CONTRACT OF AGENCY

SCHEME OF DISCUSSION
• Concept of Agency
• Essentials of a Contract of Agency
• Implied Agency
• Agency of Necessity
• Agency v. Other Similar Relations
• Types of Agent
• Relationship between Agent and Principal
• Rights and Duties of Principal and Agent
• Delegation of Authority – Sub Agency
• Sub – Agency v. Substituted Agency
• Position of Principal and Agent vis-à-vis third parties.
• Termination of Agency
AGENCY - CONCEPT
 AGENCY - CONCEPT
• Agency is a Contract where by a person (Principal) employs another person (agent) to represent him
or to act on his behalf, in dealings with a third person.
• The Act of Agent binds the Principal in the same manner in which he would be bound if he does that act
himself.
• Relationship of Agency arises when one party (principal) consents that another party (the agent) shall
act on his behalf and the agent consents so to act.
• ‘Consent’ – confers the authority on the agent – this authority gives rise to the legal liability of the principal.
• Consent can be given retrospectively as well.
• Contracts entered into through an agent and obligations arising from the acts done by an agent may
be enforced in the same manner and will have the same legal consequences as if the contract has
been entered into and the acts done by the principal in person.
• Authority of Agent to act – Derivative Authority
• Principal – Agent Relationship – Fiduciary in character
• Chapter X – Section 182 – 238 – Agency – Only lays down wide principles.
 CONTRACT OF AGENCY
Section 182: “Agent” and “Principal” defined : An “Agent” is a person employed to do any act for
another or to represent another in dealings with third persons. The persons for whom such act is
done, or who is so represented, is called the “principal”.

• A person having the capacity to contract may enter into a contract with another
• either himself or
• Through another person
• When he adopts the second recourse, he / she is said to act through an agent
• Purpose of Agent: To bring its Principal into contractual relations with third persons.
• Merely using the term ‘Agent’ doesn’t establish Agency
• The Court needs to examine the true nature of the agreement and the subsequent dealings between
the parties and then decide whether it established a relationship under law.
 NATURE OF AGENCY
• Agency in law connotes a relation where one party has an authority or capacity to create legal relations
between a person (Principal) and Third Parties.
• Agent has the power to make principal answerable to third parties.
• Relationship of Agent & Principal – Fiduciary in character.
• Agent – Bound to exercise his authority within the lawful instructions derived to deliver an objective
• But he or she is not under a direct supervision of the Principal
• Agent facilitator / service provider
• The course of action can be decided by Agent
• This differentiates Agent from Servant
• Agency usually not transferable or assignable.
• It is personal in character
 RULES OF AGENCY
 Qui facit per, altum facit per se – He who does an act through another does it by himself
• Acts of Agent, subject to certain conditions are acts of principal
• Section 226 : An agent’s acts / contracts shall have the same legal consequences as if the contracts
had been entered into and the acts done by the principal in person
 Who can Employ an Agent (Section 183) :
• Age of Majority
• Sound Mind
 Who may be an Agent (Section 184) :
• Any one – No need to have a contractual capacity i.e. even a minor or lunatic can be an agent
• Where Principal appoints a non-competent person as Agent – Principal is liable to the third parties for the
act of agent
• But principal shall have no legal recourse against the agent for the negligence in the latter’s duty that
caused a loss / damage to the former.
 Capacity of the Principal to Act in the business of Agency – Not affected merely because an agent has
been appointed.
CREATION OF AGENCY
 CREATION OF AGENCY
MODE OF CREATION
• Agreement between the Principal and Agent (Section 186 & 187) : OR
• Express : Power of Attorney, Specific Letter of Appointment
• Implied: Look at the Substance of the Relationship
• Ratification – Post the conduct of the act OR
• Estoppel – i.e. where a person allows another to transact with third parties on his behalf and makes
them believe that the other is so transacting, doing on his behalf will be bound by the acts,
transactions entered into by such ostensible agent.
• Agency of Necessity
INTENTION OF THE AGENT TO ACT ON BEHALF OF THE PRINCIPAL:
• Whether a person does intend to act on behalf of another is a question of fact
CONSIDERATION – Not Necessary (Section 185)
 CREATION OF AGENCY

• BY EXPRESS AGREEMENT
• A Contract of Agency may be in writing / oral / situational
• Some statutes requires certain type of agency to be in writing and registered:
• Agency under Registration Act 1908
• Agent for registration or execution of document
• Proxy Agent for Company Meetings (under companies Act)
• Advocate under Advocate Act 1961
• Need to file Vakalatnama
 CREATION OF AGENCY

• BY IMPLIED AGREEMENT
Section 187: ………An authority is said to be implied when it is to be inferred from the circumstances of the case; and
things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.

• Implied Agency arises when the Principal conducts himself towards the person alleged to be the
agent or the third parties in such a manner, as if the principal had conceded to the appointment of
that person as agent
• Includes :
• Agency by Estoppel
• Agency by Necessity
 CREATION OF AGENCY
IMPLIED AGENCY – CASES
Shakti Sugars Ltd. V. Union of India
Held: State Trading Corporation – legal entity when permitted to export sugar, does not become the agent of the
Union of India while exercising that commercial function. It is a license holder authorised to transaction, but
such transaction doesn’t take place on behalf of Union of India.
Therefore granting of authorisation / license doesn’t amount to creation of contract of agency.
Chairman, Life Insurance Corporation v. Rajeev Kumar Bhaskar [AIR 2005 SC 3087]
Facts:
• Salary Saving Scheme floated by LIC provided for a tripartite agreement between an employer, employee
and LIC according to which
• The Employer accepted the full responsibility to collect premium from its employees and the remit the same
to LIC by means of cheque to the corporation.
• Employer to inform LIC regarding the changes in staff employment.
 CREATION OF AGENCY
Employees were not aware about the arrangement between LIC and Employer.

Issue: Whether Employer an agent of LIC?

Held: Employer though not an agent of LIC qua its Regulations, it could be inferred that the employer had implied authority
to act as agent of the L.I.C.

Agent within the meaning of Section 182 would be a person employed to do any act for another or to represent other in
dealings with third parties and the person for whom such act was done or who was so represented was called the Principal.

Employer was acting on behalf of the Corporation and a Contract of Agency might be inferred
 AGENCY BY ESTOPPEL

• Agency by Estoppel :
• Doctrine of Estoppel – where a person, by his conduct or words spoken or written, leads wilfully another
person to believe that a certain state of affairs exists and induces him to act on that belief so as to alter
his previous position, he is precluded from denying subsequently the fact of that state of affairs.
…..Pickard v. Sears [(1837) 6 A & E. 474]
• Section 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 (Principal) 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. 
 AGENCY OF NECESSITY
• Section 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.
• A Sub-sect of Implied Agency Relationships
• Where a relationship of agency is created by virtue of necessity / urgency of situation.
• Where by reason of an emergency, the relation of a Principal and Agent is deemed to exist between
persons not otherwise in contractual relations
• Burden of Proof lies on the party contracting with the agent to show that such was the nature of
circumstances.
• For eg: Wife can become an agent of necessity.
• It arises whenever a duty is imposed upon a person apart from contract to act on behalf of another
to prevent an irreparable injury to the other person or to preserve the other person’s property from
destruction.
 AGENCY BY RATIFICATION
• Doctrine of Ratification:
• A person can act on behalf of another person without his permission or knowledge
• The latter, after being informed about this fact, may either accept it or reject it.
• If he accepts the fact, the relationship of agency is created retrospectively as if the act
was done with the consent of that person.
• Post act acceptance of legal responsibilities – Ratification.
• Section 196 : Effect of Ratification
• Legal Implication: It places the parties in the same position in which they would have been had the agent
had the principal’s authority at the time he made the contract.
• If ratified, the contract of agency is created from the date the act was conducted and not from the
date the act was ratified.
 AGENCY BY RATIFICATION
REQUISITES OF VALID RATIFICATION:
a) The agent must purport to act as agent for a principal who is in contemplation and is identifiable at
the time of the contract
b) Principal must be in existence at the time of the contract
c) Principal to have contractual capacity both at the time of contract and at the time of ratification
d) Ratification must be with full knowledge of facts (Section 198)
e) Ratification must be done within a reasonable time of the act purported to be ratified
f) Act to be ratified must be lawful
g) The whole transaction should be ratified (Section 199)
h) Ratification to be communicated
i) Ratification should not put third party to damages or terminate any right or interest of another party
(Section 200)
 TEST OF AGENCY

Has a person the capacity to bind the Principal and make him answerable to a third
person by bringing him (the Principal) into legal relations with the third person and
thus establish a privity of contract between that person and the Principal.

If Yes, then that person is an Agent, otherwise not

 EXCEPTION TO THE RULE OF
AGENCY
• Judiciary has developed exceptions which restrict the Right to appoint agents
• Where the act to be performed is personal in character
• Where transaction is required by statute to be done by or to be evidenced by the signature of the
principal himself
• Where the competency to do an act arises by virtue of holding of some public office or
• Where a statute imposes on a person a duty which he is not free to delegate
• Though the Contract Act is silent, Law Commission in its 13th Report (1958) recommended for
inclusion of this rule.
 AGENCY V. OTHER
SIMILAR RELATIONS
 AGENT V. SERVANT
Lakshminarayan Ram Gopal v. Government of Hyderabad [1955 1 SCR 393]
Agent Servant
Agent is employed to bring the Principal into legal A servant is supposed to work for Master and not
relations with the third persons or to represent him in necessarily create relations between the employer and
dealings with third persons. third persons.
Agent not subject to direct control and supervision of the Servant acts under direct control and supervision of
Principal. Has discretion. master and is bound to conform to all the reasonable
orders given by him in the course of his work
Agent cannot act as servant Servant can act as an agent
Agent can work for several principals at the same time Servant usually serves one master
 AGENT INDEPENDENT CONTRACTOR
An independent contractor is employed to act for another
but he does the work independently of the employer’s
An agent is bound to act within the scope of his express control or interference
or implied authority
An agent only represents his principal in dealings with An Independent Contractor is personally liable for all
third persons and is not personally liable for acts done by acts done by him.
him within the scope of his authority

AGENT LICENSEE
Agent always acts on behalf of another Licensee is a person to whom rights have been given by license
to do something. He acts in exercise of those rights on his own
account not as an agent of another.
CLASSIFICATION OF
AGENTS
 BASED ON EXTENT OF THEIR
AUTHORITY
Special Agent
• Agents entrusted to perform a particular act / transaction for their principal
• Eg: Broker appointed to sell a house
• Authority – Limited
General Agent
• One who has authority to do all acts connected with a particular trade, business or
employment
• Eg: Firm Manager
Universal Agent
• One whose authority to act for the Principal is unlimited
• He has the authority to bind his principal by any act which he does, provided the act is legal
 BASED ON THE NATURE OF THE
WORK PERFORMED
• Commercial / Mercantile Agent:
• Section 2 (9) : those agents who have an authority to sell goods or consign goods for the purposes
of sale or to buy goods or to raise money on the security of the goods.
• Includes:
• Factors: one who is entrusted with the possession of goods / documents of title
• Brokers: Who negotiate a deal between two parties – Not entrusted with possession
• Auctioneer: An agent for the vendor to sell at an open sale.
• An agent for both a buyer and seller
• Commission Agents : Those agents who bring Principal and Third Parties together and
negotiate a deal but his responsibility also continues until the performance of promise.
• Agency limited to specific transactions.
 BASED ON THE NATURE OF THE
WORK PERFORMED
• Del Credere Agent
• An agent that assumes the responsibility for the solvency and performance of their contract by the
vendees and thus indemnifies his employer against the loss.
• He gives an additional security to the seller
• He undertakes that the person with whom he enters into contracts on the Principal’s behalf will be in
a position to perform their duties.
• He guarantees performance of a contract in lieu of an extra remuneration.
• Liability of agent = Liability of Surety
 RELATIONSHIP OF
PRINCIPAL AND AGENT
DUTIES OF AN AGENT
 DUTIES OF AN AGENT
TO CARRY OUT THE WORK UNDERTAKEN ACCORDING TO THE DIRECTIONS GIVEN BY THE
PRINCIPAL

Section 211: Agent’s duty in conducting principal’s business.—An agent is bound to conduct the business of
his principal according to the directions given by the principal, or in the absence of any such directions
according to the custom which prevails in doing business of the same kind at the place where the agent
conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his
principal, and if any profit accrues, he must account for it. 

Instructions of the Principal ; or

• Agent has to act
As per the prevailing customary norms regarding the
conduct of a business in which the agent is engaged in
• Agent’s act contrary to this – Any harm to Principal – Agent will be liable
 DUTIES OF AN AGENT
• If the Principal suffers a loss, despite the fact that the agent has followed the instructions of the
Principal, then the agent will not be liable.
• Same rule, where agent, in absence of directions, acts in ordinary course of business.
• An agent infringing the directions of the Principal cannot hold the Principal Liable for non-fulfilment
of contract nor can he escape the liability by hiding behind the fault of the Principal.
• Where the Principal has suffered no consequent loss, he is nevertheless entitled to nominal loss
• Damages that can be claimed should be reasonable.
• Remedies available with the Principal (Section 231)
• To recover damages for want of skill and care and for disregard of the terms of the mandate
• To obtain an account and payment of secret and illicit profits which the agent has received.
• To resist the agent’s claim for remuneration and indemnity.
 DUTIES OF AN AGENT
Section 212 : TO CARRY OUT WORK WITH REASONABLE CARE, SKILL AND DILIGENCE
An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons
engaged in similar business unless the principal has notice of this want of skill. The agent is always bound to
act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal
in respect of the direct consequences of his own neglect, want of skill, or misconduct, but not in respect of loss
or damage which are indirectly or remotely caused by such neglect, want of skill, or misconduct.

• Agent’s duty to act with due care and reasonable skill

• This duty can be expressly waived off
Pannalal Jankidas v. Mohanlal [(1950) SCR 979]
• Agent was directed by the Principal to insure goods against fire, which he had failed to do.
• Explosion in Bombay docks, goods were destroyed.
• Under a fire insurance policy such a loss was recoverable.
• Government passes an ordinance that compensation for goods which were insured against fire would be fully paid
• If the goods were not insured then only half compensation will be paid.
 DUTIES OF THE AGENT
• Agent obtained half of the compensation from the Government Ordinance
• SC Held that the agent is responsible for compensating the remaining half as it did not
exercise due care and reasonable skill by defaulting in getting the goods insured.
 DUTIES OF AN AGENT
Section 213: TO RENDER PROPER ACCOUNTS TO HIS PRINCIPAL
Agent’s accounts.—An agent is bound to render proper accounts to his principal on demand. —An agent is
bound to render proper accounts to his principal on demand."
• Duty of the agent to keep accurate accounts of all his transactions and to be prepared all the time to produce them to his
principal
• Duty exists even upon termination of agency
• Not only accounts but reasonable justification wrt to the transactions also to be given.
• Once settles, accounts cannot be reopened except on proof of mistake, fraud, undue influence or coercion.
• Q: Can an agent sue Principal for rendering of accounts. ?
Narandas v. Papammal [AIR 1967 SC 333]
Facts:
• Plaintiff – partnership firm carrying on the business of lace and silver thread in Surat.
• Entered into a Contract of Agency with Krishna & Co – for selling their (i.e. Krishna’s) goods in 3 districts of Madras State
on commission basis.
• Murugesa Chettiar (Defendant), one of the partners of Krishna & Co took over the assets and liabilities of the firm upon
dissolution of the latter.
 DUTIES OF AN AGENT

• Defendant executed a Promisory Note in favour of the Plaintiff for a sum of Rs. 7,500/- the amount
ascertained as due and payable by Krishna & Co to the Defendant.
• Plaintiff instituted a suit in the District Munsif’s court, Kancheepuram praying for rendition of
accounts
• SC Held: Although there is no statutory right under which an agent can sue his principal for the
rendition of accounts, but he has an equitable right for that under special circumstances which could
be:
• Where all the accounts were in possession of the principal and the agent does not possess accounts to enable
him to determine his claim against the principal for commission or
• Where his remuneration depends upon the extent of dealings which are known to him but the accounts of
which are available only with the principal
• SC: Transactions in respect of which the plaintiff is entitled to commission are peculiarly within the
knowledge of the Principal alone.
• As the remuneration depended upon the volume of transactions, plaintiff was entitle to sue the
defendant for accounts.
 DUTIES OF AN AGENT

Section 214: TO COMMUNICATE WITH THE PRINCIPAL IN CASE OF DIFFICULTY

Agent’s duty to communicate with principal.—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

• If the agent cannot carryout the instructions of the Principal then he should inform the same to the Principal without delay
 DUTIES OF AN AGENT
NOT TO DEAL ON HIS OWN ACCOUNT
• Not to DEAL ON HIS OWN ACCOUNT
Section 215: Right of principal when agent deals, on his own account, in business of agency without principal’s
consent.—

If an agent deals on his own account in the business of the agency, without first obtaining the consent of his
principal and acquainting him with all material circumstances which have come to his own knowledge on the
subject, the principal may repudiate the transaction, if the case shows, either that any material fact has been
dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to
him.

Section 216: Principal’s right to benefit gained by agent dealing on his own account in business of agency.—

If an agent, without the knowledge of his principal, deals in the business of the agency on his own account
instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may
have resulted to him from the transaction.
 DUTIES OF AN AGENT
• An agent should not deal on his own account in the business of agency without the consent of the Principal.
• Principal’s right to repudiation may arise:
• Any material fact has been dishonestly concealed from him by the agent.
• The dealings indulged by agent is disadvantageous to him.
• Agent to avoid cases of conflict of interest. Eg: agent working for multiple principals. Or PoA holder selling
Principal’s property to himself.
• Conflict of Interest – Agent gains unlawfully – Principal’s right to claim profit (Sec 216)
• Alternatively, Principal can also ratify.
• Agent should not make profit out of his own trust.

Damodar Das v. Sheoram Das (1907 ILR 29 All 730)

• A acting as ‘B’s agent agrees with C for the sale of 50 Kgs of grains for future delivery.
• A delivers his own grain to C against the contract
• Subsequently he receives grains from B for delivery to C under the contract which he sells in the market at a profit
• Held: B could claim profit from A
 DUTIES OF AN AGENT
TO PAY THE SUM RECEIVED FOR THE PRINCIPAL
Section 218: Agent’s duty to pay sums received for principal.—
Subject to such deductions, the agent is bound to pay to his principal all sums received on his account. 
Section 217: Agent’s right of retainer out of sums received on principal’s account.—
An agent may retain, out of any sums received on account of the principal in the business of the agency, all
moneys due to himself in respect of advances made or expenses properly incurred by him in conducting
such business, and also such remuneration as may be payable to him for acting as agent.
• Agent has a right of lien over the Principal’s money in his hands for
• Money due to the agent in respect of the advances made or expenses incurred for the business of agency
• Money payable to him as remuneration for the work in the agency
 DUTIES OF AN AGENT
• TO PROTECT AND PRESERVE THE INTEREST OF THE PRINCIPAL IN CASE OF HIS
DEATH OR INSOLVENCY (SECTION 209)
• Agent’s duty on termination of agency by principal’s death or insanity.— When an agency is
terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on
behalf of the representatives of his late principal, all reasonable steps for the protection and
preservation of the interests entrusted to him.
• Agency stands terminated for reasons of death of Principal or Principal losing the contractual
capacity (Section 201)
• The authority of agent thereafter continue only to the extent required for preservation and protection of
interest entrusted to him and no more till it is revoked by the heirs.
• Representatives of the Principal may ratify any contract entered into on behalf of the estate of the
deceased principal.
 DUTIES OF AN AGENT
• NOT TO USE THE INFORMATION OBTAINED IN THE COURSE OF AGENCY AGAINST
THE PRINCIPAL
• Usage of any information obtained during the course of agency against the principal - Loss to
Principal  Agent bound to compensate.
 DUTIES OF AN AGENT
• NOT TO SET UP ADVERSE TITLE
• An agent must not set up his own title or title of a third person to the goods which he receives from
the Principal as an agent
• If he does so, he will be liable for conversion
• Exception: Agent establishes that the third party has a better title.
 DUTIES OF AN AGENT
• NOT TO DELEGATE AUTHORITY
• Section 190: 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.
• An agent cannot delegate his authority for acts which he has expressly or impliedly undertaken to
perform unless:
• The nature of agency demands it or permits it
• The ordinary custom of trade in a particular business allows it
• Delegatus non protest delegate – delegates authority cannot be further delegated
• One who has a bare power or authority from another to do an act must execute it himself and cannot
delegate his authority to another.
• EXCEPTION: SUB - AGENCY
 DUTIES OF AN AGENT
• John McCann & Co. v. Pow [1975 1 All ER 129]
• A principal appointed a firm of real estate agents to sell his flat.
• Without the Principal’s approval, the real estate agent gave details of the flat to a sub-agent who
found a buyer.
• Then the agents asked their commission for the sale of the flat
• Held: They had delegated the sale to a sub-agent without the Principal’s permission, the Principal
was not liable to pay the commission to the agent, even though the flat was sold at the requested
price.
• The maxim – ‘delegatus non potest delegare’ is not of universal application unless a power is given
on account of personal skill or personal confidence
 DUTIES OF AN AGENT
• NOT TO MAKE SECRET PROFITS FROM AGENCY:
• An agent occupies Fiduciary Position
• He must not except with the knowledge and assent of the Principal make any profit beyond the
agreed commission or remuneration
• Legal Recourse with the Principal:
• Sue the agent for recovery of the amount of Secret Profit
• Refuse to pay the agent the commission or remuneration
• Dismiss the agent without notice
• Repudiate the contract with the other party
RIGHTS OF AN AGENT
 RIGHTS OF AN AGENT
RIGHT OF RETAINER (Section 217)
Agent’s right of retainer out of sums received on principal’s account.—An agent may retain, out of any
sums received on account of the principal in the business of the agency, all moneys due to himself in
respect of advances made or expenses properly incurred by him in conducting such business, and also such
remuneration as may be payable to him for acting as agent.

Section 218 – Duty of the Agent to pay sums received for the Principal
Section 217 – Right of the agent to retain the amount to the extent of portion due to him on account of
• Expenses incurred
• Remuneration due
 RIGHT OF AN AGENT
RIGHT TO RECEIVE REMUNERATION (SECTION 219)
When agent’s remuneration becomes due.—In the absence of any special contract, payment for the
performance of any act is not due to the agent until the completion of such act; but an agent may detain
moneys received by him on account of goods sold, although the whole of the goods consigned to him for
sale may not have been sold, or although the sale may not be actually complete. 
EXCEPTION: AGENT GUILTY OF MISCONDUCT (Section 220)

• Agent’s Right to receive the remuneration arises only upon the completion of the contract, unless
there is a contract to the contrary.
• Right to receive remuneration can also be waived off
 RIGHT OF AN AGENT
• Right of an agent to receive remuneration depends upon the terms of the agreement. If terms silent,
then upon completion of an act.
• i.e. he must have carried out all that he had agreed to do under the agency and the conditions
imposed by the contract must have been fulfilled.
• It has to be categorically incorporated. If the contract is silent, then the agency is gratuitous in nature.
• Time and Mode of Payment is also subjected to the terms of agreement.
• Exception: Right to remuneration and conditions under which it is payable may be determined
from the custom or usage of the particular business in which the agent is employed.
• Right of remuneration exists irrespective of the outcome of the transaction.
• Performance of Contract is a matter between the Promisor and the Promisee.
• Right of Remuneration fails when the agent misconducts.
 RIGHTS OF AN AGENT
Section 221: RIGHT OF LIEN
Agent’s lien on principal’s property.—In the absence of any contract to the contrary, an agent is entitled
to retain goods, papers, and other property, whether movable or immovable of the principal received by
him, until the amount due to himself for commission, disbursements and services in respect of the same
has been paid or accounted for to him.

• This is a particular lien.

• Confined to:
• Commission
• Disbursement and
• Services
• However, - Special Contract, an agent may have a general lien extending to all claims arising out of agency.
• In order to have lien, the agent must have some possession, custody or control or disposing power in or over
the subject matter in which the lien is claimed.
 RIGHTS OF AN AGENT

Pestonji Bhivaji v. Ravji Jayerchand

Essential Conditions for the exercise of lien:

• Agent should have lawful possession of goods
• There should be no arrangement inconsistent with the exercise of his lien as to retention of such
property.
• The property should belong to the Principal to the knowledge of the agent
• It should have been received by the agent in his capacity as agent during the course of his ordinary
duties as agent
• The agent should be holding the property for and on behalf of his principal and not for and on
account of any known third party.
• Right of Lien doesn’t include Right of Inherent Sale
 RIGHTS OF AN AGENT
SECTION 222: RIGHT OF INDEMNIFICATION
Agent to be indemnified against consequences of lawful acts.—The employer of an agent is bound to
indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority
conferred upon him.
SECTION 223: RIGHT OF INDEMNIFICATION FOR ACTS DONE IN GOOD FAITH
Agent to be indemnified against consequences of acts done in good faith.—Where one person employs another
to do an act, and the agent does the act in good faith, the employer is liable to indemnify the agent against the
consequences of that act, though it may cause an injury to the rights of third persons.
SECTION 224: EXTENT OF THE RIGHT OF INDEMNIFICATION
Non-liability of employer of agent to do a criminal act.—Where one person employs another to do an act
which is criminal, the employer is not liable to the agent, either upon an express or an implied promise to
indemnify him against the consequences of that Act.
 RIGHT OF AN AGENT
• Primary Duty of the Principal to indemnify the agent against the consequences of his lawful acts
• Agent has a right not only to recover expenses incurred in the business of the agency but also for
any loss or liability incurred for the exercise of the authority.
• Agent can exercise this right by
• Filing a suit for indemnification or
• Exercising a right of lien.
• Acts done by the agent should be lawful and within the scope of his authority.
• Section 223: Agent is protected against the acts done in good faith at the behest of the principal,
even though it causes injury to third person.
• Section 225: Non-liability for Criminal Acts – Exception to the Right of Indemnification.
 RIGHTS OF AN AGENT
• RIGHT OF COMPENSATION (SECTION 225): Compensation to agent for injury
caused by principal’s neglect.—The principal must make compensation to his agent in
respect of injury caused to such agent by the principal’s neglect or want of skill.

• The agent may be disentitled to relief if the injury was due to his own contributory negligence.
 RIGHTS OF AN AGENT
• RIGHT OF STOPPAGE IN TRANSIT
• This right is available to the agent in the following two cases
• where he has brought the goods for his principal by incurring personal liability – Agent has a right of
stoppage in transit against the principal for the money which the principal is liable to pay.
• Where he is personally liable to the Principal for the price of the goods sold, he stands in the position of
an unpaid seller towards the buyer can stop the goods in transit on the insolvency of the buyer.
DUTIES OF THE PRINCIPAL
 DUTIES OF THE PRINCIPAL
1. To Pay the Agent the Commission or other Remuneration Agreed
2. To Indemnify The Agent Against The Consequences Of All Lawful Acts
3. To Indemnify The Agent Against The Consequences Of Acts Done In Good Faith
4. To Indemnify Agent For Injury Caused By The Principal’s Neglect
RIGHTS OF THE PRINCIPAL
To enforce all the duties of the agent
 RIGHTS OF THE PRINCIPAL
1. To recover Damages
2. To obtain an account of Secret Profit and Recover them
3. To resist Agent’s claim for Indemnity against the Liability incurred
DELEGATION OF
AUTHORTY
 DELEGATION OF AGENCY
Delegatus non Protest Delegare
• General Rule: Agent is not entitled to delegate his authority to another person without the consent of the
Principal.
• Section 190 prohibits Sub-Delegation
• When a Principal appoints a particular agent to act on his behalf, he relies upon the agent’s Skill, Competence and
Integrity.
• Exception – Sub- Agency
• Section 190: An agent may appoint a Sub-agent and delegate the work to him if :
• There is a custom of trade to that effect
• The nature of work is such that sub-agency is necessary
• Exception to Sub-Agency recognised under English Law
• Where principal is aware of the intention of the agent to appoint a sub-agent but does not object to it
• Where unforeseen emergencies arise rendering appointment of a sub-agent
• Where the act to be done is purely ministerial not involving the confidence or use of discretion
• Where the power of the agent to delegate can be inferred from the conduct of both the Principal and the agent
• Where the Principal permits the appointment of Sub-Agent
 SUB-AGENCY
Sub-agent is the agent of the original agent.
Sub-Agent : Agent = Agent : Principal
Section 191: A ‘Sub-Agent’ is a person employed by and acting under the control of the original agent in the business of
agency

• Principle: Whenever sub-agents are employed in the business of agency, they are clothed with precisely the
same rights and incur precisely the same obligations and are bound to the same duties in regards to their
immediate employers as if they were the sole and real principals.
• Appointment of Sub-Agent to be approved by the Principal
• Sub-agent is controlled by Agent – his remuneration flows from the agent.
• Not responsible to render accounts to the Principal
• Neither can the Principal sue the sub-agent for negligence.
 RELATIONSHIP BETWEEN
PRINCIPAL AND SUB-AGENT
• The legal relationship is depended upon the question : Whether the appointment of sub-agent is
proper or improper.
• If Proper, then the following rules will apply.

Section 192: Representation of principal by sub-agent properly appointed—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.
 RELATIONSHIP BETWEEN
PRINCIPAL AND SUB-
AGENT
• When a sub-agent is properly appointed:
• The Principal is liable to the third parties for the acts of the sub-agents
• The Agent is liable to the Principal for the acts of the sub-agent; and
• Except in the cases of Fraud or Wilful wrong, the sub-agent is not liable to the Principal but he is
liable to the agent.

• De Bussche v. Alt [(1878) 8 Ch D 286]

• General Rule: No privity of Contract between Principal and Sub-agent

• However, where Principal is a party is a party to the appointment of the sub-agent, or has subsequently adopted
his acts, indicating that it was the intention of the parties that privity of contract should be established between
them, or where the agent has clear authority to create such privity, this rule will not apply and the sub-agent
shall have both the rights and the liabilities of an agent vis-à-vis the principal.
 AGENT’S RESPONSIBILITY
FOR THE SUB-AGENT
• The agent is responsible for the acts of the sub-agent including consequences of fraud, negligence and
other breaches of duty.

• Anil & Co. v. Air India [AIR 1986 Del 312-315]

• Contract of Carriage for carriage of goods from Delhi to New York entered into between plaintiff and
respondant.
• Air India availed the services of Trans World Airlines for carriage of consignment from Paris to New
York.
• Package damaged on route.
• Held: Liability of Air India to account for the consignment to the plaintiff
• Air India liable to compensate as the consignment was negligently and without authority delivered to
Trans World Airlines.
 RELATIONSHIP BETWEEN
PRINCIPAL AND SUB-AGENT
• Where Sub-Agency is not authorised:
Section 193: Agent’s responsibility for sub-agent appointed without authority.—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.

When sub-agent is nor properly appointed i.e. no authority to delegate

• The agent stands as a Principal towards such sub-agent
• The agent is responsible to his principal for the acts of the sub-agent
• The sub-agent does not represent the principal
• The Principal is not liable to third parties for the acts of the sub-agent
• The sub-agent is only responsible to the agent
• The Agent will be liable to third parties for the acts of the sub-agent
 CO-AGENT OR
SUBSTITUTED AGENT
• A Co-agent or a substituted agent is a person who is named by the agent on an express or implied
authority from the Principal to act for the Principal
• He is not an sub-agent, but an agent of the Principal.

Section 194: Relation between principal and person duly appointed by agent to act in business of agency.—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.

• An agent may appoint a substituted agent when:

• He holds an express or implied authority to do so
• He has named such person to act for the Principal for such part of the business of agency as is entrusted to him
• Such a person will be an agent of the Principal for such part of the business of agency as is entrusted to him
 SUBSTITUTED AGENT

• Agent nominating another person to act for the Principal in the business of agency with the
knowledge and consent of the Principal.
• Nomination not equal to Delegation
• Direct relationship between Principal & Nominated / Substituted Agent
• Substitute becomes the agent of the Principal
• Union of India v. Amar Singh [(AIR 1961) SC 233]
• The maxim delegatus non protest delegare merely imports that the agent cannot, without authority from
the Principal devolve upon another obligation undertaken by himself.
• In this case, it was reiterated that the principle embodies in Deuche Alt case will be applicable to sub-
stituted agent as well.
• Held: The exigencies of business do from time to time render necessary the carrying out of the instructions of a
principal by a person other than the agent originally instructed for the purpose and where that is the case, the
reason of the thing requires that the rule should be relaxed so that in the interest and for the protection of
principal, a direct privity of contract between him and the substitute.
 SUBSTITUTED AGENT
• Effect of Appointment of Substituted Agent:
• If appointed with Principal’s consent, privity of contract arises between the principal and the substitute
and the latter becomes responsible to the former for the due discharge of his duties as if he was
appointed by the principal.
• The Principal can sue such agent for account or damages and such agent can the principal for
remuneration.
• Effect of Appointment of such Agency on Original Agency:
• When privity is established between the principal and the substituted agent, the original agent is not
concerned with the character or efficiency of the substituted agent or his negligence.
• Agency is terminated once performance of transaction passes to another.
 SUBSTITUTED AGENT
Section 195: Agent’s duty in naming such person.—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.
• Reasonable Care exercised by agent – no responsibility for any consequent loss to the Principal.
• Ramchandra Lalbhai v. Chinubhai Lalbhai [AIR 1944 Bom 76]
• Power of the Agent to revoke the authority?
• Held: Although the agent is not responsible for the negligence of a substituted agent, he may revoke
the power of the substituted agent in the interest of his principal
• The power to revoke is implied in the original agent or else, his hands will be tied against his
negligence in the selection
 SUBSTITUTED AGENT V. SUB-
AGENT
SUB – AGENT SUBSTITUTED AGENT
1. Works under the control of the agent 1. Works under the instructions of the Principal
2. No privity of contract between sub-agent and principal.
Sub-agent not directly answerable to the Principal
3. Principal is responsible to the third parties for the acts of
the sub-agent
POSITION OF PRINCIPAL AND
AGENT VIS-À-VIS THIRD
PARTIES
 WHEN THE PRINCIPAL’S EXISTANCE
& NAME IS DISCLOSED BY THE
AGENT TO THE THIRD PARTIES

• Acts of the Agent are acts of the Principal

• Section 226: Enforcement and consequences of agent’s contracts.—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 the acts done by the principal in person.
• Acts of an agent within the scope of the authority binds the Principal
• The authority of the agent to bind may be express or implied (Section 186 & 187)
• Principal will have the right to enforce the contract
• When agent exceeds his Authority
• Section 227: Principal how far bound, when agent exceeds authority.—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.
 WHEN THE PRINCIPAL’S EXISTANCE & NAME IS
DISCLOSED BY THE AGENT TO THE THIRD
PARTIES
• Section 228: Principal not bound when excess of agent’s authority is not separable.—Where an
agent does more than he is authroized 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.

• Section 229: Notice given to agent is notice given to Principal – Rules

• Agent must be under a duty to communicate
• Information – Material
• It must have been obtained in the course of business for which the agent has been engaged
• Section 237: Principal inducing belief that agent’s unauthorised acts were authorized – Agency
by Estoppel

• Section 238: Misrepresentation or Fraud by Agent:

• If within scope of authority : Principal liable as if he himself committed the offence
• If outside the scope of the authority: Principal not liable
 WHERE PRINCIPAL’S EXISTANCE IS
DISCLOSED ; NOT NAME
• Principal shall be liable for the contract of the agent
• However, if the agent does not disclose the identity of the Principal, then he will be personally liable
for any loss or damage to the third party.
 UNDISCLOSED PRINCIPAL
• Many at times, the agent conceals both the existence and name of the Principal
• Third party is under an impression that the agent is contracting as an independent entity.
• Section 231: Doctrine of Undisclosed Principal:
• Right of parties to a contract made by agent not disclosed.—If an agent makes a contract with
a person who neither knows, nor has reason to suspect, that he is an agent, his principal may
require the performance of the contract; but the other contracting party has, as against the
principal, the same rights as he would have had as against the agent if the agent had been
principal.
• If the principal discloses himself before the contract is completed, the other contracting party
may refuse to fulfil the contract, if he can show that, if he had known who was the principal in
the contract, or if he had known that the agent was not a principal, he would not have entered
into the contract.
 UNDISCLOSED PRINCIPAL

• Position of Principal:
• When an undisclosed principal is subsequently discovered or he himself intervenes, the other
contracting party may sue either the Principal or the agent or both
• once, disclosed and third party has no objection to his identity and decide to continue with the
contract, then he can demand performance of the contract from the 3rd party.
• Position of the Agent:
• As between the Principal & Agent: same obligation
• As between 3rd Party and Agent: Agent personally liable unless identity of the Principal is disclosed
and the 3rd Party has no objection.
• Position of the third party:
• Principal disclosed & no objection: 3rd party can sue either the Principal or agent
• Principal undisclosed : 3rd Party can sue the agent.
*Disclosure has to be made by the Principal himself
 LIABILITY OF
PRETENDED AGENT
 LIABILITY OF PRETENDED
AGENT
Section 235: Liability of pretended agent.—A person untruly representing himself to be the authorized agent of another,
and thereby inducing a third person to deal with him as such agent, is liable, if his alleged employer does not ratify his
acts, to make compensation to the other in respect of any loss or damage which he has incurred by so dealing.

Collen v. Wright [1857 7 E&B 301]

• Principle: An agent who impliedly warrants that he has authority, is liable to be sued on his warranty.
• Conditions for Application of this provision:
• The agent has made untrue representation that he is an authorized agent of another
• Representation relates to a fact
• 3rd party is induced to deal with the agent on the faith of such representation
• Principal has repudiated or refused to ratify the transaction
• 3rd Party has suffered a consequent loss.
• Principal will be liable if he has derived the benefits under the transaction entered into by the pretended agent.
 LIABILITY OF PRETENDED
AGENT
Section 236: Person falsely contracting as agent, not entitled to performance.—A person with whom a contract has
been entered into in the character of agent, is not entitled to require the performance of it, if he was in reality acting,
not as agent, but on his own account.

• Agent cannot sue for performance

• Agent can be sued
• This section applies to cases where the agent is authorized, but the same cannot be disclosed to 3 rd parties.
• Doesn’t render the contract void, only forfeits the Agent’s Right to demand performance. Renders the contract Voidable
PERSONAL LIABILITY
OF AN AGENT
 PERSONAL LIABILITY OF AN
AGENT
General Rule:
• Only Principal can enforce and be held liable on a contract entered into by an agent except when
there is a contract to the contrary … Section 230.
• Agent may be personally liable in certain cases:
• When the contract expressly provides
• When the agent acts for a foreign national (Section 230 (1)
• When the agent acts for undisclosed principal (section 230 (2)
• When the agent acts for incompetent person (Section 230 (3)
 PERSONAL LIABILITY OF AN
AGENT
General Rule: In absence of contract to the contrary,
• An agent Cannot personally enforce the contracts entered into by him on behalf of the Principal
• An agent is not personally liable on such contracts
Agent only responsible for negotiating the contract between Principal and 3 rd Party.
Exception:
• Where the contract is entered into by the agent for sale or purchase of goods for a merchant resident
abroad.
• Eg: A Company incorporated abroad, has a branch office in India and operating through Managing Agents.
• Where the agent does not disclose the name of his Principal
• Where the Principal though disclosed, cannot be sued.
• Other Exceptions:
• Personal Liability of the Agent by Custom
• Agent having interest in Contract
 PERSONAL LIABILITY OF AN
AGENT
• Position of 3rd Party: Section 233: Right of person dealing with agent personally liable.—In cases
where the agent is personally liable, a person dealing with him may hold either him or his
principal, or both of them liable.

• Liability of the Principal and Agent is ‘Alternative’ not Joint.

• 3rd party cannot get a judgement against both of them jointly
• This view accepted by Law Commission of India in its 13th Report
 TERMINATION OF
AGENCY
Section 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 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.
 TERMINATION BY ACT OF
THE PARTIES
MUTUAL AGREEMENT
REVOCATION BY PRINCIPAL
• Section 203: When principal may revoke agent’s authority—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.
• Merely taking preliminary steps towards the establishing a contractual relationships
• Section 204: Authority Partly Exercised – Doctrine of Severability applicable
• Section 205: Compensation for revocation by Principal or Renunciation by Agent
• Duty to Compensate when revocation is without sufficient cause.
• Section 206: Notice of Revocation or Renunciation:
• Reasonable Notice to be given by the Principal or Duty to Pay damages for consequent loss.
• Section 207: Revocation can be Express or Implied
 TERMINATION BY ACT OF
THE PARTIES
• REVOCATION BY AGENT:
• Section 201: Agency can be terminated by an agent by giving a reasonable notice
• Section 204: Authority Partly Exercised – Doctrine of Severability applicable
• Section 205: Compensation for revocation by Principal or Renunciation by Agent
• Duty to Compensate when revocation is without sufficient cause.
• Section 206: Notice of Revocation or Renunciation:
• Reasonable Notice to be given by the Principal or Duty to Pay damages for consequent loss.
• Section 207: Revocation can be Express or Implied
 TERMINATION BY OPERATION
OF LAW
• PERFORMANCE OF CONTRACT (SECTION 201)
• EXPIRY OF TIME (SECTION 201)
• DEATH / INSANITY (SECTION 201 + 209)
• Agent must take all reasonable steps on behalf of the representatives of the late principal for the protection
and preservation of the interests entrusted to him
• DESTRUCTION OF SUBJECT MATTER
• PRICIPAL /AGENT BECOMING ALIEN ENEMY
• DISSOLUTION OF COMPANY
• TERMINATION OF SUB-AGENT’S AUTHORITY (SECTION 210): Termination of sub-
agent’s authority.—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. 
 TERMINATION OF AGENCY
Section 208: When termination of agent’s authority takes effect as to agent, and as to third persons.—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.

• Prescribes the time frame from which Agency terminates

• Agency terminates when the respective parties are reasonably put in knowledge of the same.
THE END