Contract of Agency or

Law of Agency
Agency
Agency is a relation between two parties created
by an agreement express or implied.
Agent (Sec-182)
Defines that “ the person employed must be authorized to
do any act for another, or to represent another in dealings
with third persons.”

•The person who acts on behalf of another is called an

Agent.

•The person who gives such authority is called Principal

and the relationship between them is called agency.
* Who may be agent: any person who is sound
mind and major. Minor can also act as an agent
but the principal shall bind the acts of the minor
agent.
Consideration in contracts of Agency :

Consideration is essential, but Sec-185 says that in

contract of agency “ no consideration is necessary”.
The acceptance of the position of the agent is itself
is a consideration.
Eg: A authorizes his friend B to buy a
motorcar for him if B accepts the
responsibility it is a valid contract of
Agency.
Classification of Agents
General Agent

Special Agent

Universal Agent
General Agent: General Agent is one who is
employed to transact generally all the business;
trade or employment of the principal in regard to
which he is employed.
Eg: Manager in an Organization.
Special Agent: A Special Agent has only authority
to do some particular act or represent his principal
in some particular transactions.
Eg: Sale of house.
Universal Agent: A Universal agent is one who is
authorized to transact all the business of the
principal of every kind and to do all acts, which
the principal can do lawfully.
Another classification of Agents in
nature of work /Business/ Trade they
done.
• Factor
•Auctioneer
•Commission Agent
•Broker
•Banker.
•Del Credre Agent
Another classification of Agents in nature of work they done:

Factor: A Factor is a mercantile agent to whom possession of goods for sale, he is a

person whom goods are consigned for sale by a merchant residing at a distance from
the point of sale.
Auctioneer: is an agent to sell goods in public actions.
Brokers: Who is appointed for buying or selling goods
Commission Agent: commission agent, who in cosideration of a certain
commission engages to purchase or sell goods for his principal.
Del Credre Agent: A Del Credre agent, who is in consideration of an extra
commission guarantees his principal. The performance of contract by the other party.
He occupies the position of guarantee and agent.
Banker.

Non-Mercantile Agents: Lawyers, Insurance agents, wife etc.

Creation of Agency
1. Agency by express agreements (Sec-186)

2.Agency by Implied Sec-187

a)Agency by Estopple
b) Agency by Holding out
c) Agency by Necessity

3. Agency by Ratification

4. Agency by Operation of law

Creation of Agency:

1. Agency by express agreements Sec-186: means appointed either by words or

written.
2. Agency by Implied Sec-187: Agency may create implied also means it may be
created by the conduct, situation or relationship; of the parties.
Eg: A & B are brothers. ‘A’ Lives at Vizag, B lives at Hyderabad. A with good faith
leases B’s house. He collected the rents and deposited in B’s A/C. Created by acts
of parties.
Agency by Implied :
a)Agency by estopple
b) Agency by holding out
c) Agency by necessity.

a) Agency by Estoppel Sec-237: When an agent has without authority, done acts on
behalf of the principal, principal is bound by such acts done by the agent.
b) Agency by holding – out: It is branch of estoppel in this case a prior positive act
on the part of the principal is required to establish agency.
Eg: A appoints B as an agent. He allows B to purchase goods from C on credit
regularly. One day he paid cash to B purchased goods. The cash was
misappropriated by B and actually purchased by credit. C has a right to receive the
money from A.

c) Agency by Necessity: if any unforeseen situations arise and there is a danger to

that property the law will appoint the agent.
Eg:1. Suppose if any perishable goods are sent by a train when it arrived at the
destination and nobody took its delivery the station authority should preserve the
goods until the owner came. They act as an agent of necessity.
2. Husband and wife.

3.Agency by ratification: [Agreement, consent]: A person may act on behalf of

another without his knowledge or consent. If he agrees the act done by the person
becomes agent to him.
Eg: A insures B’s a goods without his consent. If B ratifies, it becomes a valid
insurance.
4. Agency by operation if law: Some times an agency arises
by operation of law. When a company is formed its
promoters are the agents by operation of law.

A partner is an agent in the partnership firm.

Duties of Agent to Principal
1.Duty to act according to principal’s Directions (Sec-211)
2.To carryout the work with reasonable care & skill (Sec-212)
3. Duty to Render proper account to his principal (Sec-213)
4. Duty to Communicate (Sec-214) Reject the transaction
(sec.215)
5. Not to deal on his own account Claim the benefit
(sec.216)
6. Duty to pay the sums received for the principal (Sec-218)
7. To protect and preserve the interests of the principal (Sec-209)
8. Duty not to use information against the principal.
9.Not to make secret profit from agency
10.Not to set up adverse title
11.Not to delegate the authority
1. Duty to act according to principal’s Directions (Sec-211):

The primary duty of an agent is to act within the scope of his authority given by the
principal. if he acts out of his authority he will be liable any loss suffered by the
principal.
Eg: A appointed B as his agent. He instructed the B to insure the goods. If he
neglects to do so, the agent is liable for his act.

2. To carryout the work with reasonable case & skill (Sec-212):

An agent is bound to conduct the business of the principal with as much skill as is
generally possessed by the persons engaged in similar business. The agent is liable in
respect of the direct consequence of his neglect, vast (lack) of skill or misconduct,
but he is not liable in respect of loss or damages which is indirectly caused.

Eg: P a merchant in Hyd, he appointed Q as his agent at vizag. As a part of business

transactions Q has to deposit the money in P’s A/C. But Q retains the money for
some time. P becomes insolvent. So Q is liable to pay the money with interest.
3. Duty to Render proper account to his principal (Sec-213):

An agent is bound to render accounts to the principal. When the principal demands
to show the A/C of any transaction, it is the obligation of the agent to promptly
place the A/C before the principal.

4. Duty to Communicate (Sec-214):

It is the duty of the agent, in cases of deficiency arises, he should use all
reasonable efforts in communicating with his principal and obtain his instructions
but it is impossible to get instructions from the principal, the agent can act in the
interests of the principal on his own.
5. Not to deal on his own account: (Sec-215)

An agent must not deal on his own account in the business of the agency without
obtaining the instructions from the principal. If the agent without knowledge of the
principal deals in the business of agency on his own account, the principal, he
may under Sec-215 reject the transactions or under sec-216 he may claim the
benefit from the agent, which the agent got in the transactions.
Eg: P directs Q to sell his house, but Q buy’s the house for himself in the name of R. P
may reject the transaction.
Eg: P directs Q his agent to buy a certain house for him. But Q buys the house in his
name, so P can claim the benefit of Q.

6. Duty to pay the sums received for the principal (Sec-218):

The agent is bound to pay to his principal all the money received on his a/c. the agent
is however, entitled to deduct his expenses or charges incurved for the transactions.

7. To protect and preserve the interests of the principal (Sec-209):

Incase of death, insolvency or becoming unsound mind the agent bound to take,
onbehalf of Legal Hearis ( like wife, children, father and mother etc.,) of his principal,
all reasonable steps.

8. Duty not to use information against the principal:

It is the duty of the agent to pass any information, which he receives in the course of
agency to his principal. If he uses any information against the interest of the principal.
And principal suffers any loss, the agent is found to compensate the principal.
9.Not to make secret profit from agency:

The agent except his remuneration or commission must not make any secret
profits without the knowledge or consent of the principal.
Eg: An auctioneer received from the buyer commission in addition to what his
principal paid him as commission.

10.Not to set up adverse title:

An agent must not setup his own title or the title of the 3rd party to the goods,
which he receives from the principal if he, does so, he will be liable for
compensation.
11.Not to delegate the authority:

An agent must not depute another person or delegate his authority to another
person.
Rights of Agent against the Principal
 Right of Retainer (Sec-217)
Right to receive
remuneration (219)
Right to receive Remuneration Not entitled to receive
Right of Lien (Sec-221) remuneration (220)

 Right to Indemnification (Sec-222)

Sec.222 gives indemnity right in respect of lawful
acts.
Sec.223 gives indemnity right in respect of unlawful
acts with good faith.
Sec.224 right of indemnity does not extend to
unlawful acts.

Right of Compensation Sec-225)

1.Right of Retainer (Sec-217):
The agent has a right to retain his principal’s money until his claim are
settled. Claims like, his remuneration, advances made or any expenses
made in conducting the business of his principal.
2. Right to receive Remuneration (Sec-219 & 220):
The agent s is entitled to his agreed remuneration from the principal, if
nothing is agreed a reasonable remuneration may be paid to him. [And
another clause in there, the payment or remuneration also depends on
the performance of the act or compilation of any act].

Eg: A was appointed as an agent to book orders for advt, in

newspapers. The commission was agreed to be paid when an advt. was
published in the newspaper. The agency was terminated. An agent who
is guilty of misconduct in the business agency, he is not entitled any
remuneration in respect of his misconduct Sec-220.
3. Right of Lien (Sec-221): An agent is entitled to retain goods or documents or any property
whether movable or immovable of the principal. Until the amount due to him by the
principal.
4. Right to Indemnification (Sec-222): A principal is bound to indemnify an agent against
the losses sustained by an agent in the course of business.
Eg: A at Hyd, under instruction from B (who is principal) entered into a contract with C to
deliver some goods to C. But B does not send the goods to A. C filed a case against A for
breach of contract. A defends the case and paid damages and expenses to C. B is liable to
pay all the damages and expenses.

Sec-222: when an agent does the act in good faith, the principal is liable to indemnify the
consequences of that act, even though such act causes injury to the 3rd persons.

Sec-223 gives indemnity right in respect of unlawful acts done by the agent in good faith.
But he does not claim the indemnity if he knows that it is an unlawful act.

Eg: B at the request of A sells the goods given by him, but which A had no right or title over
the goods. B does not know the fact he hands over the sale amount to A later C who is the
true owner of the goods file a case against B and recovers the value of goods and costs. A is
liable to indemnify B.
Sec-224: the right of indemnity does not extended to criminal acts, even though
authorized or directed by the principal.
Eg: A employees B to smuggle the goods.

Right of Compensation Sec-225:

The agent has a right to claim compensation for the loss or damages sustained by
him by the negligent act of the principal in the business transaction
 Duties and Rights of the
Principal towards the agent
The duties of a principal are equal to rights of agent.
Duties and Rights of the principal towards the agent:

Duties of the principal are the rights of the agent like

• To indemnify the agent
• To pay agents commission or any remuneration
• To indemnify the agent for damages by the negligence of the
principal etc.

Rights of the principal:

• Right to recover Damages: the principal suffers any loss due

to the acts or negligence of the agent. He can recover damages
from agent
• Right to ask accounts
• Right to resist the claim of the agent for commission
indemnity on the ground that, if the agent had acted himself as
a principal, without the direction of the principal.
Personal liabilities of the agent to
3rd parties (Sec-230)
 When the Contract Expressly provides
Where the agent acts for a foreign principal

When he acts for an undisclosed principal

When he acts for a principal who is incompetent

Where he signs a contract in his own name

Where he acts for a principal not in existence

Where the agent exceeds his authority

Where he receives or pays money by mistake or fraud

Personal liabilities of the agent to 3rd parties Sec-230:

When the contract expressly provides:

When a person, while entering into contract with an agent, if they made agreement that, the
person would hold the personally liable, incase of any breach of contract, and if the agent
agrees, he is personally liable.
2.Where the agent acts for a foreign principal:
When an agent for the sale or purchase of goods makes the contract for a merchant residing
abroad, the agent is personally liable to that merchant.
Eg: where a merchant residing abroad buys good here through an agent, the seller contracts
with the agent and is no contract between the seller and the merchant, it is only responsible
of the agent.

3. When he acts for an undisclosed principal:

When an agent acts for an undisclosed principal, he is personally liable. When it
Comes is if acts on his own name.
4. When he acts for a principal who is incompetent:
Where the principal is incompetent to enter into a contracted: minor or unsound
mind
5. Where he signs a contract in his own name:
An agent who signs the contract in his own name, without disclosing that he is
acting as an agent.

6. Where he acts for a principal not in existences:

Where an agent enters into a contract on behalf of a non-existing principal the
agent is liable. Eg: The promoters of a company are there, the company is yet to be
incorporated, sometimes they enter into contract on behalf of the company, the
company is not liable, because it is not inexistence.

7.Where the agent exceeds his authority:

If the agent, who exceeds authority given by the principal he is personally
liable.

8. Where he receives or pays money by mistake or fraud:

If the agent receives the money by mistake or fraud in business from the 3rd
party, He is personally liable to the 3rd parties.
Sub-Agent ( Sec-191)

Co-Agent or Substituted Agent (Sec-194)

Sub- Agent:

The general rule is that an agent is not entitled to delegate his authority to another
person without the consent of the principal. Why because. When the principal
appoints a particular person as his agent to act on his behalf, he relies upon the agent
skill and competence.
Sec-190 prohibits delegation of such authority but with some exceptions:
 Where the ordinary custom of trade permits employment of sub-agent.
 If the sub-agent is necessary to that particular work
 When the agent expressing his authority to appoint a sub-agent.
 When the principal is thinking that his agent needs another person’s help to do that
transaction, he can appoint.
 When the principal permits appointment of the sub-agent.
Sub-Agent( Sec-191):

A Sub-Agent is a person employed by, and acting under the control of the original agent in the
business of agency. This means he is the agent of the original agent. The relation between
themselves is like principal and agent.
Relation between principal and Sub-Agent:

Under the above explanasions, if the appointment of Sub-Agent is proper, in other cases it is
improper appointment.
Where the Sub-Agent is properly appointed (Sec-192):

1.If the Sub-Agent is appointed properly, the principal is bound by the acts of the sub-agent,
like the acts of original agent.
2.The original agent is responsible to the principal for the acts of the sub-agent.
Where the sub-agent is not properly appointed (Sec-193):

Where an agent without having the authority, has appointed the sub-agent:
1.The principal is not responsible or answerable to the 3rd parties for the acts of
sub-agent.
2.The agent is responsible for the acts of the sub-agent.

Co-Agent or Substituted Agent (Sec-194):

Another agent for an exclusive purpose as per Sec-194 . A substituted agent is a

person appointed by the agent to act for the principal in the business of agency
with knowledge and consent of principal.
Eg: A authorizes B to recover moneys due to A from C. B instructs or appoints D
with the consent of A to take legal proceedings against C. for recovery of money.
Here D is not sub-agent. He is the co-agent or advocate to A.
Termination of Agency
(Sec-201)
By the acts of the parties By operation of law

• By the agreement between parties •Performance of the contract

• By revocation of authority by Pril. •Death of either party
• Revocation by the Agent •Insolvency of the Pril.
•Destruction of the Subject matter
•Pril. becoming alien enemy
•Dissolution of Co.
•Expiry of Time
It describes the modes of termination. There are two ways to terminate the agency

1. By the acts of the parties:

a. By the agreement between the parties:

The relation of principal & agent like any other agreement may be terminated
at any time and at any stage by the mutual agreement between the principal
and agent. Therefore, the authority of an agent terminates, when the principal
& agent agrees to terminate the agency.

b. Revocation [withdraw or cancel] of the authority by the principal:

The principal may revoke the authority of the agent at any time before the agent
has exercised his authority. But if the act is begun or the work is partly done, the
authority can only be revoked subject to any claim, which the agent may have for
breach, of contract Sec-204.where the agency is continuous one, notice of its
termination to the agent and 3rd parties is essential.
c. Revocation by the agent:
the agent may also terminate an agency after giving a reasonable notice to
principal. Where there is either an express or implied contract for limitation of
agency by parties, the principal or the agent may competent as the case may be.
Sec-205, noticeSec-206.
2. By operation of law:

a) Performance of the contract: When the agreed contract is completed , the agency is
terminated . When the agency is a for a particular object, it is terminated when the object is
fulfilled, if the agency is for a particular period, the agency is terminated when the period is
completed.
b) Death of either party: when the principal or agent dies or becomes unsound mind the
agency is terminated. If the principal is died, the agent should take all reasonable steps for
the parties of L.R of principal.
c) Insolvency of the principal: The insolvency of the principal also terminates the agency.
d) Destruction of subject matter: An agency, which is created to deal with a certain subject.
matter comes to an end by the destructions of the subjects mattered: insurance
e) Principal becoming an alien enemy: when the agent and principal are aliens,
the contract of agency is valid so long as the countries of the principal and agent
are at peace. if war is declared between the two countries, the agency will
terminated.
f) Dissolution of company: where a company acts as a principal or agent, is
dissolved, the agency will be terminated.