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.
“Agency is a contractual relation between two parties
created by agreement express or implied”.
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
1. There should be an agreement between the
principal and the agent.
2. Capacity to employ an agent S.183.
3. The consideration is not necessary S.185.
4. Capacity for being appointed as an agent S.184.
MODES OF CREATING
CONTRACT OF AGENCY
By holding out
A. Agency by express authority S.186 & 187
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 / Ostensible
An authority is said to be implied when it is to be inferred
from the circumstances of the case and the things spoken or
written, or the ordinary course of dealing may be accounted
circumstances of the case.
Agencies by an implied agreement includes:
1. Agency by estoppel S.237
2. Agency by holding out
3. Agency by necessity
Agency by estoppel : S.237
Where a person by his conduct or by statement has led
another person to believe that a certain state of affairs
exists that a certain person is his agent, he is estopped
from denying the fact of that statement subsequently.
Example: A tells T within the hearing of P that he is P’s
agent. P does not object to this statement. Later on T
supplies certain goods to A who pretends to be acting as an
agent of P. P is liable to pay the price to T.
Agency by holding out:
It is a branch of the agency by estoppel. In this case, a
prior positive act on the part of the principal is required to
establish agency subsequently.
Agency by necessity:
In certain circumstances the law confers an authority on the
person to act as agent for another without requiring the
consent of that person. Such type is called as Agency by
necessity. He has the 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.(Sec.
189).However the following are the essentials:
1.The agent was not in position to communicate with the
2. There was an actual and definite necessity for acting on
behalf of the principal.
3. The act was done to protect the interest of the principal.
4. The agent acted as a man of ordinary prudence and the act
was done bonafide
C. Agency by ratification S.196
A person does some acts on behalf of another person without his
knowledge or authority, another person subsequently accepts
the acts. Agency by ratification also known as ex-post facto
agency (agency arising after the event).
It must be expressed / implied S.197
D. Agency by operation of law:
Sometimes an agency arises by the operation of law. For example,
when a company is first formed, its promoters are its agents by
operation of law. Again, according to Sec. 18 of the Indian
Partnership Act, 1932, a partner is an agent of the firm for the
purposes of the businesses of the firm.
1. Acts within principal’s power.
2. The principal must be competent to contract and in existence at
the time of contract by the agent
3. Contractual capacity of principal.
4. The principal must have full knowledge of the material facts
5. Whole transaction must be ratified S.199
6. Within a reasonable time.
7. Ratification must not injure a third party S.200.
8. Ratification must be lawful
9. Must be communicated to 3rd party.
On extent of their
On the basis of nature of
I. 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
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
1. 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
2. Broker: appointed to negotiate and make
contracts for the sale and purchase on behalf of
the principal – not given possession – not in his
3. 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 advocates,
Power or capacity to bind the principal with the third
Extent of Authority:
It means scope of authority of an agent. Extent of
authority may ne discussed
Under Normal Circumstances S.188
In Emergency S.189
“ 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
6. Due to unforeseen emergencies
“A sub-agent is a person employed by, and acting under the
control of the original agent in the business of the
“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.”
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
II. Where the sub-agent is improperly
(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.
A substituted agent is a person who is named by the agent
holding an express or implied authority from the principal, to
act for the principal. in other words, he is the agent of the
principal though he is named, at the request of the principal,
by the agent. (Sec. 194)
Example: A directs B, his solicitor, to sell his estate by
auction and employ an auctioneer for the purpose. B names
C, an auctioneer, to conduct the sale. C is not a sub agent,
but is A’s agent for the conduct of sale.
1. Rights to retain money due from the principal S.217
2. Right to receive remuneration S.219 & 220
3. Right of lien S.221 – The agent has the right to retain
goods, papers and other property- only particular lien
4. Right to be indemnified against consequences of lawful
5. Right to receive compensation S.225
6. Right to be indemnified against consequences of acts
done in good faith S.223
7. Right of stoppage of goods in transit.
(a) Principal becomes insolvent
(b) Agent has bought goods out of his own money
8. Liability of principal inducing others S.237
1. To carry out the work undertaken according to instructions:
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 conduct such
business. Otherwise he is liable to the principal. (Sec.211)
2. To carry out the 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 the persons engaged
in the similar business. (S.212)
3. To communicate with the principal: It is the duty of an agent in
cases of difficulty, to use all reasonable diligence in communicating
with his principal, & in seeking to obtain his instructions. (Sec.214)
4. To pay the sums received for the principal: The agent is bound
to pay to his principal all the sums received on his account after
deducting 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 an
5. Not to deal on his own account: If the 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 dishonesty concealed from him by the
agent. If an agent without the knowledge of his principal, deals in the
business of agency on his own account, the principal is entitled to
claim from the agent any benefit which may have resulted to him from
the transaction.(Sec. 215 & 216)
6. To protect and preserve the interests on behalf of the
principals representative in the case of his death or
insolvency: Where an agency is terminated by the principal dying or
becoming insolvent, the agent is bound to take, on behalf of the
representative of his late principal, all reasonable steps for the
protection and preservation of the interests entrusted to him. (S.209)
7. Not to disclose information obtained in the course of the
agency against the principal
8. Not to make secret profit from the agency: The agent must not,
except with the knowledge and assent of the principal, make any profit
out of the transactions into which he may enter on the behalf of the
principal in the course of employment beyond the commission or
remuneration agreed upon between them. Any such profit must be paid
over to the principal.
9. Not to put himself in a position where interest and duty
conflict: The agent must not put himself in a position where his duty
and interest conflict unless he has made full disclosure of his interest to
10.Not to delegate authority: 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.
11.Duty to render accounts to the principal –(S.213)
General Rule(Sec.230): In the absence of any contract to that effect, an
agent cannot personally enforce contract entered into by him on
behalf of his principal, nor is he personally bound by them.
: Circumstances under which an Agent becomes
In case of
In case of
In case of
In case of
In case of
usage of trade
In case of acts
In case of acts
in his own
In case of
End of the relationship of a principal and his agent Studied
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(cancellation) by the principal
3. Renunciation(rejection) of agency by the agent
An agency may be terminated by the principal at any time by giving a
notice to the agent. (Sec. 206). If the agent is appointed to do a single
act, the authority may be terminated at any time before the act actually
begun, the agency can only be terminated subject to any claim
(compensation)which the agent may have for the breach of the contract.
(Sec. 205). The revocation & renunciation may be expressed or implied
(Sec. 207). However when the agency is coupled with the interest the
principal cant revoke the agency to the extent of such interest. Moreover
if the agent has already partly exercised his authority then also the agency
cant be terminated.
1. Completion of agency business S.201
2. Expiry of time
3. Death of the principal or the agent S.201
4. Insanity of the principal or the agent S.201
5. Insolvency of the principal S.201
6. Destruction of the subject-matter of the agency
7. Dissolution of a company
8. Principal or agent becomes alien enemy
Termination of agent’s authority:
Sec. 208 deals with the question as to when termination
of agent’s authority takes effect as to agent, and as to
third parties. According to it, the termination of the
authority of an agent takes effect as regards the agent
and the third persons from the time it becomes known
When an agency cannot be terminated or put an end to, it is said
to be an irrevocable agency in following cases:
a) Where the agency is coupled with interest: Where an
agent has an interest in the subject matter of the contract
entered into by him with a third party, his authority is coupled
with the interest. He has, in such case, the right to sue or be
sued, but only to the extent of his interest. (sec 202)
b) Where the agent has incurred a personal liability:
When an agent incurs personal liability, the agency becomes
irrevocable. The principal cannot, in such case, withdraw
leaving the agent exposed to the risk or liability he has
c) Where the agent has partly exercised the authority:
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 agency.(Sec. 204)