THE LAW OF AGENCY

When a person employs another person to do any act for himself or to represent him in dealing with third
persons, it is called a ‘Contract of Agency’. The person who is so represented is called the ‘principal’ and
e representative so employed is called the ‘agent. Whatever a person (sui juris) competent to contract,
may lawfully do by himself, s/he may also do by an agent

The duty of the agent is to enter into legal relations on behalf of the principal with third parties. But, by
doing so he himself does not become a party to the contract not does he incur any liability under that
contract. Principal shall be responsible for all the acts of his agent provided they are not outside the
scope of his authority. Maxim qui facit per alium facit per se’ i.e., he who acts through an agent is
himself acting.
Essential Features of a Valid Agency Contract
• The person employing the agent must himself have the legal capacity or be competent to do the
act for which he employs the agent.
• A minor or a person with unsound mind cannot appoint an agent so as to be legally represented
by him.
• An agent need not necessarily be competent to contact. Hence minor or an insane can be
appointed as an agent he can bring about legal relations between the principal and the third party
but such an incompetent agent cannot personally be held liable to the principal.
• Consideration is not required for creation of Agency
CREATION OF AGENCY:
The relationship of principal and agent is known as agency. It may be created in the following ways:
1. By Express appointment: When an agent is appointed by words spoken or written, his authority is
said to be express.
Example: Power of attorney, in writing or orally
2. By implication: When agency arises from the conduct of the parties or inferred from the conduct
of the parties and circumstances of the case, it is called implied agency. Partners, servants and
wives are usually regarded as agents by implications because of their relationship.
Example: A of Calcutta has a shop in Delhi. B, the manager of the shop, has been ordering and
purchasing goods from C for the purpose of the shop. The goods purchased were being regularly
paid for out of the funds provided by A. B shall be considered to be an agent of A by his conduct.
3. Agency by Necessity: Under certain circumstances, a person may be compelled to act as an agent
to the other.
Example: Master of the ship can borrow money at a port where the owner of the ship has not
agent, to carry out necessary repairs to the ship in order to complete the voyage. In such a case of
necessity, person acting as an agent need not necessarily have the authority of the principal.
However, the agent must act under pressing conditions and for the benefit of the principal.
4. Agency by Estoppel:
When an agent has without authority, done acts or incurred obligations to third persons on behalf
of his principal, the principal is bound by such acts and obligations if he has by his words or
conduct induced such third person to believe that such acts and obligations were within the scope
of the agent’s authority.
Example 1. A says to B in the presence of and within the hearing of C that he is C’s agent. C
remains mum. B supplies goods of Rs. 10,000/- to A taking him as C’s agent. C’s responsible for
the payment of price of these goods.
Example 2: The usual situation is where an employee is allowed by his employer to order goods on
his behalf and the goods are afterwards paid by the employer. If the employee later on orders
goods on the employer’s behalf from the same suppliers, the employer will be liable to pay for
them as he will be stopped from denying the employee’s ostensible authority.
 5. Agency by Ratification: Ratification means subsequent acceptance and adoption of an act by the
principal originally done by the agent without authority.
Example: A acts in the name of B, without B’s authority. B may ratify the act and make it as valid
as if it had been done with his authority. Ratification has the same legal effect as if the agent had
originally been authorized to ac

KINDS OF AGENTS
1. Auctioneers: An auctioneer is primarily the agent of the seller but on the drop of hammer, he
also becomes the agent of the buyer.
2. Factors: A factor is an agent if it is in the customary course of his business as such agent to sell
goods, or to consign goods for sale, to buy goods or to raise money on the security of goods.
3. Brokers: A broker is an agent who negotiates and contracts for the purchase and sale of goods
and other property. He is an agent of both parties but he does not have actual possession of goods
4. D e l c r e d e r e a g e n t : He is one who, in return for an extra commission, gives an undertaking
that he will indemnify his principal if the third party introduced by him does not pay for the
goods delivered to him.
5. Bankers: The general relationship between bankers and customer is that of debtor and
creditor. The banker may also be an agent of his customer for collecting payment on cheques
drawn on other banks which have been paid into his account by the customer

DUTIES OF THE AGENT

The rights and duties of the principal and agent may be laid down by agreement. But incase
the agreement does not provide for the rights and duties, the following duties are imposed bylaw on
every agent.
1. To follow the instructions of his principal:
The agent must conduct the business of the principal according to the directions of the latter. In the
absence of any such directions, he must follow the custom of the business prevailing in the locality
where the agent is conducting such business. If the agent acts otherwise and the principal sustains a
loss, the former must compensate the latter for it. He will have to account for the profits to the
principal if there are any. He will also lose his remuneration .
Example: A, an engaged in carrying on for B a business in which it is the custom to invest from
time to time, at interest, the money which may be in hand omits to make such investment. A must
take good to B the interest usually obtained by such investment.
2. Duty to act, with skills and diligence:
The agent must conduct the business of agency with as much skill as is generally possessed by
persons engaged in similar business unless the principal has notice of his want of skill.
Example: A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit
without, making the proper and usual enquires as to the solvency of B. B. at the time of such sale is
insolvent. A must make compensation to his principal in resepct of any loss thereby sustained.
3. Duty to render accounts:
An agent is bound to render proper accounts to his principal on demand. He must explain those
accounts to the principal and produce the vouchers in support of the entries.
4. Duty to communicate with the principal:
In cases of difficulty it is the duty of the agent to use all reasonable diligence in communicating
with the principal and in seeking to obtain the instructions. It is only in an emergency where there is
no time to communicate that he may act bonafide without consulting the principal.
5. Duty not to deal on his own account:
Relationship of principal and agent is of a fiduciary character. An agent, therefore, should not deal
on his own account and should not do anything which may indicate a clash between his interest and
duties. An agent shall have to pay all the benefits to the principal, which may have resulted to him
from his dealings on his own account in the business of the agency without the knowledge of the
principal .
Example: A directs B, his agent, to buy a certain house for him. B tells A that it cannot be bought;
any buys the house for himself. A may, on discovering that B has bought the house, compel him to
sell it to A at the price he gave for it.
6. Duty not to delegate his authority:
An agent cannot delegate his authority to another person unless authorised or warranted by the
usage of trade or nature of the agency. A work entrusted to the agent must be done by him.
7. Duty to protect the interest of principal or his legal representative in the event of principal’s
unsoundness of mind or his death:
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.
8. Duty to pay sums received for principal:
The agent is bound to pay to his principal all sums received on his account after deducting for his
own claim.

RIGHTS OF AN AGENT
1. Right to claim reimbursement for expenses:
Agent has the right to retain, out of the money received on behalf of the principal, money
advanced or expenses properly incurred in conducting the agency business . The agent may have
paid the money at the request of the principal, or on account of the understanding implied by the
terms of the agency or through mercantile usage.
2. Right to receive remuneration:
He has also a right to claim remuneration as may be payable to him for acting as an agent. In the
absence of any contract to the contrary, this right to claim remuneration will arise only when he
has carried out the object of the agency in full without being guilty of misconduct.
An agent who is guilty of misconduct in the business of the agency is not entitled to any
remuneration in respect of the part of that business which had been misconducted (Sec. 220).
Example: A employs B to recover 1,00,000 rupees from C, and to lay it out on good security. B
recovers, 1,00,000 rupees and lays out 90,000 rupees on good security, but lays out 10,000 rupees
on security which he ought to have known to be had, whereby A losses 2,000 rupees. B is entitled
to remuneration for recovering the 1,00,000 rupees and for investing the 90,000 rupees. He is not
entitled to any remuneration for investing the 10,000 rupees and the he must make good the 2,000
rupees to A.
3. Right to indemnification against consequences of all lawful acts:
An agent has a right to be indemnified by the principal against the consequences of all lawful acts
done in exercise of his authority.
Example: B, a broker at Calcutta, by the orders of 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 incurs expenses. A is liable to B for such damages, costs and expenses.
4. Rights of indemnification against consequences of acts done in good faith:
An agent has a right to be indemnified by the principal for any compensation which he may be
required to pay to the third parties for injuries caused to them by his wrongful acts within the
scope of his actual authority done in his good faith, i.e., without any wrong or dishonest
intentions.
Example: B at the request of A, sells goods in the possession of A, but which A had no right to
dispose of B does not know his, and hands over the proceeds of the sale to A. Afterwards C, the
true owner of the goods sues B and recover the value of the goods and cost. A is liable to
indemnify B for what he has been compelled to pay to C and for B’s own expenses.
But where one person employs another to do an act, which is criminal, the employer is not liable
to the agent either upon an express or an implied promise, to indemnify him against the
consequences of the act.
Example: A employs to B to beat C, and agrees to indemnify him against all consequences of the
act. B thereupon beats C, and has to pay damages to C for so doing. A is not liable to indemnify B
for those damages.,
5. Right of indemnification for injuries caused by Principal’s neglect:
An agent has a right to claim compensation from the principal for injuries caused to him by the
negligence or want to skill on the part of the principal .
Example: 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.
6. Right of particular lien:
An agent is entitled to retain under the possession both movable and immovable of the property
of the principal received by him until the amount due to him for commission, disbursements and
services has been paid or accounted for him, provided the contract does not provide otherwise.

DUTIES OF THE PRINCIPAL

1. To pay the agent agreed remuneration or commission and if so agreed, necessary
expenses as well
2. To indemnify the agent against any consequences of all things lawfully done within
the authority conferred upon him. The right to indemnify is lost if the agent exceeds his authority
or acts negligently.
C employed X, a broker to make speculative purchases of cotton for him and became he a vi l y
i nd ebt e d t o X o wi n g t o t h e f al l o f p ri c es i n t h e cot t on m a rk et . X , as he w as
entitled to do, closed the account by selling the cotton, which he had bought for C. X
was personally liable on the contracts and the sale of cotton resulted in a loss. H e l d - X was
entitled to be indemnified by C.
Note: The duties of an agent are indirectly the rights of a principal and the rights of an agent are
indirectly the duties of a principal.

Relationship between principal, agent, and third parties

1. Wh e r e t he a g ent i s c ont r ac t i n g fo r a nam e d p ri n ci p al f or a n am ed p ri n ci p al
an d t hi r d party is fully aware of agency, then, if the agreement is within the agent’s
authority, or has been ratified, the third party can sue the principal.
2. Where the agent discloses the existence but not the name of his principal, the third
party can sue the principal. But where an agent contracts in writing and does not exclude his
liability so that he appears to be personally liable, he will be unable to relieve himself of liability
by proving that he was contracting as agent.
3. Where neither existence nor the identity of the principal is disclosed, the doctrine of
undisclosed principal arises. When the principal is discovered, either the principal or the agent
may be sued by the third party. The third party cannot sue both principal and agent. He must
make his choice between them, and judgment obtained against one of them, bars proceedings
against the other

TERMINATION OF AGENCY
The relationship and agent may be terminated by act of the parties or by operation of law as follows:
1) By notice of revocation given by the principal to the agent.
B y r e v o c a t i o n , a p r i n c i p a l may revoke the authority of the agent in the same
manner in which the agent has the right of renunciation. In case the revocation constitutes a
breach of contract of agency, the agent is entitled to claim compensation from the principle.
Revocation is subject to the following conditions:
• If the agent has incurred a personal liability in accordance with the terms of the contract,
the principle cannot be allowed to revoke the agency leaving the agent exposed to risk or
liability he has incurred.
• If a power of attorney (agency created under seal) is given for consideration or not is not
revocable within year of granting.
• If the agency is coupled with an interest.
For example, if P owes some money to A, and authorizes him to sell Ps goods and pay for
himself out of the sell proceeds, the agency is supported by sufficient consideration and is
irremovable.
2) Termination of agency by acts of the parties : An agency may be terminated by the
following acts of the parties:
• Mutual agreement
• Lapse of time
• Purpose of the agency is achieved
• Occurrence of a specified event

3) Termination of agency by operation of law: An agency is terminated by operation of law if

there is:
• Death of the principal or agent
• Insanity of the principal or agent
• Bankruptcy of the principal
• Impossibility of performance
• Change in circumstances
• War between the principal's and agent's countries
Remedies for breach
Available to principal against agent
1) Right of dismissl
2) Court action for inter alia, agent’s negligence, breach, conversion, infidelity and
tracing where his property and principal’s are fixed
3) Prosecution in case misconduct takes the form of a criminal offence
Available to agent against principal
1) Court action, e.g. for failure of receiving his due commission
2) Set-off where the agent replies to the principal’s action by a claim of an amount
allegedly owed by the principal to the defendant
3) L i e n o v e r p r i n c i p a l ’ s g o o d s
 AGENT
An agent is appointed by a principal and is under
his control.
An agent acts under the principal.
A privity of contract exists between a principal
and an agent.
An agent can ask for remuneration from the
principal.
SUB-AGENT
An agent appoints a sub-agent and therefore a
sub-agent is under the control of an agent.
A sub-agent acts under the agent.
A sub-agent cannot be held liable by the
principal, except in case of fraud.
A sub-agent is not entitled to any remuneration
from the principal.
No contract exists between a sub-agent and the
principal.
An agent is liable for the acts of the sub-agent.
SUB AGENT
A sub-agent is appointed by an agent and as such is
under the control of the agent.
A sub-agent acts under an agent.
No privity of contract exists between a principal and a
sub-agent.
A sub-agent cannot ask for remuneration from the
principal.
SUBSTITUTED AGENT
A substituted agent is only named by the agent but is
under the control of the principal.
A substituted agent acts independently for his principal.
A substituted agent can be held liable by his principal.
A substituted agent can ask for his remuneration from
his principal.
A contractual relationship exists between the substituted
agent and the principal.
An agent is not liable for the acts of substituted agent.