THE INDIAN CONTRACT ACT, 1872

CONTRACT OF AGENCY
PRESENTED BY-

Ms. GARIMA YADAV

ASST. PROFESSOR
ICFAI UNIVERSITY
MEANING OF AGENCY
Agency is the legal relationship which exists between an agent and his principal, to bring the
principal into legal relationship with third parties. In simple words, the relationship between the
agent and the principal is called ‘agency’.
For example-
A appoints B to buy 100 bags of rice on his behalf. A is the principal and B is the agent. The
relationship between A and B is called ‘agency’.
Agency means ‘an agent acts on behalf of his principal and often uses his name and his acts in that
capacity are attributable to the principal’.
The concept of ‘agency’ stems out of two latin maxims-
(i) Qui alium facit, per seipsum facere videtur (He who does an act through another is deemed in
law to do it himself)
(ii) Qui facit per alium, facit per se (He who acts by another acts by himself)
FEATURES OF A CONTRACT OF AGENCY

1. The principal should be competent to contract (Sec 183)

2. The agent may not be competent to contract (Sec 184)
3. No consideration is necessary to create an agency (sec 185)
 AGENT SERVANT

AUTHORITY Authority to act on behalf of principal Such power is not generally enjoyed by
and to create contractual relations servant.
between principal and third party.
MODE OF Commission on the basis of work done. Salary or wages which generally does not
REMUNERATI depend upon the work done.
ON
LIABILITY Principal is liable if done within ‘the If wrong is committed in the course of
scope of authority’. servant’s employment.
RIGHT TO Direct what the agent has to do. What and how it is to be done.
DIRECT
SCOPE Several principals at the same time. Usually serves only one master.

MAKING Makes contract on behalf of principal. No such authority.

CONTRACT
AGENT INDEPENDENT CONTRACTOR

1. Agent’s act are subject to the directions and He undertakes to perform a certain specified work,
control of his principal. the manner and means of performance being left to
his discretion.

2. He represents the third parties on behalf of his He does not represent another.
principal.

3. Agent does not use his own labour and material. He uses his own material, labour, machine and
equipment.

4. He offers and accepts new proposals from the No new legal relations are established.
third parties on behalf of his principal and thus
new legal relations are created by an agent.
CLASSIFICATION OF AGENTS

1. General and Special agents

2. Mercantile and Non-mercantile agents
3. Public and private agents
4. Sole agents and co-agents
5. Co-agents, sub-agents and substituted agents.
RESPONSIBILITY FOR THE ACTS OF
SUB-AGENT (SEC 192, 193)
IF PROPERLY APPOINTED IF IMPROPERLY APPOINTED

1. The principal is liable to third parties for acts 1. Principal not liable to third parties.
of sub-agent.

2. Agent is responsible to principal for acts of 2. Sub-agent not responsible to principal for
sub-agent. anything.

3. Sub-agent not responsible except in cases of 3. Agent is responsible to principal as well as to

fraud and willful wrong. third parties.

4. sub-agent cannot sue principal for

remuneration.
SUB-AGENT SUBSTITUTED AGENT

1. He is agent’s agent. He works under the He is principal’s agent. He works under the
control and directions of agent. control and direction of the principal.

2. Agent delegated a part of his own duties. Does not delegate any part of his work to a
substituted agent.
3. No privity of contract between principal and There is privity of contract. So he can sue or be
sub-agent. So he cannot sue or be sued by the sued by the principal.
principal.
4. Sub-agent is responsible to the agent alone He is directly responsible to the principal and
and not generally to principal. not to original agent.
5. Agent is responsible to the principal for the Agent is not responsible to the principal for the
acts of the sub-agent. acts of substituted agent.
6. Sub-agent has no right of action against Substituted agent can sue the principal for
principal for remuneration due to him. remuneration due.

7. A substituted agent is superior to a sub-agent

in status and position.
CREATION OF AGENCY

1. BY EXPRESS AGREEMENT
2. BY IMPLIED AGREEMENT
a. Agency by estoppel
b. Agency by Holding out
c. Agency by necessity
3. BY RATIFICATION
4. BY OPERATION OF LAW
RIGHTS OF AGENT (DUTIES OF PRINCIPAL)
SECTION 211-225

1. Right of retainer out of sums received on principal’s account (sec 217)

2. Right to remuneration (sec 219)

3. Right to lien (sec 221)

4. Right to indemnity (sec 222, 224)

5. Right to compensation (sec 225)

DUTIES OF AGENT (RIGHT OF PRINCIPAL)

1. Duty not to delegate his acts (sec 190)

2. Agent’s duty in appointing a substituted agent (sec 195)

3. Duty on termination of agency by principal’s death (sec 209)

4. Duty to follow principal’s directions and to conduct his business (sec 211)

5. Duty to show proper skill and care (sec 212)

6. Duty to maintain accounts (sec 213)

7. Duty to communicate with principal (sec 214)

8. Duty of an agent not to deal on his own account (sec 215)

9. Duty not to make secret profits from agency (sec 216)

10. Duty to pay over all money received for principal (sec 218)

11. Duty not to use information obtained in the course of the agency against the principal

12. Duty not to setup adverse title.

DELEGATION OF AUTHORITY

DELEGATION- It means conferring of an authority to do things, which, otherwise that person would
have to do himself.
AUTHORITY- It is nothing but power to do something. It is the right to exercise the powers.
‘Authorized’ means ‘permitted’ or ‘directed’.
Latin maxim- Delegatus non potest delegare
This means the delegated powers cannot be further delegated. The agent himself is the delegate of the
principal. As such, he cannot further delegate his powers. The reason is that the authority given to an
agent is personal and cannot be exercised through another. This is provided under section 190 of the
Indian Contract Act.
INGREDIENTS OF SECTION
190
The ingredients of section 190 are-
i) An agent cannot delegate his authority to another person.
ii) He has to perform the acts which he has expressly or impliedly undertaken to perform personally
i.e., he should not delegate his authority.
iii) However, he can delegate such authority:
a. when the nature of agency demands or permits it;
b. when the ordinary custom or trade in the particular business allows it.
EXCEPTIONS

1. Trade customs
2. Nature of agency
3. Principal’s consent
4. No objection from principal
5. Conduct of parties
6. No special skill (Purely ministerial)
7. In emergency
PERSONAL LIABILITY OF AGENT

As a general rule, when an agent acts on behalf of his principal in his dealing with a third person, a
contractual relationship between the principal and the third person is created and the agent is not
personally liable.
Section 230- “In the absence of any contract to that effect, an agent cannot personally enforce
contracts entered into by him on behalf of his principal, nor is he personally bound by them.
[Birsinghraj v. Irbhat Ali (1961)]
Presumption of contract to contrary- 1. where the contract is made by an agent for sale and
purchase of goods for a merchant resident abroad; (sec 230)
2. Where the agent does not disclose the name of his principal; (sec 231 also)
3. Where the principal, though disclosed, cannot be sued.”
 INSTANCES WHERE AN AGENT IS PERSONALLY
LIABLE

1. Where the contract is made by an agent for the sale or purchase of goods for merchant resident
abroad. (When agent acts on behalf of a foreign principal.)
2. Where the agent does not disclose the name of his principal (Contracting for an undisclosed
principal.)
3. Where the principal, though disclosed, cannot be sued
4. Express contract
5. When an agent makes a breach of some legal obligation
6. Personal liability by usage or custom
7. Misrepresentation or fraud by agent
8. Unauthorized acts (Breach of warranty)
9. Liability of pretended agent (sec 235, 233)
RELATION OF PRINCIPAL WITH THIRD PARTY

1. Principal is bound by all acts of agent within the scope of actual, apparent and ostensible
authority (sec 226, 227, 237)
2. Principal’s liability to third persons for notice to agent (sec 229)
3. Principal’s liability to third persons for agent’s fraud, misrepresentation and torts (sec 238)
4. Principal’s responsibility for contracts entered into by an agent through name undisclosed
(Rights of an undisclosed principal) (sec 231)
RATIFICATION

Ratification means ‘confirmation’. It is approval, by word or conduct, of that which was improperly
or unauthorizedly performed in the first instance. It is a formal sanction.
Ratification is the adoption of a contract made on behalf of some one whom he did not authorize,
which relates back to the execution of the contract, and renders it obligatory from the outset.
Ratification makes the contract in all respects what would have been if the requisite power had
existed when it was entered into. It relates back to the execution of the contract, and render it
obligatory from the outset. (Section 196-200)
ESSENTIALS OF
RATIFICATION
1. Agent must act on behalf of the principal
2. Ratification must be by a person competent to have authorized the transaction
3. Principal must be in existence at the date of the act ratified
4. Contractual capacity of the principal
5. Ratification may be of lawful or unlawful but not of void or criminal acts
6. Full knowledge of material facts or with intent to take the risk of any irregularity
7. It must be for the entire transaction and there cannot be partial ratification
8. It must be within reasonable time after the contract
9. It may be express or implied
10. Ratified act should not be injurious to a third party.
TERMINATION OF AGENCY
Section 201
1. By agreement between the parties
2. By revocation of agency by principal (sec 203)
3. By renunciation by agent (sec 201, 206, 207)
4. By completion of the agency business
5. By expiry of time
6. By death or insanity of the principal or agent (sec 201, 209)
7. By insolvency or bankruptcy of the principal
8. By destruction of the subject-matter
9. By the happenings of any event rendering the agency unlawful (By principal becoming alien
enemy)
10. Termination of sub-agent’s authority (sec 210)
REVOCATION OF AUTHORITY

‘Revocation’ is a mode of termination of the contract of agency. The word ‘revocation’ means
annulling, rescinding, withdrawing. A contract of agency being dependent upon the confidence
which the principal has in the agent, the agency may be determined at will, by the principal even
though the agency be for a fixed term.
Section 203- When principal may revoke against 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.”
RULES OF REVOCATION

1. Revocation may be express or implied (sec 207)

2. No revocation of agency when agent has interest in the subject-matter (sec 202)
3. Revocation is possible before the authority has been exercised (sec 203)
4. Authority partly exercised (sec 204)
5. Principal to compensate, if there is premature revocation (sec 205)
6. Reasonable notice of revocation (sec 206)
7. Revocation takes effect when it becomes known to the agent (sec 208)
IRREVOCABLE AGENCY

When an agency cannot be terminated, it is said to be irrevocable. Section 202 and 204 of
Contract Act provide for the exception where the authority of the agent is irrevocable.
i. Agency coupled with interest (sec 202)
ii. Authority partly exercised (sec 204)
iii. Personal liability incurred by agent. (sec 203)