Essentials of agency

- Thus, an agent is a person employed to do an act for another,

represent another while dealing with third party Sec 182
- The person for whom agent is representing is called Principal
- Function of the agent is to bring the principal in to contractual
relation with third person – thus he is only a connecting link
- Representative capacity and derivative authority are the
distinguishing feature of agency
- Every servant can’t be treated as agent for a moment e.g. domestic
help
Essentials of relationship of agency
1. Agreement between the principal and agent – any person can be an
agent even a minor and unsound mind person provided principal is
liable for the acts of the agent Sec. 184
Essentials of agency
- No need of consideration to create agency Sec 185, the fact that the
principal has agreed to be represented by the agent is sufficient detriment
to the principal in support of contract of agency
2. Intention of the agent to act on behalf of the principal
- Whether a person intend to act on behalf of the other is a question of fact –
if he intend to act for another agency may arise though nothing is provided
in a contract between them
3. whatever a person can do personally, he can do through agent – this rule
has the exception – performance involves personal character, annexed to
public office
4. He who does an act through another does it by himself ( qui facit per,
altum facit per se)- acts of agent subject to certain conditions acts of the
principal
- Sec 226 provides the acts done and contracts entered will have the same
legal consequences as if contracts are entered by himself
- E.g. if third party proposes to set off account with the Agent?
- Sec. 183 person who is competent to contract can appoint an agent
- Who is qualified to be an agent – irrespective of their contractual
capacity – but it is desirable to appoint a competent person
Distinctions
- Bring the principal in to legal relationship with the third party
- Bound to follow instruction but no direct control and supervision
- Agent can work for several principals at a time
- Principal is liable for the wrongs committed with in the scope of
authority
Independent contractor and Agent
Kinds of agents

• Kinds of Agent
1. Special Agent –
- Appointed to perform a particular act E.g. sale of house, hold auction
sale, negotiation to buy etc.,
- Represent the principal in a particular transaction, with limited
authority restricted to assignment
- It comes to end as soon as act is performed
- Principal is not bound by the transaction other than assigned
- Third party is bound to ascertain the authority of agent before he deal
with him
Kinds of agents

2. General Agent –
- Authorised to perform all acts connected to a particular business,
trade or employment
- E.g., General Manager of the firm has authority to bind the principal
by doing all necessary acts for carrying out the business of the firm
- It is a continuous in nature until the party puts an end to it
- If the principal secretly instructs and curtails the authority of agent
and agent exceeds the authority principal is bound by it, however the
third party has the knowledge then principal is not bound by it
3. Universal Agent – Agent has unlimited authority to act on behalf of
principal
- Can bind the principal for any act, provided they are not illegal and
against the law of the land
Kinds of agent

4. Commercial – (Mercantile) agents - As per Sale of Goods Act 1930

in the ordinary course of business agent has the authority to sell,
consign, buy and raise the fund by pledging the goods
(i) Factor
- Is an agent assigned with possession of goods for sale with an
ostensible authority to do all necessary things to sell the goods
- He fixes the terms of contract and sells them in his own name, either
by cash or credit
- Has the general right of lien over the goods of principal for his charges
- If the factor in possession goods or document of title sells them in the
usual course of business it is binding on the principal
Kinds of agent

- Fox vs. King – P delivered his car for sale to A with the standing
instruction not to sell it for less than £500/- but A sold the car for
£340/- to T who purchased without doubt as to A’s authority. A
misappropriated the received price. P sued T for the recovery of the
car. Held A had taken the car with consent of P, T purchased in good
faith, hence T gets good title
(ii) Auctioneer – agent to sell the goods in public auction for the reward
of commission
- Primarily he is the agent of seller but after sale he becomes the agent
of buyer also,
- Unlike Factor, auctioneer has only particular lien over the goods for
his charges
Kinds of agent

- He can sue for the price in his own name

- Principal is held liable for all wrongs committed by the auctioneer
provided he acts within the given authority
- E.g., P instructed his Auctioneer to sell his pony by auction subject to
reserve price of £25 but at the time of sale inadvertently said there is
no reserve price and Pony was knocked down for £15 held sale was
binding on the principal as agent committed wrong within the scope
of authority, purchaser was not aware that there was reserve price.
- If the auctioneer sates that there is a reserve price but by mistake
knocks down the property for lesser price in such case sale is not
binding on the owner because buyer was aware that there was
reserve price
Kinds of agent

(iii) Broker is an agent engaged to sell or buy the goods on behalf of

another, he brings together the principal and third party under a
contract
- He is not given the possession of goods – can’t sue in his own name
and no right of lien
- The usual mode of functioning of broker is write down the contractual
terms in a book and send extract of it to buyer is called bought note
and to the seller sold note – if these terms are agreeable then it
becomes the binding contract otherwise it is not
(iv) Commission Agent – indefinite class of agents – employed to sell or
buy goods for other persons and collects commission
(v) Del credere agent – in consideration of extra commission guarantees
the principal that third party performs his obligation thus he acts as
agent and guarantor
Kinds of agent – Creation of Agency

5. Banker
6. Non-mercantile agents – Attorney, Solicitor, Insurance agents, Clearing
and Forwarding agents, wife etc.
Creation of Agency
7. Express Agency Sec 186 – Created by spoken or written expression
8. Implied Agency – Sec 187 – inferred from the conduct, situation and
relationship of parties
- Things written or spoken in the ordinary course of business – not as
offer or acceptance
- E.g., A lives in Delhi and P is put up in Agra, both are brothers, A leases
P’s land located in Delhi to T and remits the realised rent to P there is
Agency relation between the two though there is no formal contract
Creation of Agency

Sec. 237 deals with agency by estoppel –

- When an agent without authority acts or incurs obligation towards
the third party the principal is bound by such obligations, if he(A) has
by his words or conduct induced the third party to believe that such
acts or obligations were within the scope of agents authority
- E.g., P consigns some good to A for sale, and gives him instruction not
to sell them below the reserved price, T being ignorant of such
instruction enters in to contract with A to buy them at lower than the
reserved price – P is bound by the contract
- E.g., The services of A, who was the agent of P was terminated, but
no notice termination was given, subsequently A purchases goods
from T in the name of P – held P was liable for the price
Creation of Agency

• Smith v Moss 1940 – Mother allowed his son to drive a car for her and
mother met the running and operation expenses of car. On a
particular day son caused an accident injuring his wife – wife was
allowed to sue and claim compensation from her mother-in-law –
inference of implied agency
- Implied agency arises where, principal conducts in such manner with
agent or third party that principal conceded to the appointment of
agent
(i) Agency by Estoppel – where a person by his conduct or words leads
willfully another to believe that certain state of affair exists and induces
him to act on that belief, so as to alter his previous position –
subsequently he is precluded from denying the fact of state of affair
- A tells T within the hearing distance of P that he is the agent of P,
later T supplies some goods to A, for the goods supplied P is liable
Creation of Agency

(ii) Agency by holding out

- It is a branch of agency by estoppel, in this case prior positive or
affirmative action on the part of principal is required to establish
agency subsequently
- E.g., P has the habit of sending his servant to purchase the goods for
him on credit basis, once P sent his servant to buy the goods for cash,
but servant misappropriated cash and purchased to goods from T on
credit basis in the name of P – held P was liable for the price
(iii) Agency by necessity –
- In certain urgent circumstances the law confers an authority on a
person to act as agent for the benefit of other – there being no
opportunity of communicating with that other is called agency by
necessary
Creation of Agency

• It generally arises in the following circumstances

- Agent exceeds his authority in an emergency
- Was not able to communicate with the principal
- Had taken all necessary reasonable steps to protect the interest of the
principal
- Had acted bona fide in such cases the principal is liable for the acts of
the agent
- E.g., P consigns some vegetables to A at Delhi with the direction to
send them to T at Kolkatta immediately, but by the time they reached
Agra A noticed that they were decaying, and they will not be bearing
the remaining journey – decided to sell them in the capacity of
agency by necessary
Creation of Agency

- E.g., A horse was sent by train, by the time train reaches destination no body were there receive
the horse, railway company fed the horse and looked after it in the capacity of agency by
necessity – entitle to recover the expenses
- Captain of the ship if it is necessary for the further prosecution of the voyage can borrow on
owners credit, by hypothecating the ship, cargo and freight – for which owner becomes liable
- Husband and Wife; Husband is bound to supply necessaries of life – if it is not supplied she is
entitled to pledge the credit of her husband for necessaries
- Necessaries is not restricted to bare necessaries but depends upon the society in which they are
put-up
- However, husband can escape from his liability as principal in the following circumstances;
- When expressly forbids his wife from pledging his credit
- Wife is provided with sufficient fund for the purchase of article of necessaries
- Articles purchased by pledging his credit are not necessaries
- Husband informs the creditors not to give credit to his wife
Creation of Agency

• Where wife lives apart

- Where husband deserts his wife for no fault of her – wife has the
authority to credit his pledge for the necessaries – this right is available
only when her husband doesn’t provide for the necessaries
- On the other hand, wife is living separately on her own without any
justification she is not an agent of her husband, and she can’t pledge his
credit for necessaries – even husband is not liable to maintain her under
such circumstances
(3) Agency by ratification –
- When one person acts on behalf of other without his consent, authority
and knowledge the other party may either refuse or ratify it
- E.g., A insures P’s property without his consent, later if P ratifies then the
position of the parties will be same as if A has obtained the consent of P
for insurance
Creation of Agency

- Similarly, when agent exceeds the authority bestowed upon him by the
principal, the principal may ratify the unauthorized acts
- E.g., A insures the goods of P without his consent and authority, but he
receives its claim without demur – held this was the ratification of agency
- Sec 197 ratification may be express or implied
• Effects of ratification
- Ratification tantamount to prior authority ie. Not from the date of
ratification but from the date of act done
- E.g., A was managing director of the Co., agreed to purchase some raw
material for Co., from T. but it was not with the consent of the Co.,
however, later it was approved by the Co., but subsequently T withdrew
his promise to supply – held T was bound by his promise
Creation of agency
Requisites of valid ratification
1. Agent must purport to act as agent for principal who is in
contemplation or identifiable at the time of contract
- E.g., A was authorized by P to buy some quantity of wheat powder
from T, but A exceeding his given authority purchased wheat powder
above the market price in his own name, later it was ratified by P,
however subsequently P refused to take delivery of wheat powder –
held P was not bound by his ratification because A did not purport to
act on behalf of the P
2. Principal must be in existence at the time of contract
- Company can’t ratify preincorporation contract entered by promoter
on behalf of yet to be incorporated company
3. Principal must have had the capacity to contract both at the time of
contract and at the time of ratification
Creation of agency
4. Ratification must be with full knowledge of facts – if information on which he
acted is defective, ratification is not binding on him
- e.g., P asked A to buy some goods at market price, but A purchased at higher
price than market price, however, it was ratified by P but later P came to know
that goods purchased were belonging to A himself – held ratification was not
binding on P
- However, if principal decided to confirm his ratification based on defective fact,
he is permitted to do it
- E.g., A enters unauthorized contract to purchase property from T on behalf of
P, though it was unauthorized P ratifies and later P wrote a letter to T saying
whatever A does he (p) is going to accept it
5. Ratification must be done within the reasonable time of the act purported to
be ratified
6. Ratified act must not be illegal, void or ultra vires
Creation of agency

7. Whole transaction can be ratified in toto – or its rejection in toto

8. Ratification must be communicated
9. Ratification can be of the acts which principal had the power to do
- If Co., MDs act is ultra vires then the Co., can’t ratify it
10. Ratification must not put the third party to damage
- T is the lease holder of land belongs to P for 3 years, A being agent
of P serves the notice to T terminating his lease before 3 years. P can’t
ratify it because it causes damage to T
11. Ratification relates back to the date of act of agent
Creation of Agency

Limitations on doctrine of ratification

- Principal not in existence or contemplation
- Principal is incapable of contracting
- Principal does’t have the full knowledge of fact
- Where act to be ratified is void, illegal, or unlawful
- Where whole of the transaction is not ratified
- Where ratification is not communicated to the person who is bound by
ratified transaction
- Ratification of such acts which principal doesn't’t have power
- Ratification puts the third party to damage
4. Agency by operation of law – Company promoters are the agents of
Company, partners are the agents of firm
Duties of Agent
Depending upon nature of agency agent owe several duties
1. Carry out the work undertaken as per principal’s direction
- In the absence of direction as per prevailing customs – acts otherwise
liable to make good the loss
- If profit accrues liable for the account
- E.g. A while acting as agent of P, sells the goods on credit to T without
express instruction and there was no practice/custom – T becomes
insolvent – held A is liable
- If disobedience is material principal may terminate agency
- E.g. P instructs A to insure his properties, A neglects, P suffers loss A is
held liable
Duties of Agent

- Agent may disobey the instruction of Principal when his interest is involved
- E.g., Agent has right of lien on the goods belongs to P, to the extent of
money due from P – if P directs to return those goods or sell them on credit
– A is not bound by such direction
2. Carry out the work with reasonable care skill and diligence generally
possessed by the people in the similar business
- e.g., goods sold on credit basis without enquiring about financial status –
who was already insolvent – agent is held liable
3. Render proper accounts to the principal on demand
4. Communicate with principal in case of difficulty and take instruction
5. Not to deal on his own account – without the knowledge and instruction
of Principal
Duties of Agent

- e.g., P instructs A to sell his property – A buys the same for him in the
name of T, P can repudiate the sale
- P may claim the benefit from A which is resulted from such
transaction
- E.g. P instructs A to buy a certain house for him, A tells P that in can’t
be purchased later A himself buys it for himself – P can compel A to
sell it for the same price in favour of P
Rights of Agent against principal
1. Right of Retainer – right to retain money due to him in the course of
agency business – agent might have advanced money to the
supplier, incurred expenses, remuneration due to him etc.
2. Right to remuneration – either agreed or in the absence of
agreement reasonable amount of remuneration
- But in the absence of special contract remuneration never becomes
due, until the completion of act assigned
- E.g., A was appointed as agent of P to sell p’s property, A introduced a
third party (T) to P and T agreed to buy the property, paid advance
money but later T was unable to pay rest of the money and contract
fails – A can’t claim his remuneration
Rights of agent

- however, if the transaction is complete because of direct or indirect

service of agent he is entitled to his remuneration
- Green v. Barlett – A was appointed as agent of P sell his house A
organised an auction sale but he could not find the buyer, but one of
the participants collected the contact address and contacted P
directly and purchased the property directly – held A was entitled to
his remuneration because it happened due to indirect service of A
- Further if the agent is guilty of misconduct in the course of agency
business he is not entitled to remuneration to the extent of that part
of transaction
Rights of Agent

- Andrews v Ramsay & Co., P engaged A as his auctioneer to sell his

property on the terms of commission £50, A successfully sold the
property and received commission of £20 from the purchaser, P on
the discovery of the fact P sued for recovery of £20 and £50 – held P
was entitled to recover because receiving commission from the
purchaser without the knowledge of P is an instance of misconduct
3. Right of particular Lien – in the absence of contract to contrary
Agent can claim particular lien on the goods, papers and other
properties of P for his dues
- But by special contract agent can claim general lien also for all his
claims
Rights of Agent

4. Right of indemnification – Agent has a right to be indemnified for the

loss as a consequence of lawful acts done within the scope of
conferred authority
- E.g., A at Singapore under the instruction of P at B’lore, contracts with T
to deliver certain quantity of goods, but P never delivered goods, then
T sued A for the breach of contract, A defended but eventually had to
pay damages with cost – principal was held liable to pay the same to A
- However, if the A had the knowledge that the task assigned is illegal or
criminal in nature not entitled to be indemnified
- But Agent does and completes the task in good faith, though it results
in injury to the rights of the third party, he is entitled to be indemnified
Rights of Agent

- e.g., A at the request of the P sells certain goods which were in

possession of P, but P had no right to sell them, but A without
knowledge of this fact sells them and hands over the sale
consideration to P, now T the true owner sues and recover the price
from A – held P is liable to indemnify the loss
5. Right of Compensation - Agent has a right to be compensated for
the injuries which he sustains due to negligent act done on the part
of principal
- e.g., A was engaged in laying bricks while constructing wall of a house,
the scaffolding was prepared by the principal was defective in nature
as a result of which A sustains injury – held principal was liable
Delegation of Authority

6. Right of stoppage of goods in transit is available – when an agent

purchases good at his expense for the principal, then goods are in
transit can be stopped against the principal until he gets the
payment
- It is like right stoppage of goods in transit in case of unpaid seller
Delegation of authority
- Agent is not entitled to delegate his authority to others without the
consent of the principal Sec 190
- Delegatus non potest delegare – person to whom authority is given
can’t delegate his authority to others – the rationale behind it is
principal relies upon the agent’s skill, integrity and competence
Delegation of Authority

• Exception to Sec 190

Sub-agent – is a person employed and under the control of the original agent in the
business of agency Sec 191
- Relation between the sub-agent and the principal is as that of the principal and the
original agent provided appointment of sub-agent is proper
- Sub-agency is valid (proper) when –
- there is trade custom to that effect and
- nature of the work assigned to agent is of such nature, sub-agency is necessary
- E.g. A banker is authorized to let out house property of P and collect rent, bank being
Agent may entrust this job to an estate agent
- where principal understands the intention of agent to appoint sub-agent but doesn’t
object it
- Where unforeseen event occurs, and it necessitates the situation to appoint sub-agent
Delegation of Authority

- Where, the act to be done by sub-agent is purely ministerial, not

confidential or no discretion is given to the sub-agent
- Where the power of the agent can be inferred from the conduct of
both principal and agent
- Where principal expressly permits the appointment of sub-agent
Relationship between principal and sub-agent
- Where sub-agent is properly appointed – principal is bound by the
acts of sub-agent sec 192
- Agent is also responsible to the principal for the acts done by sub-
agent
- e.g., A agreed to carry 70 bales of cotton from B’lore to M’lore but A
requests sub-agent, while carrying them they were damaged – held A
is responsible for the same
Delegation of Authority – termination of Agency by act of parties

- Sub-agent is responsible to the agent, but not to the principal unless

there is fraud or willful wrong on the part of sub-agent
- Where sub-agent is not properly appointed – agent is responsible for
the acts of sub agent to the principal and to the third parties

Termination agency
- By the act of parties
1. By mutual agreement between the principal and agent
2. Revocation by the principal – revoking the authority of the principal
3. Revocation by agent – by giving reasonable notice
Termination of Agency by operation of law

- Termination of agency by the operation of law

1. By performance of contract
2. Expiry of time – when agency is created for specific period
3. Death and insanity
4. Insolvency
5. Destruction of subject matter – when agency is created to deal with
some subject matter, and it is destroyed
6. Principal becoming an alien enemy
7. Dissolution of company – when a company as a principal or agent
dissolves
8. Termination of agent’s authority puts an end to the authority of
subagency