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Module:4:Contract of Agency:

General notion/understanding of the term:

• Agent=?
• Agency=?

Case law Reference:

Delhi Electric Supply Undertaking v. Basanti Devi- AIR 200 SC 43
• Chairman, life Insurance Coporation v. Rajiv Kumar Bhasker – 2005 (6) SCC
• Harshad J. Shah v. L.I.C. of India – AIR 1997 SC 2459
• Snow White Industrial Corporation v. Collector of Central Exercise –AIR 1989
SC 1555
• Lakshiminarayan Ram Gopal & Sons Ltd. v. Govt. of Hyderabad- AIR 1954 SC
• Terence Correya v. Maruti Udyog Ltd. 2005 (1) CPJ 96
• P. Krishne Bhatta &Others v. Mundila Ganapati Bhatta AIR (1955) Mad 648.
• Pannlal Janakdas v. Mohanlal AIR (1951) SC 979
• Watteau v. Fenwick (1893) 1 QB 346

Concept of Agency:
• Trade and financial transactions, business ventures, etc at times requires
delegation of authority or power, so that certain functions can be performed by an
authorised person on behalf the principal/employer/owner.

• This led to the evolution of concept of AGENCY and role of agents in various
spheres of society.

Various types of Agency in Day to day life:

 ‘Next’ a large electronic retail store, he starts selling a popular particular brand
SAMSUNG exclusively, and the said store is referred as an agency of the company
whose brand is on sale.
 Amway- a MNC producing toiletries and personal care products, has direct selling
business scheme, where various agents are employed for promoting door to door selling.
 Infotech Solutions, a call centre has taken a project from CITI Bank, credit card division
and the call centre employees makes call to all those customers whose credit card
payment is due, representing themselves on behalf of CITI Bank.

 Dhanalakshmi Pvt.Ltd. a financial trading firm, it buys or sells stocks on behalf of their
customers as per need and request price.


 Oriflame- a MNC producing toiletries and personal care products, has direct selling
business scheme, where various agents are employed for promoting door to door selling.

 Each situation relationship between the parties were different, buyer-seller, employee,
retailer, stock broker-investor.
 Hence, the rights and the liabilities between the parties will also be different,
 Contractual relationship between the parties NOT mandatory.

Judicial Interpretation: ‘Agency’

 SC – Syed Abdul Khader v. Rami Reddy (1979) 2 SCC 601
“ The expression used to connote the relationship which exists where one person has a
authority or capacity to create legal relations between a person occupying the position of
principal and third party.”

 Krishna v. Ganapathi – AIR 1955 Mad 648

Ramaswami J. (Mad. HC)- “In legal phraseology, every person who acts for another is
not an agent. A domestic servant renders to his master a personal service, a person may
till another’s field or tend his flocks or work in his shop or factory or mine or may be
employed upon his roads or ways, one may act for another in aiding in the performance
of his legal or contractual obligations of third persons……In non of these capacities he is
an agent and he is not acting for another representative of another business negotiations,

-that is to say, in the creation, modification or termination of contractual obligations,

between that other and third persons, that he is agent …….Representative character and
derivative authority may be briefly bee said to be the distributing feature of an agent.”


Legal Definition:
• “Agent”
S. 182. An “agent” is a person employed to do any act
 for another or
 to represent another
 in dealings with third persons.
 The person for whom such act is done, or who is so represented, is called the “principal”.

Parties of Contract of Agency:

 Principal
 Agent
 Third Party

Analysis of scope definition u/s 182:

Scope of S 182-
1. Whether all casual employees/servants = agents?
2. Is there any distinction capacity of the role played by the Casual Employee versus Agent?

Essence- “Representative capacity of the agent coupled with a power to affect the legal
relations of the third persons.” (Vivian Bose J 1938)

Lakshminarayan Ram Gopal &Sons Ltd. Govt. Of Hyderabad

(1954)AIR SC 364
 There was a mills registered at Hyderabad, which had appointed Lakshminarayan Ram
Gopal & Sons Ltd. as located at Bombay as their Agent for 30 yrs, as per certain terms &
 While working as agent the said firm had earned commission of 2.5% on what ever
business the appellant has done.
 The Hyderabad Govt. asked appellant to pay up taxes on the earnings as the agent of the
 The appellant refused to pay taxes on the said income, stating that they are not agent.

 Whether the income of the appellant was profit of business/salary of employment?
 Whether the appellant was an agent of the Mills?

Judicial view:
 The highest officer of the Income Tax Dept. has rejected the contention f the appellant
and granted no exemption.
 Appeal to the HC was also dismissed on same grounds, and held that tax is due payable.


 Judgment: SC held that the appellant was an agent of the Mills and income
was not wage/salary and but commission= hence, Taxable.

Principle Laid Down:

1. Distinctions servant versus Agent,
2. Agent and servant are different as servant carries out act as per the instructions of his
Master/employer, however, the Agent carries out act on behalf of his principal on his
3. Servant cannot create legal and contractual relationship with third party on behalf of his
master unlike Agent who can for the principal.
4. Servant completely under control of his master is paid wage/salary whereas an agent is
paid commission.
5. As per Halsbury: “A principal has the right to direct what work the agent has to do , but
a master has further right to direct how the work is to be done.”
6. “ A servant is at times said to be the IMPLIED AGENT of his masters, depending upon
the nature of work /duty entrusted to him.

In case of contract of Agency;
 a principal authorises an agent to REPRESENT /ACT
 For him in bringing the principal into CONTRACTUAL RELATION
 With a third party.
 According to HALSBURY LAW England: Agency= “True nature of relationship
between the parties.”

Nature of agents’ Authority:

Consideration not necessary S 185- No consideration is necessary to create an agency.

Agent's authority may be express or implied.

S. 186. -The authority of an agent may be
 By either Express or Implied.
 By necessity
 By ratification


Essentials of Contract of Agency:

• Competency to contract of the Principal- S.183
• Whether agent need to be competent- S. 184
• Whether CONSEDERATION not necessary- S. 185

1. Competency to contract of the Principal:

Legal Requirements- S 183:
“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.”

** Justification for competency of the Principal?

Shepherd v. Cartwright (1953) Ch. 728 ,755
“An infant cannot be appoint an agent to act for him neither by means of a power of
attorney nor by any other means.”
Effect : “If he purports to appoint not only the appointment but everything done by the
said agent will be VOID.”

Exception: Guardian of the minor

Madanlal Dhariwal v. Bherulal AIR 1955 Mys 272
Only natural guardian, in case of de facto guardian permission of the court is must.

2. Competency of an Agent - S. 184

As between the principal and third persons any person may become an agent,

(Exception to rule)
but no person who is not of the age of majority and of sound mind can become an agent,

(OBJECTIVE): so as to be responsible to his principal according to the provisions in

that behalf herein contained.

3. Consideration:
S 185- that no consideration is necessary for a contract of agency. An agent is paid only
commission, and no salary.


Creation of Agency:
1. By a written agreement/instrument
2. By the conduct of parties /implied
3. By necessity of a case/situation
4. By subsequent ratification

1. By a written agreement/instrument:
Cases where the agent is appointed by the principal through a deed/contract /by the way
written instruction.

Eg: S 182- “Express Appointment”

 General power of attorney written
 Proxy attending the share holders general body meeting.

Merits of such contract???

Whether all written instrument creates an AGENCY???

Loon Karan Sohanlal v. Firm John & Co. AIR 1967
Facts: Written agreement Govt. of Assam & petitioner to buy yarn from various and than
sell it to the consumers in Assam.
• Loss occurred so the petitioner sued the Govt. to indemnify as principal.
• Govt. rejected it saying it was not agency.???
• The court held that the Govt. was right and the relationship as Licensee and
licensor, as the Govt. had collected fees for the same.

2. By the conduct of parties /implied:

It is also known as “Implied Agency”, it inferred through the act/conduct of the

parties, the circumstances gives the necessity of creation for such agency between the

Eg: Auctioneer ( buyer& seller),

Factors (Sales agents/brokers),etc.

Application of Doctrine of Estopple:

 It is also known as Agency by Holding Out.
 Concept- that if a person knowingly admits and acknowledges the act performed by
another \person on his behalf, than later he cannot ignore or discredit the act of such
 If he has some reservation, he must express the same in writing, prevent the further


 If he allows him to act on his behalf than later he is ESTOPED, the act valid under


• Illustrations:
• Husband & Wife- Whether they can be implied agent of each other???
• Case: Benaras Bank ltd. V. Prem & Co. AIR 1937
• W- wife had certain shares in her name, and she handed over then to her H-
husband in his safe custody. The husband then pledged them to the bank, whether he had
authority as an agent to do so ?? Was he liable???

3. By Necessity:
 It’s based on contingency basis, on emergency, depending upon the facts and
 Hence, prior permission/approval from the principal is not needed, by the agent.
 Due extreme situation the principal even does not have the choice to either to refuse, only
must accept.
 Eg: accident matters, dealing with perishable goods, hazardous goods.

Case law Illustrations:

Great Northern Railway Co. v. Swafield – 1874.
 A horse was transported by the rail coaches of Great Northern Railway Co. and after
reaching the destination the defendant found that there was no one to take delivery of the
said horse. So the railway had put the horse in a stable and looked after it, after a month
the defendant came to take possession of the horse. The Plaintiff asked was for the
expenses incurred for looking after the horse. The defendant refused, plaintiff sued the
 The principle laid down: “Agency of Necessicity” was propounded.

Concept of Agency of Necessicity:

1. It is applicable only in cases of contingencies/emergencies.
2. During such eventualities the ordinary powers of any agent are coupled with
special powers, where he agent can act as a prudent man to save the situation and in the
interest of his principal.
3. Such action of the agent must be justified as per the need of the hour and the
emergency situation.
4. If, it is justified then the principal will be bound for the act of his agent.


Exception to Rule:
Illustration: Gwilliam v. Twist (1885) 2 QB 84

 That A owned an OMINI BUS, had a driver B. Once while B was driving the bus-a
Police constable was along, after finding B drunk, he took over the driving and a little
later he crashed into pedestrian plaintiff.
 The plaintiff sued A by stating that the police constable being agent of A acted out of
necessity, hence A will be liable for the act of the policeman.

 If there is a scope for the agent to inform/ brief his principal about the emergency or
necessity then if still the agent doesn’t inform the principal, whether the principal will be
still liable in such situation????

 The court held that principal A who was the owner, was not liable.
 The police man was not acting as an agent of A,
 The policeman could have informed A, the owner about the situation, stopped
the bus, should not driven by himself.
 The bus could have been stopped, thus no accident would not have taken
place at all.

Classification of AGENTS:

Public agent Private agent

General agent Special agent
Foreign agent Mercantile agent
Commercial agent Non-commercial agent
Sub-agent ** Del Credere Agent **
Universal agent Factors


Concept of Del Credere Agent

 Italian term= Applied a type of mercantile agent who guarantees the buyer’s solvency
 An ordinary agent usually has limited function to give effect to the relationship of the
principal and third party.
 He is neither held liable for the failure of the third party to perform nor can he be sued on
the contract.
 Where as when an agent under takes on the basis of accepting extra commission , to be
liable to the principal for the failure of third party to perform a contract, is a dele credere
• The extra commission = del credere commission.
 The dele credere agent plays a role similar to a surety as well as guarantor.
Couturier v. Hastie 1953 -9 Exch 102 :
 The del credere agent acting on behalf of his principal, sold off the plaintiff’s goods
which were supposed to be on voyage, this was not known to the captain who that sold it
on the possibility of getting damaged because of to heat.
 The buyer repudiated the contract and the agent was sued due to the buyer’s failure to

 Whether the agent /defendant was responsible by the way of charging del credere
commission, eve though there was no guarantee provided by him in writing???

Court laid down:

 Higher reward/commission =higher degree of share of responsibility and commitment
than the ordinary agency.
 The agent has to take personal interest in the transaction, hence without writing still
 Its not a contract of guarantee in writing is must.

Champa Ram v. Tulsi Ram 26 All LJ

“A del credere agent only incurs only secondary liability towards the principal.

 His legal position partly that of a surety, partly that of a insurer.

 His liability does not go to the extent of making him responsible to the principal where
there can be no profit by reason of any stringency in the market.”
 The del credere agent is not liable to the buyer for any default on the part of the his
 He is not also not liable for any disputes between the principal and the buyer in relation
to any contractual sum due.
 The del credere agent is contingent pecuniary liability, not a liability to perform!!! -
Buckley J.
 Liability is limited upto the sum ascertained between the buyer and seller.


Delegatus Non Potest Delegare

• General Rule: “Qui per alium facit per seipsum facere videtur”.

• If any person does an act through another it is presumed in law that as if he

himself has acted.

• Thus it explains the scope and extent of the rights and liability of an agent.

 Illustration: Contract of agency between the A an agent for the principal B, in case of
breach B is the property party to be sued????
 Role of the agent A – limited as a medium only, effecting the contractual relationship
between the principal B and any third party.
 Hence, doctrine of agency involves certain skills, trust and integrity. There is lots trust
and confidence disposed on an agent by his principal.
 Hence, it is the obligation of the agent that does not delegate his further to anther
without notice to his principal.
 Thus we can say the agent has NO AUTHORITY,
 To further delegate the responsibility entrusted upon him by his principal.

1. An agent cannot delegate his authority to another,
2. He must personally perform the work entrusted to him by his principal.
3. There are certain EXCEPTION t this rule if nature of contract of agency demands so
or it a trend as the ordinary course or trade and business in a society.


 Trade ‘n’ Custom

 Principal ‘s consent
 In emergency
 Nature of work
 Ministerial work


Concept of Sub-Agent:
 S 192: “ a person employed by,
 And acting under the control of the original agent
 in business of the agency”== Sub Agent

Who is Employer of Sub-agent???

Who will responsible for the act of the sub-agent???

Ingredients of Sub-Agency:
1. Sub-agent is appointed by a Agent himself.
2. The agent must have the authorization to do so,
3. The sub-agent has to perform the act under taken by the agent for the principal,
4. Hence, the agent will be responsible for act of the sub-agent.
5. No scope for the any Contract of PRIVITY between the principal and the sub agent
6. Contract of Sub-agency comes to end as soon as original contract of agency ceases/ is
7. Nature of authorization???

Delegation of Authority: Sub-agency

 S.192- “Proper Delegation” –
Where a sub-agent is properly appointed, the principal is so far regards third persons,
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.
 Proper delegation = Sub-agent for his acts Responsible = Principal.
 Condition Precedent for Principal’s liability??
 The agent is responsible to the principal for the acts of sub-agent.

Contract of Agency-
Principal - Responsible himself

Agent Third Party

(Delegation of Authority by the Principal himself)

Contract of Sub-agency-
Agent- Responsible to the PRINCIPAL

(Sub- Delegation of Authority by the Agent)
****If there is unauthorized delegation implications???


Improper Delegation:
S. 193- Agent’s responsibility for Sub-agent appointed without authority:
 “Where an agent, without having authority to do so, If 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;
 Or responsible for the acts of the act of the person so employed, nor is that person is
responsible to the principal.”

Case Law Illustrations:

Calico Printers’ Asso. V. Bracley’s Bank, (1931)-145 LT 51)
 The agent had employed a sub-agent. As per the instruction from the Principal the sub-
agent was instructed the sub-agent to acquire insurance for certain goods , belongs to the
 The sub-agent never did complied with it.
 Later on due to fire the said goods were damaged and lack of insurance, the principal
suffered loss.
 Who will be liable for said loss??
 From whom the principal can recover??

 Court held : In this case the principal cannot sue the sub-agent.

Summan Singh v. National City Bank of NY, AIR 1952 Punj.172

 There was transfer of money from the plaintiff residing at New York, to Mr.
Pritam Singh residing at Jullundhar, Punjab.
 The National City Bank of New York was entrusted for the same.
 The delivery Further, National City Bank of N Y, was delegated this job to
Punjab National Bank.
 The Punjab National Bank made the deliver to a wrong person

 Who will be Liable the National City Bank or the Punjab National

 The court held:

1. The National City Bank at NY was the agent,
2. The Punjab National Bank was the sub-agent
3. Hence, for the negligence act of the sub-agent, the agent will only be liable.
4. Only in case of any fraud and cheating if committed by the sub-agent he himself will
be liable.
5. So, accordingly the National City Bank was held responsible for the wrong


Concept of Substitute Agent:

Ordinary sense- To replace for one thing by another

S. 194- Relation between principal and person duly appointed by agent to act in
business of agency.
 When ever the agent by having an express/ implied authority, appoints any person for
carrying the instruction of the principal, will be known as a substitute agent and not a
 The substitute agent and the principal are liable towards each other,
 The substitute-agent can sue principal for his remuneration and can be sued by
principal for non-performance.

S. 195- Agent’s duty in naming such person

• Difference: Compare to the sub-agent who is responsible to the agent and not the
principal, the substitute agent on the other hand is responsible to the principal himself.

• Thus there is Privity of contract between the substituted agent and the principal.

Duties of Agent: towards Principal

1. Duty to execute mandate of principal-S 211
2. Duty to follow instructions or custom-S 211
3. Duty to take reasonable care & skill- S 212
4. Duty to avoid conflict of interest-S 215
5. Duty not to make secret profit- S 216
6. Duty to remit sums –S 218
7. Duty to maintain account –S 213 & 214
8. Duty not to delegate (Delegatus non potest delegare)

1. Duty to execute mandate of principal:-

 S 211- Agents’ duty in conducing Principal’s business, as per the instruction given by the
 In absence of any such instruction he must do as per the customs of the trade /business,
 If he deviates and acts contrary to this, such causes any loss / damage,
 then the agent will be liable to make up for such loss/damage to the principal.
 If there is profit /surplus then the agent must account for such profit to the principal.


Pannalal Jankidas v. Mohanlal –AIR 1951 SC 979

• Facts: The principal has instructed his agent to store certain goods in godown and
then insure them too.
• The same the money was given to the agent. The agent then purchased the goods
and then stored in the godown at the Bombay Docks, without acquiring any insurance.
• Then due to fire the goods were destroyed.
• As per the Bombay Explosion (Compensation) Ordinance, 1944, compensation
was only granted is there was insurance.

• In absence of fire insurance, only half of the compensation was awarded.

• So the principal sued the agent for non-compliance of his instruction,

consequential loss.

• The SC held that agent was liable to compensate the principal for full, value

2. Duty to follow instruction and customs.

S 211 – Lilley v. Doubleday (1881 -7 QBD 501)
 Agent was asked to store the goods in the warehouse of a particular location, which was
not done accordingly,
 Rather the goods were placed in different warehouse which was equally safe.
 But goods were destroyed, the agent was held liable for the said loss.

3. Duty to Reasonable Care & Skill- S 212:

 “Every agent is bound to carry on the business of agency with reasonable care and
 If the principal suffers loss owing to the agent ‘s want of care and skill ,
 the agent must compensate the principal for such loss.”

 Illustrations:
Keppel v. Wheeler (1927)
 An agent was appointed to sell a house. He received an offer which he in turn quickly
communicated to his principal.
 The principal accepted the “subject to contract” provisionally,
 Subsequently the agent received a higher offer, which he failed to pass on to the
 This resulted into final acceptance of the of the first offer and ignoring the second offer.
Whether the agent will be liable???

4. Duty to avoid Conflict of Interest- S. 215


 If an 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 dishonestly concealed from him
by the agent, or
 that the dealings of the agent have been disadvantageous to him.

5. Duty not to make secret profit- S 216

• A directs B to sell A's estate. B buys the estate for himself in the name of C. A, on
discovering that B has bought the estate for himself, may repudiate the sale, if he can
show that B has dishonestly concealed any material fact, or that the sale has been
disadvantageous to him.
• Concealing the fact of existing mine within a estate and then buying it out by the
agent himself,

What recourse the principal should take??

S 216-
• If an agent, without the knowledge of his principal,
• deals in the business of the agency on his own account instead of on account
of his principal,
• the principal is entitled to claim from the agent any benefit which may have
resulted to him from the transaction.

• Maintain secrecy, confidence, non-disclosure of facts, etc negatively the trust of

the principal on his agent.

• S. 214- It is the duty of the agent to communicate with principal, in case of

difficulty, to use all reasonable diligence in communicating with his principal, and
seeking to obtain his instructions.

6. Duty to remit sums –S 218

• It is duty agent to pay the sum, which he received for principal,
• Subject to deductions of reasonable expenses if any.

7. Duty to maintain account –S 213 & 214

Agent's accounts:
S. 213:- An agent is bound to render proper accounts to his principal on demand.

Agent's duty to communicate with principal-

S. 214:- It is the duty of an agent, in cases of difficulty, to use all reasonable diligence
in communicating with his principal, and in seeking to obtain his instructions.


8. Duty Not to Delegate:

“Delegatus non potest delegare.” ------- Already discussed

Rights of Agent:
Right to Remuneration- S. 219
Right To Retainer- S. 217
Right to Lien- S. 221
Right to Indemnity- S. 222 & 223
Right to Compensation- S. 225

Right to Remuneration- S. 219

General rule: An agent is entitled to received what ever sum is agreed upon between him
and his principal.

If there is no express agreement between the principal and agent then what happens???

In case of absence of any express agreement of remuneration, the agent will be entitled to
receive REASONABLE remuneration.


 Whether he is still entitled to get the agreed remuneration?
 Or He will be only entitled only to partial remuneration???
 Or any other recourse??

 S 220- that in case of misconduct in business the agent will not be entitled to any
remuneration for the part of that business in which he had done misconduct.

 Thumb rules for remuneration of an agent:

1. Hence, S 219- deals with the agents right to remuneration which is agreed
upon and in absence of any such agreement he is entitled to what ever is reasonable
2. S 220 -deals with deduction of remuneration in case of any misconduct in

A hires B as his agent,
(to recover a sum of Rs. 1,000 )

from C a third party.

1. If B fails to recover the sum from C, what’s remedy does A has against????


2. Whether B still entitled to his remuneration agreed upon???

2. Right To Retainer- S. 217

In ordinary course, the agent has right u/s 217, to retain he sum he receives of money on
behalf principal,
Until all the claims/dues of the of the agent himself pertaining to followings during the
conduct of business;

1. Commission/Remuneration,
2. Advances he has made on behalf of the principal,
3. Expenses/cost he has incurred.

3. Agent's lien on principal's property:

S . 221. CONDITIONAL/CONTINGENT RIGHT & not an absolute right
 In the absence of any contract to the contrary,
 in an ordinary course, an agent is entitled to retain goods, papers, and other property,
whether movable or immovable,
 Must belongs to the principal received by him,
 Duration:- until the amount due to himself for commission, disbursements and services
in respect of the same has been paid or accounted for to him.

Condition precedent to S. 221:

1. The agent must be lawfully entitled to the said claim,
2. The property which is retained by the agent must lawfully belong to principal, no
dispute with respect to the title of the said property.
3. The nature of lien is only a Particular Lien and not General Lien.

4. (a) Agent to be Indemnified against consequences of lawful acts.

S. 222-
 The employer of an agent is bound to indemnify him
 against the consequences of all lawful acts
 done by such agent in exercise of the authority conferred upon him.
 The liability of the principal extends up to;
All the cost,
All the Losses
All the Expenses.
 Not an absolute right but there are certain conditions precedents….???


B, a broker at Calcutta, by the orders of A, a merchant there, contracts with C for the
purchase of 10 casks of oil for A.
Afterwards A refuses to receive the oil, and C sues B. B informs A, who repudiates the
contract altogether.
B defends, but unsuccessfully, and has to pay damages and costs and incurs expenses.
A is liable to B for such damages, costs and expenses.

A (Principal)
(to procure 10 cask of oils)

B (Agent) C (Sub-agent)

A refuses to accept the consignment.

Who will be liable to pay the cost incurred by C???

(b) Agent to be indemnified against consequences of acts done in good

S. 223-
 Where one person employs another to do an act,
 and the agent does the act in good faith,
 the employer is liable to indemnify the agent against the consequences of that act,
 though it causes an injury to the rights of third persons.

Liability only for Civil acts: S 224:-

Adamson v. Jarvis
 “It was held the liability of the principal u/s 222 & 223 -Non-liability of
employer of agent to do a criminal act.
 Only to indemnify his agent only extends for acts which are CIVIL IN

 All the is explicitly excludes all the liability of the principal which are

 Employ the agent to beat,
 Employment of an agent to publish libel,

5. Right to Compensation- S. 225

 Compensation to agent for injury caused by principal's neglect.


S 225. The principal must make compensation to his agent in respect of injury caused to
such agent by the principal's neglect or want of skill.

 A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The
scaffolding is unskillfully put up, and B is in consequence hurt.
 A must make compensation to B.

Termination of Contract of Agency

Modes of termination of agency:
1. Completion/accomplishment of the business of the agency- S 201
2. Revocation by Principal –S 203-207
3. Renunciation by Agent- S 205
4. Death of the either Principal or Agent-S 209
5. Insanity of Principal or Agent- S 209
6. Insolvency of the Principal-S 210
7. Due to Expiry of Time or fulfillment of purpose

1. Completion/accomplishment of the business of the agency

S 201: Revocation of authority:Wider
 An agency is terminated by the principal revoking his authority;
 or by the agent renouncing the business of the agency;
 or by the business of the agency being completed;
 or by either the principal or agent dying or becoming of unsound mind;
 or by the principal being adjudicated an insolvent under the provisions of any Act for the
time being in force for the relief of insolvent debtors.

2. Revocation by Principal
S 203- Revocation by Agent:
 The principal may, save as is otherwise provided by the last preceding section, (on the
basis of the various grounds/instances mentioned in S 201)
 revoke the authority given to his agent at any time before the authority has been
exercised so as to bind the principal.

 Teritel, Law of Contract- , “An agency of contract is determined by any EVENT

which terminates the contract.”


Stevenson & Sons Ltd. v. Akt fur Catronnagen Industries, 1917 QB 842
Event of war between the two countries belong to the principal and agent, the contract of
agency will be terminated automatically, the operation of law of that respective nation.


Whether the Revocation : Express/Implied???

Revocation either Express/implied:

S 207.- Revocation and renunciation may be expressed or may be implied in the
conduct of the principal or agent respectively.

Amrik Singh v. Sohan Singh-1988-93 PunjLR 541: Father appointed his son as him
power of attorney. After that the relationship between the father and son turned sour. So
this aspect rendered the role of the son as the agent of his father was not feasible, the
contract of agency ended impliedly.

Niloufer Siddiqui v. IOC Ltd. AIR 2008, Pat, 5

 There was an proposal for distributorship of Gas, from IOC. The applicant had
fulfilled the initial requirements as per the letter of allotment given to him.
 Later the IOC never sent the Standard Agreement, to the said
 This act was impliedly held to revoke the contract of agency between the IOC
& applicant??
 Whether it was valid revocation in law??
 Whether the allotee is bound by the terms of agency??

Revocation: Permissible WHEN???

1. Auctioneer and the principal, before it is knocked down,
2. In a civil suit for before the order is passed
3. Collection of debt, as soon as it is discharged,
4. Insurance policy – before the claim is executed,
If the authority is partly exercised can the agency still be revoked by principal???

S 204: Revocation where authority has been partly exercised.

 “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 acts already done in the
 An agent buys a car for his principal and pays for it, after such the payment is done by
agent, the principal can’t revoke it.

Effect of Revocation:
1. If the agent goes on performing the act even after the revocation of the contract of
agency by the principal, then if the agent incurs any cost. He can neither recover the
cost for it from the principal, nor his remuneration.


2. If after the revocation the agent carries on the business, and makes any profit then the
principal can’t recover it from the agent after such recovery.

??? In case of a wrongful revocation either by the principal or the agent, what is the

3. Renunciation by Agent
Compensation – S. 205.
 Where there is an express or implied contract that the agency should be
continued for any period of time,
 the principal must make compensation to the agent,
 or the agent to the principal,
 as the case may be, for any previous revocation or renunciation of the
agency without sufficient cause.

Notice of revocation or renunciation.

S -206:
 Reasonable notice must be given of such revocation or renunciation;
 otherwise the damage thereby resulting to the principal or the agent,
 as the case may be, must be made good to the one by the other.

Haridar Prasad Singh v. Kesho Prasad Singh ( AIR 1925 Pat 68.)
 A B, as agent to conduct his business, paid sum of 1 lakh.
 4 Yrs. Passed, B A to pay additional funds, A refused, loss occurred.
 Afterwards A asked B to refund the sum of Rs. 1 lakh paid, B refused.
 12 yrs, later both A & B died, Still B sons continued the said business and made profit,
heirs of A sued B’s son for share in profit.
 Issue: B’s son are liable to pay???

 Court held:
 The refusal to pay for additional funds = revocation of contract of agency,
 Later what ever profit was made by B and his sons, Principal A and his legal heir’s does
have right to share the same.

Modes of termination of agency by Agent: 205:

1. By tendering resignation,
2. By ceasing to discharge his duties


3. By setting adverse title to the principal

4. If the agency is for any unlawful act,
5. If the principal refuses to give Indemnify
6. Refusal to pay his dues/remuneration by the principal.

4. Death of the either Principal or Agent / 5. Insanity of Principal or Agent

Agent's duty on termination of agency by principal's death or insanity.
S 209.
• When an agency is terminated by the principal dying
• or becoming of unsound mind, the agent is bound to take,
• on behalf of the representatives of his late principal,
• all reasonable steps for the protection and preservation of the interests
entrusted to him.

6. Insolvency of the Principal-S 210-----

7. Due to Expiry of Time or fulfillment of purpose

On completion of Agency:
• As soon as the purpose of the contract of agency accomplishes the very purpose
for which the contract of agency has been created, then it is automatically ceases to
1. By fulfillment of the specific purpose,
2. Or by the expiry of time.

Essentials of Revocation:
 205: Prospective,
 Revocation even after authority is exercised partial,
 It can be express/implied both either by the agent /principal,
 206: revocation/renunciation by Reasonable notice