A Presentation on
Contract of Agency
Mehul Rasadiya (42)
Javed Pathan (38)
Ms. Anupama Goswammi
K.K. Parekh Institute of Management Studies
Definition of Agent & Principal
An agent is a person employed to do any act for
another or to represent another in dealings with third
The person for whom such acts are done or who is
represented is called the principal.
The contract which creates relationship of principal &
agent is called an agency.
Essentials and legal rules
There should be an agreement between the principal and
the agent :Agreement may be: Express or implied
The agent must act in the representative capacity.
The principal must be competent to contract.
The agent need not be competent to contract. Why? But in
the interest of the principal?
The consideration is not necessary.
General rules of agency
Whatever a person can lawfully do himself, he may
also do the same through an agent
He who acts through another, does by himself
Distinction b/w agent & servant.
Who may employ an agent?
Any person who is of the age of majority according to the
law to which he is subject, and who is of sound mind,
may employ an agent.
Who may be an agent?
As between the principal and third persons any person
may become an agent
He has the authority to
He ordinarily has no such
create commercial relationship authority.
between the principal & the
He may work for several
principal at a time.
He ordinarily work for
only one master at a time.
He usually get commission He usually get salary or
TEST OF AGENCY
The question as to whether a particular persons is an
agent can be verified by finding out if his acts bind the
principal or not
Creation of agency
Agency by express agreement
Agency by implied agreement
Agency by ratification
A. Agency by express agreement
Appointment in writing or by words of mouth
Usual form of a written agreement : Power of attorney – General
power of attorney or Special PA
B. Agency by implied agreement
Due to the conduct of the parties or the course of dealing
between the parties or the situation
Agencies by an implied agreement includes:
Agency by estoppel
Agency by holding out
Agency by necessity
of a particular
Agency by estoppels :
Where a person by his words or conduct has willfully led
another to believe that certain set of circumstances or
facts exist, and the other person has acted on that belief,
he is estopped from denying the truth of such statements
although such a state of things did not in fact exist.
Agency by holding out:
More than estoppel – positive or affirmative conduct of the
principal is required
Agency by necessity:
Due to extraordinary circumstances, person may be
compelled to act without requiring the consent or
• There must be real emergency to act on behalf of the
• Agent not in a position to obtain instructions
• Acting honestly and in the interest of the Principal
• Adopting reasonable and practicable course of action
1.Where the agent exceeds his authority bonafide in an
2.Where the carrier of goods acting as a bailee, does
anything to protect or preserve the goods.
3.Where husband improperly leaves his wife without
providing proper means for her sustenance.
C. Agency by ratification
A person does some acts on behalf of another person
without his knowledge or authority
Another person subsequently accepts the acts Then:
Agency by ratification
Also known as ex-post facto agency (agency arising
after the event)
Conditions for valid ratification
The agent must act on behalf of the principal
The principal must be competent to contract and in
existence at the time of contract by the agent
There should be an act capable of ratification
The principal must have full knowledge of the material
Whole transaction must be ratified
Within a reasonable time.
Ratification must not injure a third party.
Kinds of agents
From the point of view of the extent of their authority :
1.General Agent- Is one employed to do all the acts
connected with a particular business or employment
Eg: manager of a firm.
2. Special Agent – employed to do some particular act or
represent his principal in some particular transaction.
Eg: agent employed to sell a motor car.
3.Universal Agent – Whose authority is unlimited. He
enjoys extensive powers to transact every kind of
business on behalf of principal.
II. From the point of view of the nature of work performed by them:
I. Mercantile agent-
An agent dealing in the buying and selling of the goods
An agent who has the authority either to sell the goods, or to consign
the goods for the purpose of sale, or to buy the goods or to raise the
money on the security of the goods on behalf of his principal
Types of Mercantile Agents
Factor: possession of the goods is given for the
purpose of selling the same – sells in his own
name – has general lien – usually sells in his own
Broker: appointed to negotiate and make contracts
for the sale and purchase on behalf of the principal
– not given possession – not in his own name
Commission agent: buys and sells and receives
4.Del credere agent: One who in consideration of an extra
commission, guarantees his principal that the third
persons with whom he enters into contracts on behalf
of the principal shall perform their financial obligations
i.e. if the buyer does not pay , he will pay.
II. Non- mercantile agents :
Does not usually deal in the buying or selling of the
goods. They include Insurance agents ,Counsels or
Duties of an agent
Duty to follow the instructions of the principal – if not..
Duty to carry out the work with care and skill
Duty to render accounts to the principal
Duty to communicate with principal – if no time
Duty not to deal on his own account
Duty not to make secret profits from agency
Duty to pay the amount received for the principal
8. Duty not to use the information, received in the course of
agency, against the principal
9. Duty to protect the interest of the principal in case of his
death or insanity
10. Duty not to delegate authority
Rights of an agent
Rights to retain money due from the principal
Right to receive remuneration
Right of lien – The agent has the right to retain goods,
papers and other property- only particular lien
Right to be indemnified against consequences of lawful
Right to compensation
Right to be indemnified against consequences of acts
done in good faith
Right of stoppage of goods in transit.
Principal becomes insolvent
Agent has bought goods out of his own money
Rights of principal
Recover damages from agent if he disregards
directions of Principal
Obtain accounts from Agent
Recover moneys collected by Agent on behalf of
Obtain details of secret profit made by agent and
recover it from him
Forfeit remuneration of Agent if he misconducts the
Duties of principal
Pay remuneration to agent as agreed
Indemnify agent for lawful acts done by him as agent
Indemnify Agent for all acts done by him in good
Indemnify agent if he suffers loss due to neglect or
lack of skill of Principal.
Delegation of authority by an agent
“ Delegatus non-protest delegare” i.e. a delegate cannot
But in exceptional cases sub-agent can be appointed
1. Express authority from the principal
2. Where the principal has impliedly, by his conduct
allowed such delegation of authority.
3. Ordinary Custom of a particular trade
4. Nature of the work
5. Acts which do not require personal or professional skill
6. Due to unforeseen emergencies
Relations of principal with third parties
Scope and extent of agent’s authority
Principal and the third party
Personal liability of the agent
Power or capacity to bind the principal with the third
Two types of authority
Actual or real authority
Ostensible or apparent authority
1.Actual or real authority
Authority conferred upon the agent by his principal
1. Express authority
2. Implied authority: conferred upon the agent by the
conduct of the principal
2.Ostensible or apparent authority
The act is in excess of the actual authority
Authority due to the appearance created by the principal
3.Authority in necessity
Relationship between principal and sub-agent
Discussed under two heads:
1. Where the sub-agent is properly appointed
2. Where the sub-agent is improperly appointed
1.Where the sub-agent is properly appointed
(a)The principal is bound and is liable to third parties for the
acts of the sub-agent
(b) Where the agent is responsible to the principal for the
acts of sub-agent.
(c )The Sub-agent is responsible for his acts to original agent
not to principal except in fraud or willful wrong
2. Where the sub-agent is improperly appointed
(a)The principal is not represented by sub-agent and hence
he is not liable for acts of the sub-agent
(b)The agent is responsible for the acts of the sub-agent to
the principal as well as to the third parties
(c)The sub-agent is not responsible to principal at all.
Personal Liability of agent
1. When contract expressly provides
2. Agent acts for foreign principal
3. Agent acts for undisclosed principal
4. When principal can not be sued
5. Where agent signs contract in his name
6. Principal is not in existence
7. Liable for breach of warranty of authority
8. When he pays or receives money by mistake
9. Authority is coupled with interest
10. Trade makes agent personally liable
Termination of agency
End of the relationship of a principal and his agent
1. Termination of agency by act of the parties
2. Termination of agency by operation of law
1.Termination of agency by act of the parties
1. Agreement -between the principal and agent
2. Revocation by the principal : Revocation may be express
or implied – There are conditions
(i) In case of continuous agency
(ii) Where an agency has been created for a fixed period of
3. Revocation of agency by the agent
II.Termination of agency by operation of law
Completion of agency business
Expiry of time
Death of the principal or the agent
Insanity of the principal or the agent
Insolvency of the principal
Destruction of the subject-matter of the agency
Dissolution of a company
Principal or agent becomes alien enemy
Effectiveness of termination:
As between the principal and agent, termination of agency is
effective only when it becomes known to the agent.
- Third parties- when it is known to them.
1. Where the agency is coupled with interest- where the
agent has some interest over the subject matter
2. When revocation would cause the agent personal loss
3. When the authority has been partly exercised by the
Elements of Mercantile law
Author :- N.D. Kapoor
Publisher :- Sultan chand & Sons