Contract of Agency

Contract of agency
 A person who has capacity to contract may enter into a contract
with another by two course:
i. Either by himself , or
ii. Through an ‘agent’.
 An Agent (A)is a person employed to do any act for another,
or to represent another in dealings with third
persons(Sec.182)
 Principal (P)– the person for whom such act is done. and any
person who is of the age of majority according to the law to
which he is subject.
 Agent is a connecting link between the principal and third
parties.(T)
 Essentials of relationship of agency
Agreement between the principal and the agent.
i. Agency depends on agreement but not necessarily on
contract.
ii. As between the principal and third persons, any
person may become an agent(Sec. 184) i.e. even a
minor or a person of unsound mind however,
principal is liable for the acts of such an agent.
iii. No consideration is necessary to create an
agency(Sec.185)
Intention of the agent to act on behalf of the principal.
 Rules of agency
1. Whatever a person can do personally, he can do through an
agent. –certain well known exception to this rule is when the
act to be performed is personal in character (e.g. marriage) or
is annexed to a public office (e.g. that of a magistrate).

2. He who does an act through another does it by himself.

• Sec.226 clearly provides that an agents and contracts will have
the same legal consequences as if the contracts had been
entered into and acts done by the principal in person.
• Example-A being P’s agent, with authority to receive money
on his behalf,recieves from T a sum of money due to P.T is
discharged of his obligation to pay the sum in question to P
Creation of agency
The relationship of principal and agent may arise-
1. By express agreement, or

2. By implied agreement, or

3. By ratification, or

4. By operation of law.
 Agency by express agreement
The authority of an agent may be expressed or
implied(Sec186)
The agent may, in such a case, be appointed either by
word of mouth or by an agreement in writing(Sec.187)
The usual form of a written contract of agency is the
power of attorney (a formal instrument by which one
empowers another to represent him, or act in his stead,
for certain purposes) on a stamped paper.
 Agency by implied agreement
 Implied agency arises from the conduct, situation or
relationship of parties. It may be inferred from the
circumstances of the case and things spoken or written or the
ordinary course of dealing, may be accounted as circumstances
of the case.(Sec 187)

 E.g. P owns a shop in Indore being himself in Delhi, and

visiting the shop ocassionally.The shop is managed by A and he
is in the habit of ordering goods from T in the name of P for the
purposes of the shop, and for paying for them out of P’s funds
with P’s knowledge. A has an implied authority from P to order
goods from T in the name of P for the purpose of the shop
 Implied agency includes:
1. Agency by estoppel or holding out, i.e. when a person , by his
conduct or by statement, leads willfully another person to
believe that a certain person in his agent, he is estopped from
denying subsequently that person is not his agent.
2. Agency by necessarity. i.e. when a person acts in some
emergency as agent for another without requiring the consent
of that person.
3. Ratification , i.e., when a person subsequently accepts the act
of the agent done without his consent. Ratification is
tantamount to prior authority. It relates back to the date when
the act was done by the agent.
 Classification of agents
 Classification on the basis of extent of authority is as follows:
1. Special agent-one who is appointed to perform a particular
act or to represent his principal in some particular
transaction.e.g. an agent employed to sell a house or to bid an
auction.
2. General agent-one who has authority to do all acts connected
with a particular trade, business, or employment. E.g. the
manager(general agent) of a firm has an implied authority to
bind his principal.
3. Universal agent- one who has authority to act for the
principal is unlimited provided that act is legal and is
agreeable to the law of land.
 Classification of agents on the basis of nature of work
performed by them is as follows:
1. Commercial or mercantile agent- acc. to Sec.2(9) of the
sales of goods act,1930,means “mercantile agent having in the
customary course of business as such agent, authority either to
sell goods ,or to consign goods for the purpose of sale, or to
buy goods, or to raise money on the security of goods. This
definitions does not cover all mercantile agents like
factor,auctioneer,broker,commission agent, del credere agent.
2. Banker
3. Non-mercantile agent- includes attorneys, solicitors,
insurance agents, clearing and forwarding agents and wife,
etc.
Rights and duties of agent

Rights of the agent-

1. Right of retainer.
2. Right to receive remuneration
3. Right of lien
4. Right of indemnification
5. Right of compensation
6. Right of stoppage in transit.
 Duties of an agent-
1. To carry out work undertaken according to instructions.
2. To carry out the work with reasonable care, skill and
diligence.
3. To render accounts to principal.
4. To communicate with principal in case of difficulty.
5. Not to deal on his own account.
6. To pay sums received for the principal.
7. To protects and preserve the interests of the principal in case
of death or insolvency
8. Not to use information obtained in the course of
agency against principal.
9. No to make secret profit from agency
10. Not to set up a adverse title.
11. Not to put himself in a position where his interest
and duty conflict
12. Not to delegate authority
 Delegation of authority
The general rule is that an agent cannot delegate his authority to
another person without the consent of principal.(referred
Sec.191).exception are as follows:
 Sub- agent(sec.190)- it provides that an agent may appoint a
sub-agent and delegate work to him if-
I. There is a custom of trade to that effect, or
II. The nature of work is such that a sub-agent is necessary.
 Co-agent or substituted agent(sec.194) – person who is named
by the agent, on an express or implied authority from the
principal, to act for the principal.
 Relation of principal with third parties
 Agents authority-It means his capacity to bind the principal. This
authority may be actual authority or ostensible authority.
 Actual authority- It is the authority conferred on an agent by the
principal.It may be express or implied(sec186)
 An agent having authority to do an act has authority to do every
lawful thing which is necessary in order to do such an act(sec.188)
 Ostensible or apparent authority-It is the authority of an agent
as it appears to others.e.g. an estate agent was instructed by
owners to find a purchaser for a property. He did so and accepted
from the prospective purchaser a deposit as agent of the owners.
Held, although the estate agent was not given authority to accept
deposit, he had acted within the scope of his ostensible authority.
(Ryan v. Pilkington,(1959)1 W.L.R.403)
Position of principal and agent in relation to third parties
 Named principal-
1. Principal is liable for acts done in scope of authority and in course
of employment.
2. Liable for misrepresentation made or frauds committed by an agent
in course of employment.
3. Bound by notice given to or information obtained by the agent.
 Unnamed principal-the principal is liable for the contracts of the
agent, unless there is a trade custom, or term, express or implied, to
the which makes agent personally liable. Legal position is same as
named principal
 Undisclosed principal-the agent is bound by contract. The
principal has right to intervene and assert his position as an
undisclosed party.
Contd…
1. A is P’s agent with authority to receive money on his behalf. He
receives from T a sum of money due to P. T is discharged of his
obligation to pay sum to P.
2. P authorizes A to buy 10 sheep for him. A buys 10 sheep and 20
lambs for one sum of Rs. 6000. P may repudiate the whole
transaction.
3. P instructed his agent, A, to reinsure an overdue ship at a certain
port, A heard that the ship had actually lost. He did not disclose this
fact to the insurer. Held P could not recover upon policy.
4. A sold to T goods of P , undisclosed principal. When P sued T, T
claimed to set off a debt by A to T.The set- off is allowed.
5. A’s agent P enters into a contract with T acting as principal then
later on A intervene in contract. T can sue either A or P, or both
 Personal liability of agent
 An agent is personally liable where:
1. The contract expressly provides;
2. He acts for a foreign principal;
3. He acts for concealed principal;
4. He acts for person who cannot be sued;
5. He signs a contract in his own name;
6. He acts for a principal not in existence;
7. There is breach of warranty;
8. He receives or pays money by mistake or fraud;
9. His authority is coupled with interest;
10. The trade usage and custom usage makes him personally liable
 Termination of agency
 By the principal revoking agent’s authority;
 By the agent renouncing the business of the agency;
 By the business of the agency is completed;
 By either the principal or agent dying or becoming unsound
mind;
 When the principal is adjudicated an insolvent under the
provisions of any act for the time being in force for the relief
of insolvent debtors (sec. 201)
Irrevocable agency – when an agency cannot be
put an end to, it is said to be an irrevocable agency.
An agency is irrevocable where
1. It is coupled with interest,
2. The agent has incurred a person liability and
3. The agent has partly exercised the authority.