
property on behalf of his principal, but is not given possession

Del Crede Agent: He is another type of mercantile agent.

In ordinary cases the only function of an agent is to
effect an contract between his principal and a third
party. The agents role is then over, he drops out. He
can neither sue nor is he held laible for failure to
perform by a third party.

But where an agent undertakes on payment of

extra commission to be liable to the principal for
the failure of the third party to perform he contract.
He is called a del crede agent and the extra
commission is called the del crede commission.
Creation of Agency :
The relation of agency arises whenever one person
called an agent has authority to act on behalf of
another called the principal and consents so to act.
The relationship has its genesis in a contract

Creation of an Agency:

The relationship between a principal and an agent may be

created in any of the following ways:
1) By express appointment (Sec 186) i.e when given by words
or by writing.
2) By implied appointment. i.e
By conduct or situation of the
parties.
3) by necessity of the case (Sec 188)
4) Agents authority in an emergency.
5) By subsequent ratification of an unauthorized act. (Sec
196) Ratification means, when the agent has done
something for the principle but without the principals
authority, the agent may adopt the benefits and
consequences of transactions. Marathwada Univ. v Seshrao
Chavan AIR 1989 SC 1582.

However a knowledge is requisite for valid ratification (Sec 198)

Termination of agency (Sec 201)
Termination of Agency can be by following ways.
By the principal revoking his authority or
by the agent renouncing the business of the Agency or by the
business of the agency being completed or
The principal or the agent dying or becoming of unsound mind
or
By the principal being adjudicated an insolvent under the
provisions of any Act.
Termination of the Agency where agent has an interest in the
property which forms the subject matter of the Agency.
However the agency cannot, in absence of an express contract
be terminated to the prejudice of such interest. (Sec 202)

Illustration
A gives authority to B to sell As land, and to pay himself, out of
the proceeds, the debts due to him from A. A cannot revoke his
authority, nor can it be terminated by his insanity or death.
Therefore it can be said that Authority coupled with interest
cannot be revoked.
Sec 209 Agents duty on termination of agency by principals
death or insanity. The Agent is bound to take on behalf of the
representative of the late principal all reasonable steps for the
protection and preservation of the interests entrusted to him.
The above are the instances in law when Agents authority is
terminated
Other than the above, the principal may revoke agents authority in
the following ways.

Under Sec 203- At any time before the authority has been
exercised so as to bind the principle.
Under Sec 204 Revocation where authority has been
partly exercised. The principal cannot revoke the authority
given to his agent after the authority has been partly
exercised so far as regards such acts and obligations as
arise from the acts already done in the agency.
Illustration :
1) A authorizes B to buy, 1000 bales of cotton on account of
A, and to pay for it out of As money remaining in Bs hands.
B buys 1000 bales of cotton in his own name so as to
make himself personally liable for a price. A cannot revoke
Bs authority so far as regards payment for the cotton

A authorizes B to buy, 1000 bales of cotton on account of A, and to

pay for it out of As money remaining in Bs hands. B buys 1000 bales
of cotton As name so as not to make himself personally liable for a
price. A can revoke Bs authority to pay for the cotton.

Now a question arises whether a compensation is payable?

The same is dealt under Sec 205. Compensation for revocation by
principal. Where there is express or implied contract that an
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 of the
agency without sufficient cause. Further it is necessary that a
notice has to be given for revocation or renunciation.(Sec 206)
The same may be express or implied (Sec 207)

Illustration : A empowers B to let As house. Afterwards A lets it himself. This is

implied revocation of Bs authority.

The next question which arises is, when does the termination of agents
authority takes effect as to the agent and as regards third persons : It takes
effect only when it becomes known. Sec 208

Illustration:
A directs B to sell goods for him and agrees to give B five percent commission on
the price fetched by the goods. A afterwards by letter revokes Bs authority. B
after the letter is sent, but before he receives it, sells the goods for Rs 100. The
sale is binding on A and B is entitled to 5 rupees as his commission.

Sec 211 : Agents duties to Principal

Illustration : B is a broker. It is not a custom to sell on credit . However he sells
goods of A on credit to C, whose credit is high. Before the payment, C becomes
insolvent. B must make good the loss to A.

Agents duties to Principal

Sec 212 :While discharging the duties skill and diligence is

required from Agent. The skill should be as much as a person
engaged in similar business.

Agent has to compensate the principal in respect of any loss

or damage suffered by Principal by the negligence of Agent.
The Agent falsely communicated to the Principal that goods
had been purchased for him, but later stated that goods in
fact could not be purchased as their delivery was dependent
on third party. This is a case of gross neglect on part of the
Agent. Hence Agent liable to pay damages. Jayabharati
Corpn v
SVPN Rajshekar Nadar AIR 1992 SC 596.

Agents Accounts : Agent bound to render account to his principal on

demand.
The Agent after taking necessary permission dispatched some bales to
the party. The bales were stored in godown. However an explosion
occurred. As per the Agreement the goods were to be insured. However
the Agent did not insure them. It was held that the agent was liable for
negligence. Pannalal Jankidas v Mohan Lal
AIR 1951 SC 144.
Principals duties to Agent
Sec 222 The Agent to be indemnified against consequence of lawful acts.
Illustration : B, at Singapore under instructions of A at Kolkata contracts
with C to deliver certain goods to him. A does not send the goods to B. C
sues B for breach of contract. B informs A of the suit. A is liable to B for
such damages, costs and expenses. Krishna Lal v Bhanwar Lal AIR 1954
SC 500.

Sec 223 Agent has to be indemnified by the principal against

consequences of act done in good faith The Principal is bound to
indemnify the agent even though the acts of the Agent causes injury to

the right of the third persons as he has done the Act in good faith.
Illustration: A, a decree holder and entitled to execution of Bs goods
asks the officer of the court to seize certain goods, representing them to
be the goods of B. The officer seizes the goods and is sued by C, the
true owner of goods. A is liable to indemnify the officer for the sum
which he is compelled to pay to C, in consequence of obeying As
directions.
Sec 224 Non liability of a employer of agent to do a Criminal Act.
Illustration : A employs B to beat C and agrees to indemnify him against
all consequences of the act. B thereupon beats C, and has to

Pay damages to C for doing so. A is not liable to indemnify B for those
damages.
Sec 225 Compensation to agent for the injury caused by the principals
neglect. The Principal must make compensation to his agent in respect
of injury caused to such agent by the principals neglect or want of skill.
Illustration : A employs B as a brick-layer in building a house, and puts
up the scaffolding himself. The scaffolding is unskillfully put-up and B
is in consequence hurt. A must make compensation to B.
Sec 226. Effects of Agency on contracts with third parties.
When is the principal bound by agents acts?
Illustrations :
A, being Bs 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.

Sec 227: How far is the principal bound when agent exceeds authority.
- only to that extent when the part what the agent does is within his authority
and it is separable from the agents act for which he has exceeded his authority.
Illustration : A , being the owner of ship and cargo, authorizes B to procure
an insurance of 4,000 rupees on 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.
Sec 228: Principal not bound when excess of agents authority is not separable.
Where an agent does more than he is authorized to do and what he does
beyond the scope of his authority cannot be separated from what is within it, the
principal is not bound to recognize the transaction.
Illustration : A authorizes B to pay 500 sheep for him. B buys 500 sheep and
200 lambs for Rs 6,000 rupees
Sec 230 When agent is personally liable In the absence of any contract to
that effect, an agent cannot personally enforce, nor be bound by contracts, on
behalf of principal.

However, such a contract shall be presumed to exist in the following

cases.
1. Where the contract is made by an agent for 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.
Sec 233.- Right of a person dealing with an agent personally liable
In a case where agent is personally liable, a person dealing with him
may hold either him or his principal liable.
Sec 234 : Consequence of inducing agent or principal to act on
belief that principal or agent will be exclusively liable. When a
person who has made a contract with an agent induces the agent to
act upon the belief that the principal only will be held liable or induces
the principal to act upon the belief that the agent only will be held
liable, he cannot afterwards , hold liable agent or principal respectively.

Agency by esoppel: sec 237

Liability of a principal inducing belief that agents
unauthorized acts were authorized. When an agent has
without any authority, done acts or incurred obligations
to third parties on behalf of his principal, the principal is
bound by such acts or obligations if her has by his
words or conduct induced such third person to believe
that such acts an obligations were within the scope of
the Agents authority.
Illustration:
A entrusts B with negotiable instruments endorsed in
blank. B sells them to C in violation of private orders
from A. The sale is good.