CHAPTER 4

A G E N C Y
Appointment of Agent. An "agent" is a person employed to do an 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" (section 182). Since it is impossile for e!ery
man to do e!ery thing himself, the law allows him to e represented in the performance of his
legal acts y another and gi!es to acts done y such representati!e the same effect as they
would ha!e it done y himself.
Any person who is of the age of ma"ority and of sound mind can contract through an agent#
ut the person who is appointed as an agent need not e a person of full age. $hen a minor is
appointed as an agent, he can ring aout a contractual relation etween the principal and a
third party, ut personally he is not responsile to the principal li%e other adult agents. &t
follows therefore that a person who engages a minor agent does so at his own ris%, for, if any
loss is caused to his property on account of the mismanagement of the minor, he cannot
reco!er compensation from him. A minor, howe!er, cannot appoint an agent for himself,
though he may e appointed as an agent. 'o consideration is necessary to create an agent
(sections 18()18*).
Authority of Agent. The authority of an agent may e e+press or implied. An authority is
said to e e+press when it is gi!en )y words spo%en or written. &t is said to e implied when
it is to e inferred from the circumstances of the cases (sections 18,)18-).
Illustration
A owns a shop in Serampur, li!ing himself in .alcutta and !isiting the shop occasionally. The
shop is managed y /, who is in the hait of ordering goods from . in the name of A for the
purposes of the shop, and of paying for them out of A0s funds with A0s %nowledge. / has an
implied authority from A to order goods from . in the name of A for the purposes of the
shop.
An Agent ha!ing an authority to do an act has authority to do e!ery lawful thing which is
necessary in order to do such act. An agent ha!ing an authority to carry on a usiness has
authority to do e!ery lawful thing necessary for the purpose or usually done in the course of
conducting such usiness (section 188).
Illustrations
(a) A is employed y /, residing in 1ondon, to reco!er at /omay a det due to /. A may adopt
any legal process necessary for the purpose of reco!ering the det and may gi!e a !alid discharge
for the same.
(b) A constitutes / his agent to carry on his usiness of a shipuilder. / may purchase timer and
other materials and hire wor%men for the purpose of carrying on the usiness.
An agent has authority, in an emergency, to do all such acts for the purpose of protecting his
principal from loss as would e done y a person of ordinary prudence in his own case under
similar circumstances (section 182).
Illustrations
(a) An agent for sale may ha!e goods repaired, if it e necessary.
(b) A consigns pro!isions to / at .alcutta with directions to send them immediately to . at
.uttac%. / may sell the pro!isions at .alcutta, if they will not ear the "ourney to .uttac% without
spoiling.
) 1 )
CHAPTER 4
A G E N C Y
u!"agents. A su)agent is a person employed y, and acting under the control of, the original
agent in the usiness of the agency (section 121).
An agent must not, as a rule,, depute another person to do that which he has underta%en to do.
The ma+im is #$elegatus non potest %elegate&# i.e., a delegate cannot delegate. The reason for
this rule is that the principal is supposed to ha!e confidence in the honesty or wor%ing capacity of
the agent # he may not ha!e the same confidence in the person appointed y his agent 3ence, su)
agency is not generally recognised. /ut there are e+ceptions to this rule. Thus, if the ordinary
custom of the trade permits the appointment of a su)agent, or if the nature of agency is such that
it cannot e conducted without the appointment of a su)agent, then a su)agent may e
appointed (section 124). The legal position of the principal, agent and su)agent is as follows56
(a) $hen a su)agent is properly appointed, the principal is, as regards third persons,
represented y the su)agent, and is ound y and is responsile for his acts, as if he were an
agent originally appointed y him. Though the principal is thus responsile for the acts of a
properly appointed su)agent, the relations etween the agent and the su)agent susist, and
the agent is responsile to the principal for the acts of the su)agent, and the su)agent is
responsile for his acts to the agent ut not to the principal, e+cept in case of fraud (section
122).
(b) $hen a su agent is appointed y the agent without authority, the principal is not liale to
third persons for the acts of the su)agent, nor is the su)agent responsile to the principal#
ut the agent is responsile oth to the principal and to third persons for the acts of the su)
agent (section 12().
u!stitute% Agent. &f an agent, on the e+press or implied authority from the principal, has
named another person to act for the principal in the usiness of the agency, such a person is
an agent (%nown as a sustituted agent) and not a su)agent. &n selecting such a person the
agent must e+ercise the name amount of discretion as a man of ordinary prudence would do
in this own case# otherwise he will e held responsile to the principal for acts of negligence
of the agent so selected.
Illustrations
(a) A directs /, his solicitor, to sell his estate y auction and to employ an auctioneer for the
purpose. / names ., an auctioneer, to conduct the sale. . is not a su)agent, ut is A0s agent
for the conduct of the sale.
(b) A instructs /, a merchant, to uy a ship for him. / employs a ship)sur!eyor of good
reputation to choose, a ship for A. The sur!eyor ma%es the choice negligently and the ship
turns out to e un)seaworthy and is lost. / is not, ut the sur!eyor is responsile to A.
(c) A consigns goods to /, a merchant, for sale. / in due course employs an auctioneer in
good credit to sell the goods of A, and allows the auctioneer to recei!e0 the proceeds of the
sale. The auctioneer afterwards ecomes insol!ent without ha!ing accounted for the
proceeds. / is not responsile to A for the proceeds.
$istin'tion !et(een u!"agent an% u!stitute% Agent. The following are the points of
distinction etween the two 56
) 2 )
CHAPTER 4
A G E N C Y
(i) A su)agent may e appointed y the agent only when the ordinary custom of trade
"ustifies the appointment or the nature of the agency necessitates it# ut a sustituted agent is
appointed y the agent holding an e+press or implied authority from the principal to do
so.
(ii) A su)agent is immediately responsile to the agent and not to the principal, ut if he is
guilty of fraud or wilful wrong he will e responsile to the principal. A sustituted agent is,
howe!er, immediately responsile to the principal.
Ratifi'ation. $hen an act is done y one person on ehalf of another, ut without his
%nowledge or authority, he may elect to ratify or to disown such act. &f he ratifies it. it will
ha!e the same legal effect as if it had een done y his prior authority (section 12,). To put it
riefly, ratification means to ma%e an unauthorised act authori7ed, 8atification may e
e+press or may e implied in the conduct of the person on whose ehalf the acts arc done
(section 12-).
Illustrations
(a) A, without authority, uys goods for /. Afterwards / sells them to . on his own account.
/0s conduct applies a ratification of the purchase made for him y A.
(b) A, without /0s authority lends /0s money to .. Afterwards /, accepts interest on the
money from .. /0s conduct implies a ratification of the loan.
Rales Go)erning Ratifi'ation. A !alid ratification of an unauthorised act is go!erned
y the following rules 56
(1) The agent must contract as agent for a principal who is in contemplation and who must
also e in e+istence at the time. Thus a newly formed company cannot ratify an act done in
its name efore its incorporation.
(2) A principal can ratify those acts which he is legally competent to do. There cannot e
ratification of a !oid contract.
(() 'o !alid ratification can e made y a person whose %nowledge of the facts of the case is
materially defecti!e (section 128).
(9) A person ratifying an unauthorised act done on his ehalf ratifies the whole of the
transaction of which such act forms a part (section 122).
(*) An act done y one person on ehalf of another, without such other person0s authority,
which, if done with authority, would ha!e the effect of su"ecting a third person to damages
or of terminating any right or interest of a third person, cannot y ratification e made to ha!e
such effect (section 244), &t means that an unauthorised act cannot e ratified if y
ratification it will in"ure the interest of a third person. Thus, if A holds a lease from /
terminale on three months0 notice, and if .. an unauthorised person, gi!es notice of
termination to A, the notice cannot e ratified y / so as to e inding on A.
Termination of Agen'y.
According to section 241, the relation of principal and agent may e terminated in
!arious ways, !i7.,
(1) /y re!ocation of the agent0s authority, y the principal# or.
(2) /y renunciation of the usiness of the agency y the agent# or
(() /y completion of the usiness of the agency# or
) ( )
CHAPTER 4
A G E N C Y
(9) /y death or insanity of either the principal or the agent# or
(*) /y insol!ency of the principal (and not of the agent).
The re!ocation or renunciation may e e+press or implied# ut reasonale notice must e
gi!en y one party to the other, otherwise the damage therey resulting to the principal or
the agent must e made good y the party terminating the agency. So also if the agency
created for a definite period is re!o%ed or renounced without sufficient cause efore its
prescried time, the principal must ma%e compensation to the agent or !ice !ersa
(sections 24-)2) , and 24*).
&f the agent has himself an interest in the su"ect)matter of the agency (%nown as agency
coupled with interest), the agency, in the asence of an e+press contract, cannot e
terminated to the pre"udice of such interest either y the principal0s re!ocation or y his
insanity or death (section 242).
/ut if the agent has no such interest, the principal may re!o%e the authority of the agent at any
time efore it has een e+ercised so as to ind the principal. 3e cannot, howe!er, do so after such
authority has een partly e+ercised so far as regards such acts and oligations as arise from acts
already done (sections 24( and 249).
The termination of the authority of an agent does not ta%e effect efore such fact ecomes %nown
to the agent or to third persons with whom he deals (section 248).
$hen the agency is terminated owing to the death or insanity of the principal, the agent must
ta%e, on ehalf of the representati!es of his principal, all reasonale steps for the protection
and preser!ation of the interests entrusted to him (section 242).
The termination of the authority of an agent terminates the authority of all su)agents
appointed y him (section 214).
Illustrations
(a) A empowers / to let A0s house, Afterwards A lets it himself. This is an implied re!ocation
of /0s authority.
(b) A gi!es authority to / to sell A0s land, and to pay himself, out of the proceeds, the dets
due to him from A. A cannot re!o%e this authority, nor can it e terminated y his insanity or
death, ecause this is an agency coupled with interest.
(c) A directs / to sell goods for him, and agrees to gi!e / * percent commission on the prices
fetched y the goods. A afterwards, y letter, re!o%es /0s authority. /, after the letter is sent
ut efore he recei!es it, sells the goods for 8s. 144. The sale is inding on A and / is
entitled to 8s. * as his commission.
(d) A directs /, his agent, to pay certain money to .. A dies, and : ta%es out proate to his
will. / after A0s death ut efore hearing of it, pays the money to .. The payment is good as
against :, the e+ecutor.
Agent*s $uties to the Prin'ipal.
(1) An agent must conduct the usiness according to the directions of the principal, or, if no
directions are gi!en, according to the custom of the particular usiness. $hen he acts
otherwise, if any loss is sustained it must e orne y him, and if any profit accrues, he must
account for it to his principal (Section 211).
) 9 )
CHAPTER 4
A G E N C Y
Illustrations
(a) A, an agent engaged in carrying on for / a usiness, in which it is the custom to in!est
from time to time, at interest, the moneys which may e in hand# omits to ma%e such
in!estment. A must ma%e good to / the interest usually otained y such in!estments.
(b) /, a ro%er in whose usiness it is not the custom to sell on credit, sells goods of A on
credit to . whose credit at the time was !ery high. ., efore payment, ecomes insol!ent. /
must ma%e good the loss to A.
(2) An agent must conduct the usiness of the agency with as much s%ill as is generally
possessed y persons engaged in similar usiness unless the principal has notice of his want
of s%ill. 3e will ha!e to ma%e compensation to the principal for the direct loss or damage
arising from his own neglect, want of s%ill or misconduct, (section 212).
Illustrations
(a) A, a merchant in .alcutta, has an agent /, in 1ondon, to whom a sum of money is paid on
A0s account. / retains the money for a considerale time. A in conse;uence of not recei!ing
the money ecomes insol!ent, / is liale for the money and interest from the day on which it
ought to ha!e een paid, according to the usual rate and for any further direct loss as, e.g., y
!ariation of rate of e+change)ut not further.
(b) A, an agent for the sale of goods, ha!ing authority to sell on credit, sells to / on credit,
without ma%ing the proper and usual en;uiries as to the sol!ency of /. /, at the time of such
sale, is insol!ent. A must ma%e compensation to his principal in respect of any loss therey
sustained.
(c) A, a merchant in <ngland directs /, his agent at /omay, who accepts the agency, to send
him 144 ales of cotton y certain ship. /, ha!ing it in his power to send the cotton, omits to
do so. The ship arri!es safely in <ngland. Soon after her arri!al the price of cotton rises. / is
ound to ma%e good to A the profit which he might ha!e made y the 144 ales of cotton at
the time the ship arri!ed, ut not any profit he might ha!e made y the suse;uent rise.
(() An agent is ound to render proper accounts to his principal on demand (section 21().
This is a !ery important duty and its neglect may often ring aout troule to the agent.
(9) An agent, in cases of difficulty, must use all reasonale diligence in communicating with
his principal and in see%ing to otain his instructions. /ut if he has no opportunity to
communicate with his principal, he will e "ustified in using the discretion of a person of
ordinary prudence (section 219).
(*) An agent must not deal on his own account in the usiness of the agency without
otaining the consent of the principal and ac;uainting him with all material circumstances
%nown to the agent# otherwise the principal is entitled to repudiate the transaction if it results
in any disad!antage to him, or to claim any enefit arising from such transaction (Sections
21* and 21,).
Illustrations
(a) A directs / to sell A0s estate. / uys the state for himself in the name of .. A, on
disco!ering that / has ought the estate for himself, may repudiate the sale, if he can show
that / has dishonestly concealed any material fact, or that the sale has een disad!antageous
to him.
) * )
CHAPTER 4
A G E N C Y
(b) A directs / to sell A0s estate. /, on loo%ing o!er the state efore selling it, finds a mine on the
estate which is un%nown to A. / informs A that he wishes to uy the estate for himself ut
conceals the disco!ery of the mine. A allows / to uy, in ignorance of the e+istence of the mine.
A, on disco!ering that / %new of the mine at the time he ought the estate, may either repudiate
or adopt the sale at his option.
(c) A directs /, his agent, to y a certain house for him. / tells A it cannot e ought, and uys
the house for himself. A may, on dico!ering that / has ought the house, compel him to sell it to
A at the price he ga!e for it.
(,) An agent must pay to his principal all sums recei!ed on his account after ma%ing due
deductions for moneys due to himself in respect of ad!ance made or e+penses properly incurred
and also for commission due to him (sections 21- and 218).
Right of an Agent against the Prin'ipal.
(1) An agent is entitled to retain, ut of any sums recei!ed on account of the principal in the
usiness of the agency, all moneys due to himself in respect of ad!ances made or e+penses
properly incurred and also such commission as is promised to him (section 21-).
(2) An agent is entitled to the commission after the performance of the usiness for which he is
employed. /ut if he is guilty of misconduct, he is not entitled to any remuneration in respect of
that part of the usiness which he has misconducted (section 224).
(() An agent can, in the asence of any contract to the contrary, e+ercise his lien on the goods,
papers, and other property of the principal recei!ed y him, until moneys due to himself ha!e
een paid or accounted for to him (Section 221).
(9) An agent is entitled to e indemnified y the principal against the conse;uences of all lawful
acts done y him in the course of his employment. /ut he has no right to e indemnified if he has
paid any sums !oluntarily or wrongfully e!en though for the enefit of the principal (section
222).
Illustration
/, at Singapur, under instructions from A of .alcutta, cont racts with . to deli!er certain
goods to him. A does not send the goods to / and . sues for reach of contract. / informs A
of the suit, and A authorises him to defend the suit. / defends the suit, and is compelled to
pay damages and costs, and incurs e+penses. A is liale to / for such damages, costs and
e+penses.
(*) An agent has a right to e indemnified y the principal against the conse;uences of the
acts, for which he is employed, done in good faith, though they cause an in"ury to the rights
of third persons. /ut if an agent is employed to do a criminal act, the principal is not liale
cy=.n though he has promised to indemnify him against the conse;uences of such act, for the
ma+im is that there can e no contriution among wrongdoers (sections 22( and 229).
Illustrations
(a) /, at the re;uest of A, sells goods in the possession of A ut which A had right to dispose
of. / does not %now this, and hands o!er the, proceeds of the sale to A. Afterwards ., the true
owner of the goods, sues / and reco!ers the !alue of the goods and costs. A is liale to
indemnify / for what he has een compelled to pay to . and for >0s own e+penses.
(b) A employs / to eat ., and agrees to indemnify him against all conse;uences of the act)
/ thereupon eats ., and has to pay damages to . for so doing A is not liale to indemnify /
for these damages.
) , )
CHAPTER 4
A G E N C Y
(,) An agent has a right to e compensated y the principal for any in"ury caused to him y
the principal0s, neglect or want of s%ill (section 220*).
Illustration
A employs / as a ric%layer in uilding a house, and puts up the scaffolding himself. The
scaffolding is uns%ilfully put up, and / is in conse;uence hurt. A must ma%e compensation
to /.
Prin'ipal a +ia!ility to Thir% Persons.
The principal is ound y the acts of his agent done under his authority, or with his consent,
or suse;uently ratified y him. &n all such cases, he ecomes the sole contracting party, the
agent eing a mere instrument for him. The e+tent of the principal0s liaility is go!erned y
the following rules 56
(1) .ontracts entered into through an agent and oligations arising from acts done y an
agent, may e enforced in the same manner, and will ha!e the same legal conse;uences, as if
the contract had een entered into and the acts done y the principal in person (section 22,).
Illustrations
(a) A uys goods from / %nowing that he is an agent for their sale, ut not %nowing who
is the principal. /0s principal is the person entitled to claim from A the price of the goods,
and A cannot, in a suit y the principal, set off against that claim a det due to himself from
/.
(b) A, eing /0s agent with authority to recei!e money on his ehalf, recei!es from . a sum
of money due to /. . is discharged from his oligation to pay the sum in ;uestion to /.
(2) &f the agent e+ceeds the authority gi!en to him, and if the authorised part of his act can e
separated from the unauthorised part, the principal is liale only for the authorised part# ut if
it is not separale, the principal is not liale for the whole transaction (sections 22- and 228).
(() As the agent represents the principal, any notice or information, otained y the agent in
the course of the usiness will, as etween the principal and third party, ha!e the same legal
conse;uences as if it had een otained y the principal. The principal is liale
notwithstanding the failure of the agent to communicate the information to him
(section 222).
Illustrations
(a) A is employed y / to uy from . certain goods of which . is the apparent owner, and
uys them accordingly. &n the course of the treaty for the sale, A learns that the goods really
elonged to :, ut / is ignorant of that fact. / is not entitled to set off a det owing to him
from . against the price of the goods.
(b) A is employed y / to uy from . goods of which / is the apparent owner. A was, efore
tie was so employed, a ser!ant of ., and then learnt that the goods really elonged to ., ut
/ is ignorant of that fact. &n spite of the %nowledge of his agent, / may set off against the
price of the goods a det owing to him from ..
) - )
CHAPTER 4
A G E N C Y
(9) &f the principal y words or conduct induces third persons to elie!e that the acts done y
the agent without, his authority are authorised y him, he is responsile for such acts to such
third persons This is liaility y holding out (section 2(-).
(*) The principal is liale for the frauds and misrepresentations of the agent when they are made
in the ordinary course of the agency usiness (section 2(8).
Illustration
A eing /0s agent for the sale of goods induces . to uy them y a misrepresentation, which
he was not authorised y / to ma%e. The contract is !oidale as etween / and . at the
option of ..
,hen 'an an agent sue an% !e sue% personally.
An agent acts for his principal, and inds him y contracts entered into in his name# and
therefore he is not entitled to sue nor is he liale to e sued personally upon them. /ut in the
following cases he can sue and e sued personally 5 6
(1) $here the contract is made y an agent for the sale or purchase of goods for a merchant
resident aroad.
(2) $here the agent does not disclose the name of his principal. /ut if the principal is %nown
or if the contracting party has means of %nowing his name, the agent cannot sue or e sued.
(() $here the principal though disclosed cannot e sued. This rule refers to those cases in
which the principal is dis;ualified from contracting (e. g., a limited company) and not to
those where the principal is a minor or of unsound mind, ecause such a person cannot
employ an agent at all. The agent is held liale only when the third party dealing with the
agent is not cognisant of the inaility of the principal to e sued.
(9) $here the agent e+pressly agrees to e liale, or where his personal liaility can e
inferred (section 2(4).
Right of Ele'tion. &n cases where the agent is personally liale, a person dealing with him
may hold either him or his principal or oth of them liale. /ut if he induces the agent to act
upon the elief that the principal only will e held liale or induces the principal to act upon
the elief that the agent will e held liale he will afterwards lose his remedy against the
agent or the principal as the case may e. $hen he has made a final election, he will e
estopped from ma%ing a fresh election (sections 2(( and 2(9.)
Contra'ts (here Prin'ipal is un%is'lose%.
$here an agent, ha!ing authority to contract on ehalf of another ma%es the contract in his
own name, concealing the fact that he is a mere representati!e, the doctrine of undisclosed
principal comes in. Thus, where the agent has authority in fact ut does not disclose the
e+istence of the agency (i.e., does not disclose the e+istence and identity of the principal), the
principal is called an undisclosed principal.
The effect of a contract made y an agent on ehalf of an undisclosed principal is as
follows 56
(i) The contract is enforceale either y or against the agent.
) 8 )
CHAPTER 4
A G E N C Y
(ii) The concealed principal can demand performance from, the other party only on
condition of allowing the other party the same rights against himself as the other party
had against the agent. Thus, a set)off which the third party has against the agent can e
a!ailed of against the principal.
(iii) &f the principal discloses himself (i. e., y demanding performance) efore the
contract is completed, the other party may refuse to fulfil the contract, pro!ided he pro!es
that he would not ha!e entered into the contract had he %nown who was the principal or
that the agent was not the principal.
Illustration
A, who owes 8s. *44 to /, sells 8s. 1,444 worth of rice to /. A is acting as agent for . in
the transaction, ut / has no %nowledge nor reasonale ground of suspicion that such is
the case. . cannot compel / to ta%e the rice without allowing him to set off A0s det.
Preten%e% Agent.
A person untruly representing himself to e the authorised agent of another, and therey
inducing a third person to deal with him as such agent, is liale, if his alleged principal
does not ratify his acts, to ma%e compensation to the third person for any loss or damage
incurred (section 2(*).
A person with whom a contract has een entered into in the character of an agent cannot
enforce performance of it, if he was in reality acting not as an agent ut on his own
account (section 2(,).
Agen'y Ho( Constitute%.
Agency may e created in one or more of the following ways56
(1) By Direct Appointment. $hen an agent0s authority is e+pressly gi!en the agency is set
up y direct appointment.
(2) By Implication. $hen agency is to e inferred from the course of. dealings etween
two persons, it is created y implication.
(() By Necessity. Sometimes in an emergency one person may act as an agent of another
without authority. This is agency y necessity.
-4. By Estoppel. &f the principal y words or conduct induces third persons to elie!e that
the acts done y the agent without his authority are authorised y him, there is an agency
y estoppel, ecause the principal will e estopped from denying his liaility to third
persons.
-/. By Ratification. $here a person ratifies an unauthorised act done y another on his
ehalf, there is agency y ratification.
0in%s of Agents.
General Agent. A general agent is one who is authorised to do all acts necessary for
carrying on a particular trade or usiness, e. g., .the manager of a firm.
Particular Agent. 3e is one who is authorised to do a single act, e. g., a ro%er employed
to uy a house.
) 2 )
CHAPTER 4
A G E N C Y
Sub-agent. e+plained in preceding pages.
Substituted Agent.
Factor. 3e is an agent remunerated y commission and is entrusted with the possession
of g(ods to sell in his own name as apparent owner. 3e can sell them at such times and
prices as he thin%s est and persons who in good faith ad!ance money to the factor on the
security of goods are protected on the ground that the possession carries with it an
authority to pledge.
Broker. 3e is an agent whose usiness is to ring aout a contractual relation etween
his principal and a third person.
Commission Agent. 3e is a person employed not to estalish pri!ity of contract etween
his employer and other parties ut to uy or sell goods for the employer, recei!ing the
commission as a reward for his ser!ices.
Del Credere Agent. 3e is an agent who, in consideration of an e+tra remuneration (called the
del credere commission), guarantees to his principal that the third persons with whom he
enters into contracts on his principal0s ehalf shall perform their oligations. Thus such an
agent guarantees to his principal that he will sell only to persons who will pay for what they
uy, and if they do not pay the sell credere agent will pay.
) 14 )