AGENCY

Definition of Agency
Agency is the legal relationship between an agent and Principal; to bring the principal into
legal relationship with the third party.
Section 182 of the Indian Contract Act defines Principal and Agent as follows:
An “agent” is a person employed to do any act for another, or to represent another in dealing
with third persons. The person for whom such act is done, or who is so represented, is called
the “principal”.
An agent is a person employed to do any act for or to represent another in dealing with third
person. Thus, if A employees an auctioneer B to sell his house, B becomes an agent and A is
known as the principal.

Essential Elements of Agency

1. Principal:
To constitute Agency there must be Principal, who appoints another person as agent to
represent or work on his behalf.
2. Principal must be competent:
According to Section 183 principal must be competent to contract. Section 183 says that
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.
3. There must be an Agent:
In a Contract of Agency, Agent is a person one who is appointed by Principal to work
on his behalf. According to Section 184 any person may become an agent, but no person
who is not of the age of majority and sound mind can become an agent.
4. Consideration is not Necessary:
Section 185 of the Indian Contract Act 1872 says that, no consideration is necessary to
create an agency. It is exception to the general rule - a contract without consideration is
void. but as per this exception, it can be said that a contract without consideration is
valid.
Kinds of Agents
On the point of view of the extent of their authority and the nature of the work performed
by them agents may be Classified under the following heads : -

1) Universal Agent :
A Universal agent is one who is authorised to do all the acts which the Principal
can lawfully do and can delegate.
2) Special Agent:
A Special Agent is one who is employed to do some particular act or represent his
Principal in some particular transactions. for example, An agent employed to sell a Bike. If
the special agent does anything outside his authority, the principal is not bound by it and third
parties are not entitled to assume that the agent has unlimited powers.
3) General Agent:
A General Agent is one was employed to do all acts connected with particular
business or employment.
For example, A manager of a firm. He can bind the principal by doing anything which Falls
within the ordinary scope of that business. Whether he is actually authorised for any
particular act or not, is immaterial provided that third party acts bona fide.
NON MERCANTILE AGENTS:
Non mercantile agent are those who do not deal with mercantile transaction. This includes
wife, attorneys, advocates and insurance agent, etc.
MERCANTILE AGENT:
Mercantile agent is an agent who has authority to sell goods or buy goods or raise money on
the security of the goods. The various kinds of mercantile agents are del credere agent, factor,
broker, commission agent as already mentioned above.
4) Del Credere Agent:
He is one who in consideration of an extra commission guarantee his Principal that
the third person with whom he enters into contracts on behalf of the principal shall perform
their financial obligations that is, if the buyer does not pay, he will pay. Thus he occupies the
position of a surety it as well as an Agent. He is not answerable to his principle for the failure
of the third person to perform the contract. A del credere agent constituted an exception to
this rule. The extra commission he gets is called del credere commission
5) Broker :
He is one who is employed to make contracts for the purchase and sale of goods. He
is not entrusted with the possession of goods. He simply act as a connecting link and bring it
to parties together to bargain and if the circumstances materialise he becomes entitled to his
commission called brokerage. He makes a contract in the name of his Principal. Thus, a
broker is an agent primarily employed to negotiable a contract between two parties where he
is a broker for sale he has no position of the goods to be sold.
6) Factor :
 A factor is a mercantile agent to home goods are entrusted for sale. He enjoys Wide
discretionary powers in relation to the sale of goods. A Factor is an agent who is entrusted
with the possession and contract of the goods to be said by him for his Principal.
He has possession of the goods, authority to sell them in his own name and a general
discretion as to this sale. He may sale on the usual term of credit may receive the price and
give a good discharge to the buyer.
7) Commission Agent:
Commission Agent is a mercantile Agent who buys or sells goods for his Principal on
the best possible terms in his own name and who receives Commission for his labours. He
may have possession of course or not.
8) Auctioneers :
An auctioneer is an agent to sell property at a public auction. He is primary an agent
for the seller, but upon the property being knocked down he becomes also the agent of the
buyer. He is mercantile agent within the meaning of Section 2(9) of the Sale of goods Act.

9) Sub-agent:

As per section 191, a sub-agent is a person employed by and acting under the control
of the original agent. Thus, a sub-agent is the agent of the original or the primary
agent. The original agent appoints a sub-agent and delegates the work of the principal
to him. The relationship between a sub-agent and the original agent is that of the agent
and principal.

10) Pakka Adatia And Kaccha Adatia

Pakka Adatia is an agent of his constituent only up to a certain point only for the purpose of
ascertaining and giving a correct quotation of the price. But thereafter when the transaction
takes place, he cease to be an agent and assumes towards his constituent the character of a
Principal, and the transaction must be regarded as a contract between Principal and Principal.
CREATION OF AGENCY:
Agency is created by agreement or by conduct of the principal and/or agent. The principal
authorise a person called agent to act on his behalf and such person also agrees to act as his
agent and thus the relationship of agency between them is created.

The following are the ways by which an agency is created:

1. Agency by Express agreement
2. Agency by Conduct/ Implied Agreement
3. Agency by Necessity
4. Agency by Ratification
5. Agency by Operation of Law

1. Agency by Express agreement:(Sec. 186)

Sec. 186 of the Indian Contract Act reads the authority of an agent may be express or implied.
In Sec. 187 of the Act defines express authority. An authority is said to be express when it is
given by words spoken or written. By 'express authority' it means oral or written authority.
An agency by oral agreement is generally valid. But in the appointment for the post of
'Advocate General a written form of authority is essential. Also, In Companies, the appointment
of an agent must be in writing and under the seal of the Corporation. If the appointment of
agent is by a deed, it is called ‘Power of Attorney deed'
2. AGENCY BY IMPLIED AGREEMENT: (Sec. 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. It means the agency is inferred from circumstances. It arises from the conduct,
situation or relationship of parties.

 Agency by implied agreement is of three types:

a) Agency by estoppel
b) Agency by holding out
c) Agency by cohabitation

a)Agency by Estoppel:

If a person by conduct or words spoken or written, willfully makes another person to believe
that a certain person is his agent, then he is prevented from denying subsequently the fact of
agency. Thus if P' by words spoken or written or by his conduct holds out 'A' as having authority
to enter into contract on his behalf, P', will be bound by the contracts made by 'A.
This type of creation of Agency is called "Agency by Estoppel".
In the case of Pickering V. Busk, A' purchased a hemp through a broker 'B' and allowed it to
remain in the custody of the broker. B's business was buying and selling hemp. B sold the hemp
for certain price. The Court held that the sale was binding on 'A' as 'A' as the principal and 'B'
was an agent by estoppel.
b. Agency by holding out:
If a person by some positive conduct permits another person to enter into contract on behalf of
him then the first person is liable for all the acts in the course of employment of the second
person. For e.g., A' by his conduct authorizes ‘B' to enter into a contract for 'A'. Now A' is
liable for all the acts in the course of employment of ‘B'.
c. By Co-habitation (Husband and wife):
There are two situations where the wife lives with her husband and where the wife lives
separately.
i. When the wife lives with her husband:
When a man and a woman live as husband and wife, then the wife can get all necessaries on
credit from a shopkeeper. The husband is liable to the shopkeeper for the articles sold to the
wife. This co-habitation liability extends to lovers and mistresses but not to prostitutes.
ii. When the wife live separately:
If the wife is living apart, she can claim reasonable maintenance. This applies to cases where
the wife is deserted by the husband for no fault of her. If she is living apart without any
justification, she cannot get this benefit. If the wife is forced to live separately from her
husband, then she can buy necessaries of life on credit. Under law, a husband is bound to
maintain his wife and if he does not maintain wife is treated as the implied agent of her husband
and hence the husband is liable for necessaries supplied on credit.
D. AGENCY BY NECESSITY:
Agency of necessity develops from an original and subsisting agency and only applies itself to
unforeseen events not provided for in the original contract. Thus in certain circumstances, the
law may compel a person to act as an agent for another person without the principal's consent.
Such agency is called as ' agency by necessity”
It arises under the following three circumstances:
a. Agent's authority in an emergency
b. Protection of property of another
c. Wife as husband's agent of necessity
a. Agent's authority in an emergency: (Sec. 189)
Sec. 189 of Indian Contract Act speaks about 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. When an agent exceeds his authority in emergency, agency of necessity is
created.
b. Protection of property of another:
If a person is entrusted with some property of another which he has to protect, an agency of
necessity arises. Here, there may not be an express agreement. In the case of Couturier Vs.
Hastie, The master of ship found that the cargo of the ship was perishing. He sold the goods
for the best price available at the nearest port. The Court held that the sale was valid and binding
on the 'Cargo-owner.
c. Wife as husband's agent of necessity:
A husband is bound to maintain his wife, if he does not do so, she is entitled to pledge her
husband's credit for necessaries of life i.e., get the necessary articles on credit from a
shopkeeper suitable to their living style. Here the wife is the agent and the husband is the
principal: He is bound by her acts. If the wife is living with the husband, there is implied
authority for the wife to buy articles of household necessity. If the husband deserts the wife for
no fault of her and does not maintain her, she is entitled to get necessaries. The husband can be
sued by the creditors concerned as the wife is regarded in such circumstances as an agent of
necessity.
E.AGENCY BY RATIFICATION/Ex post facto Agency:
Sec. 196 to Sec. 200 deals with agency by ratification. When a person acts for another without
the knowledge or authority of second person then the second person either may accept the
first person's act or reject his act. If he accepts it, he is said to have ratified that act. The
effect of agency by ratification is that, it relates back to the original date on which is entered
into by the agent. It is based on the maxim: 'Omni rati habitio retro rahitur et mandato
priori aequiparatur' It means "ratification of an act already done has a retrospective effect".
Ratification may be express or implied on the conduct of the person on whose behalf the acts
are done.
Essentials of valid ratification:
The agent must state that he is acting for the principal at the time of entering into the contract.
The contract must be entered in the name of the principal. At the time of entering into contract
by the agent, the principal must be living. The legal heirs cannot ratify
the contract. A company ratify the contract entered by the promoters on its behalf before is
incorporation. In the case of Kelner Vs. Baxter, the Court held that the contract could not be
ratified, because the Principal i.e., the company, was not in existence at the time of entering
into the contract. The principal must have the contractual capacity, both at time of contract
and ratification. The contract entered into by the agent must not be void. Void contract can
never be ratified. The principal must have the knowledge of the terms of the contract. If not,
the contract is not valid. The principal must ratify the whole contract. There should not be any
partial or incomplete ratification. The principal must ratify the contract within a reasonable
period, a ratification after undue delay is invalid. Ratification can be made only if the interests
of a third party are not affected. Ratification must be communicated to the party who is
sought to be bound by the act done by the agent. The acts which the Principal is incapable of
doing cannot be ratified. E.g., company cannot ratify the acts of the directors which are
ultravires the powers of the company. Ratification relates back to the date of the act of the
agent. So it is called 'Ex post facto' (retrospective) Agency.

F. AGENCY BY OPERATION OF LAW:

In the following cases, agency is implied by operation of law:
a. When a company is formed, its promoters are its agents.
b. A partner is the agent of the firm and so his acts bind the firm and other partners as well.

Rights and Duties of Agents

In a contract of agency, the principal appoints an agent to perform some specific task or business
on his behalf. The principal is bound by the acts of his agent and is thus, responsible for his acts
to the third parties. Let us now understand the Rights and Duties of Agents.

Rights and Duties of Agents

Rights of agents

1. Right to Remuneration

As per section 219, an agent has a right to receive the agreed remuneration or in absence of
agreement, a reasonable remuneration for rendering the services to the principal that are not
voluntary or gratuitous. He becomes eligible to receive the remuneration as soon as he
completes the work that he undertook.

2. Lien on Goods

Some agents who have the possession of goods, securities or properties of their principal also
have a lien on these goods, securities or properties regarding their remuneration and also for any
expenses or liabilities that they incur. When he is an unpaid seller, he has a right to stop the
goods in transit.

3. Right to be Indemnified

An agent represents his principal to the third parties. As per sections 222 and 223, an agent has a
right to be indemnified by his principal for all charges, expenses, and liabilities that he incurs
during the course of the agency.

Duties of agents

A principal has a right to sue his agent for damages in case of breach of duty by the agent. The
duties of agents are:

1. As per section 211, an agent shall act within the scope of authority that his principal
confers upon him. Also, he shall strictly follow the directions of his principal. However,
in the absence of express instructions from his principal, he shall follow the custom
prevailing at the place where he carries out his business, in a similar type of business.
2. Section 212 states that he shall work with reasonable skill and diligence. Also, where the
nature of the agent’s profession requires him to possess a special skill, he shall exercise
the skill that a member of that profession will exercise.

3. An agent shall disclose properly any material information to his knowledge to the
principal that can influence the making of the contract.

4. As per section 213, an agent shall is under the duty not to disclose any confidential
information of his principal.

5. Section 215 states that an agent shall not compete with his principal. In other words, his
interest shall not conflict with his duty.

6. It is the duty of the agent to keep true and fair accounts and prepare them on a reasonable
notice to render them.

7. An agent shall not make any secret profit and shall disclose any extra profit he makes to
the principal. Where the principal finds that the agent is making secret profits, he may
dismiss the agent without notice, recover the amount of profit and also refuse to pay him
his remuneration. He may also repudiate a contract where a third party is also involved in
the fraud and recover the damages.

8. He shall not appoint a sub-agent.

Exceptions to the principle of Delegates non-protest delegate

The above principle means that a delegate cannot further delegate. Therefore, an agent cannot
appoint a sub-agent. However, there are the following exceptions to this principle:

1. When the principal allows delegation.

2. Where it is the custom or usage of trade to delegate.

3. When delegation is necessary for proper and efficient performance.

4. Where it becomes essential due to some emergency

5. When the principal knows that the agent’s intention is to delegate.

6. Where the work is ministerial.

DELEGATION OF AUTHORITY
The principal chooses a particular agent because he has trust and confidence in his integrity
and competence ordinarily, therefore, the agent cannot further delegate the work which has
been delegated to him by his principal. This is expressed in the maxim Delegatus non potest
delegare which means that a delegated authority cannot delegate further. Section 190 provides
that an agent cannot delegate his authority for acts which he has expressly or impliedly
undertaken to perform.
Section 190 of ICA provides,

“190. When agent cannot delegate—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.”

It was laid down in John McCain and Co v Pow, that unless so authorised by the principal, an
estate agent has no right to appoint sub-agent and delegate to him his powers which require
special skill and talent.

But there are exceptions to the Duty not to delegate under Section 190. In the following cases
the agent may delegate the work to another:

1. Nature of Work
Sometimes the very nature of work makes it necessary for the agent to appoint a sub-agent. For
example, an agent appointed to sell an estate may retain the services of an auctioneer and the
one authorised to file a suit may engage a lawyer. A banker instructed to make payment to a
particular person at the particular place may appoint a banker who has an office at that place.
A banker authorised to let out a house and collect rents may entrust the work to an estate agent.

2 Trade Custom
Secondly, a sub-agent may be appointed and the work may be delegated to him if there is
ordinary custom of trade to that effect. Example: architects generally appoint surveyors.

3. Ministerial Action
An agent cannot, of course, delegate acts which he has expressly or impliedly undertaken to
perform personally, e.g., acts requiring personal or professional skill. But the agent may
delegate acts which are purely ministerial in nature. e.g., authority to sign.
4. Principal's Consent
The principal may expressly allow his agent to appoint a sub-agent. His consent may also be
implied from the conduct of the parties. The principal may ratify his agent's unauthorised
delegation. A person who is appointed by the agent and to whom the principal's work is
delegated is known as "sub-agent".

Implied Authority to Delegate: A authority to delegate will, in some cases, be implied,

generally on the ground that there is no personal confidence or skill required, and that the duties
are capable of being equally well discharged by any other person. An authority to delegate may
be implied from the nature of the task of agency, custom or usage of trade, and the conduct of
the parties.

SUB AGENT:
Section 191 defines sub agent- a sub agent is a person employed by and acting under the
control of the original agent in the business of the agency.
Important point:
A. Ingredients:
1. Sub- agent is a person appointed by an agent.
2. The agent should be empowered to appoint.
3. The sub agent has to perform the functions undertaken by the agent for the
principal.
4. The agent is responsible for the sub agents conduct
B. A sub- agent is immediately responsible only to the agent who alone stands responsible
to the principal. There can be no privity of contract between the sub-agent and principal.
C. A sub-agency is extinguished as soon as the original contract of agency ceases.

PROPER DELEGATION:
Where the sub agent is appointed to the implied and express provisions of the law, it is
called proper delegation.
Section 192. defines, representation of principal by sub agent properly appointed where a
sub agent is properly appointed, the principal is so far is regards third person, 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 for his acts 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 case of fraud or willful wrong.
Important points:
 With regard to third persons, the principal is represented by sub- agent. He is
bound by and responsible for his acts as if he were am agent originally appointed
by the principal.
 The agent is responsible to the principal for the acts of the sub agent.
 The sub agent is not directly liable to the principal, except for fraud and willful
wrong.

IMPROPER DELEGATION:
Section 193 lays down the provision regarding the improper delegation.
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 the third person, the principal is not represented by or
responsible for the acts of the person so employed, nor is that person responsible to the
principal.
IMPORTANT POINTS:
A. Calico printers association v. Barclay bank (1931)
A sub agent was instructed to do insurance for the principal’s goods. The sub agent
did not insure. The goods were burnt in a fire accident. The principal could not
recover the damages from the sub agent.

SUBSTITUTED AGENT:
Section 194 deals with the substituted agent, 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.

Illustrations
(a) A directs B, his solicitor, to sell his estate by auction, and to 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 the sale.
(b) A authorizes B, a merchant in Calcutta, to recover the moneys due to A from C & Co. B
instructs D, a solicitor, to take legal proceedings against C & Co. for the recovery of the money.
D is not a sub-agent, but is solicitor for A.

Section 195 of Indian Contract Act 1872 : "Agent's duty in naming such person"

195. 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.

Illustrations
(a) A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of good
reputation to choose a ship for A. The surveyor makes the choice negligently and the ship turns
out to be unseaworthy and is lost. B is not, but the surveyor is, responsible to A.

(b) A consigns goods to B, a merchant, for sale. B, in due course, employs an auctioneer in
good credit to sell the goods of A, and allows the auctioneer to receive the proceeds of the sale.
The auctioneer afterwards becomes insolvent without having accounted for the proceeds. B is
not responsible to A for the proceeds.

AGENT AUTHORITY

1. Actual authority

a). Actual authority includes express authority and implied authority (not to be confused with
implied appointment, that is, appointment by estoppel).

Express authority is the authority which the principal has expressly given to the agent whether
orally or in writing.

Implied authority (sometimes described as usual authority) is the authority of an agent to do

acts which are reasonably incidental to and necessary for the effective performance of his
duties. The content of implied authority depends on the facts of each case and is sometimes
determined by the usages and customs of a trade, business or profession.

b) The scope of the actual authority of the agent is therefore to be ascertained from the oral or
written agreement between principal and agent, usage and customs of the relevant trade,
profession or business and the course of dealing between the two parties.

c) If the agent enters into a contract with a third party pursuant to his actual authority, the
contract entered into will create contractual rights and liabilities between the principal and the
third party.

2. Apparent or ostensible authority

a) An agent is said to have apparent or ostensible (not actual) authority if:

 i. The principal has made a representation (whether by words or conduct) to the third
party to the effect that the agent has the authority to act for him although the agent
does not in fact have such authority;

ii. The third party has in fact relied on such representation to deal with the agent; and

iii. The third party has altered his position resulting from such reliance, for example,
assuming obligations under a contract with the agent.

b) In essence, apparent or ostensible authority is authority which the principal induces a

third party to believe the agent has when the agent in fact has not. The agent has only
the appearance of authority, but no actual authority to act on behalf of the principal.
Nevertheless, if the third party enters into a contract with the agent in reliance on the
principal's representation, that contract will still be legally binding on the principal.

RATIFICATION:

When a person has done an act on behalf of another without his knowledge or
consent, the Doctrine of Ratification gives the person on whose behalf the act is done an
option to either adopt the act ratification or disown it.

Section 196 gives the right of person as to acts done for him without his authority. It
states that when an acts are done on behalf of another but without his knowledge or authority,
he may elect to ratify or to disown such acts. If he ratifies them, the same effects follow as if
they had been performed by his authority.

Section 197 states that ratification may either be expressed or implied on the conduct
of the person on whose behalf the acts are done. Ratification will be implied from any act
showing an intention to adopt the transaction, even silence or mere acquiescence and if an act
is adopted at will be held adopted throughout.

REQUIREMENTS OF RATIFICATION:

1. Act must be done on behalf of another:

 The act must be done on behalf of another person who will ratify it
  The agent must profess to as an agent, on behalf of an identifiable
principal

Keighly Maxested v Durant – if the agent act on his own name and makes no allusion
to agency, his act cannot be ratified by any person and he will be held liable.

2. Competence of Principal:
Since ratification relates back to the date of the original contract made by the
agent, it is necessary that the principal who purports to ratify must be in
existence at the time of signing of contract and should also be competent.
Similarly, a company cannot ratify a contract made in its name before its
incorporation.
3. What acts can be ratified?
Section 200 states that ratification od unauthorised act cannot injure third
person
 Only lawful acts can be ratified.
 Acts which would become injurious by ratification cannot be ratified
which by ratification would leave the effect of subjecting the third to
damages.
 Acts done on behalf of Government
4. Knowledge of facts:
Section 198 states that, knowledge requisite for valid ratification.
No valid ratification can be made by a person whose knowledge if facts of case is
materially defective.
5. Whole transaction:
Section 199- effect of ratifying unauthorised act forming part of transaction.
The person ratifying any unauthorised act done on his behalf ratifies the whole
transaction and not a only a part of it.
6. Within reasonable time:
A ratification to be effective, it must be done within a reasonable time.

EFFECTS OF RATIFICATION:

1. It establishes the relationship and agent insofar as the act ratified is concerned
between the person ratifying and the person doing the act.
2. It establishes the relationship of contract between the principal and the third party.
Doctrine of Relation Back:

Ratification related back to the date on which the agent first contracted. Section 196
declares that if an unauthorised act is ratified by the person on whose behalf it done, the same
effects will follow as if it had been performed by his authority. Thus there is contract between
the principal and the third party not from the date of ratification but from the date when the
agent first contracted.

In the case of Bolton Partners v Lambert, the defendant made an offer to the
managing director of a company, which he had no authority to do so, accepted it, and it gave
the company an option to ratify the contract. But the company ratified only after the
defendant had withdrawn his offer. The company sued the defendant for specific
performance. The company was held entitled it. The company’s ratification related back to
the date on which the managing director first accepted the offer. Thus there was a contract
between the company and the defendant from that date. The defendant’s revocation og his
offer was ineffective.

c) Apparent or ostensible authority will give rise to agency by estoppel (discussed in

section 3(2) above). The principal's representation to the third party as to the authority
of the agent to act on his behalf, when acted upon by that third party by entering into a
contract with the agent, operates as an estoppel which prevents the principal from
denying that such contract is binding upon him.

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