INTRODUCTION

Section 182 defines an agent as 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. But every person, who does something for the other is not
necessarily an agent, for example, a contractor employed to carry on some construction work is
not necessarily the agent of the principal. A servant may be technically an agent of the master
but he is not strictly an agent in as much as he has to act entirely under the orders of the master
as to how anything needs to be done. An agent has more authority and independence to
function in comparison to that of a servant.
An agent is a person, who acts for and on behalf of the principal and under the latters express
or implied authority and his acts done within such authority are binding on his principal and
for his such acts, the principal is liable to the party with whom the agent has dealings as such
agent.

AGENT

An agent has authority to do all acts and things, which are expressly given to him but he has
also implied authority to do all acts which are incidental to the main powers. S. 189 of the
Indian Contract Act, 1872 provides that an agent also has powers to do all acts for the purpose
of protecting the principal in emergency as would be done by a man of prudence in his own
case. An agency can be granted orally or through writing and it can also be created through
subsequent ratification of the acts done by one person for the other.

The duties of an agent:

1. To conduct the business of the principal according to the directions given by the
principal;
2. To conduct business of the agency with as much skill as is generally possessed by
persons engaged in similar business and to act with reasonable diligence and to make
compensation to the principal in respect of the direct consequences of his own neglect for
want of skill or misconduct;
3. To render proper accounts to his principal on demand;
4. To use all reasonable diligence in communicating with the principal and seeking to obtain
his instructions;

5. To pay to his principal all sums received by doing anything on his account, though in the
course of the agency business and without the previous consent of the principal, that is in
the event of his doing so he is liable to pay to the principal for the benefit, which may
have resulted from the transaction. It may be stated that it is not necessary to include
these in an agency agreement as these duties are not subject to any contract.

The Rights of the Agents:

1. The agent has a right to retain money in his hands held on account of the principal for the
expenses incurred by him in the course of agency business;
2. He has a lien on the goods of the principal for his dues;
3. He has a right to adjust his commission or remuneration against the amount payable to
the principal;
4. All these rights are, however, subject to a contract to the contrary and therefore different
provisions can be made in the agreement of agency.

PRINCIPAL

Duties of principal:
1. The principal is bound to indemnify the agent against any consequences of lawful acts
done by such agent in exercise of the authority conferred on him;
2. The principal is bound to indemnify the agent against consequences of the acts done by
the agent in good faith though it may cause injury to the third persons;
3. The principal is bound to make compensation to the agent in respect of any injury caused
to such agent by the principal's neglect or want of skill;
4. These duties are not subject to a contract to the contrary and, therefore, they cannot be
avoided by an agreement.

RELEVANT INFORMATION
Contracts lawfully entered by an agent on behalf of the principal are binding on the principal;
1. What is done by the agent within authority is binding but what is done beyond authority
is not binding on the principal but if both the acts cannot be separated, then both the acts
are not binding on the principal;
2. Notice to or information obtained by an agent in course of business is a notice or
information to the principal;
3. A contract entered into by an agent cannot be specifically enforced by him nor is he
personally bound by it unless where the contract is for sale or purchase of goods or from
a merchant abroad or unless the principal is not disclosed by the agent or unless the
principal cannot be sued;
4. In case of an undisclosed principal, the third party has the same right against the agent as
he would have if the principal was disclosed. Similarly, in such a case a third party would

not be bound by the contract if he could show that he would not have entered into the
contract if he had known the principal;
5. In the event of personal liability, both the agent and the principal would be liable.
6. Even an act of fraud or misrepresentation done by an agent in the course of his agency
business is binding on the principal;
7. These provisions are not subject to any contract to the contrary between the principal and
the agent

SUB AGENTS
Sub agents are generally of three types
a. Those employed without the express or implied authority of the principal and by whose
acts the principal is not bound;
b. Those employed with express or implied authority of the principal but between whom
and the principal there is no privity of contract;
c. Those employed with the express authority of the principal and between whom and the
principal there is a privity of contract and a direct relationship of principal and agent is
accordingly established.

OVERVIEW OF SUB AGENTS AND THEIR RIGHTS

A sub agent is a person employed by and acting under the control of the original agent in the
agency business. An agent cannot lawfully employ another person to perform acts which he has
expressly or impliedly undertaken to perform personally unless by ordinary custom of trade a
sub agent may or from the nature of the agency a sub agent must be employed.
A sub agent cannot be appointed ordinarily by the agent without the express or implied consent
of the principal. When a sub agent is appointed with the consent of the principal, he is, as
regards the third persons, represented by the sub agent also and is bound by and responsible for
the acts of the sub agent as if he were an agent ordinarily appointed by the principal. Otherwise
it is the agent who is responsible to the principal for the acts of the sub agent and the sub agent
is responsible for his acts to the agent and not to the principal except in case of fraud or willful
wrong. The principal is not responsible for the acts of the sub agent if the sub agent is
appointed without his consent.

CASE LAWS
Bhopal Sugar Industries Ltd vs. Sales Tax Officer, Bhopal on 14 April, 1977
Equivalent citations: 1977 AIR 1275, 1977 SCR (3) 578

property, does not sell it as his own but sells it as the property of the principal under his
instructions and directions. [582 B] (c) While interpreting the terms of an agreement, the Court
has to look to the substance rather than the form of the agreement. Use of words like "agent" or
"agency", "buyer" and "seller" is not sufficient to lead to the infer- ence that the parties did in

fact intend that the said status would be conferred. In certain trades, the word "agent" is often
used without any reference to the law of principal and agent. [582 F-G] Sri Tirunala
Venkateswara Timber and Bamboo Firm v. Commercial Tax Officer, Rajahmundry. 21 STC 313,
316 followed. W. T. Lam and Sons v. Goring Brick Company Ltd. LR. [1932] l KBD 710, 717,
Gordon Wood- roffe & Co. v. Sheikh M. ,4. Majid & Co. [1966] Supp. SCR 1, 3-4 and Daruvala
Bros. (P) Ltd. v. Commissioner of Income-tax (Central) Bombay, 80 ITR 213 referred to. Foley
v. Classigate Coaches Ltd. [1934] 2 K B D I, Michelin Tyre Company Ltd. v. Macfar- lane
(Glosgow) Ltd. (in Liquidation), [1917] 2 Scots. L.T. 205, Financings
after taking delivery of the property does not sell it as his own property but sells the same. as the
property of the principal and under his instructions and directions. Furthermore, since
theagent is not the owner of the goods, if any loss is suffered by the agent he is to be
indemnified by the principal. This is yet another dominant factor which distinguishes
an agent from a buyer--pure and simple. In Halsbury's Laws of Eng- land, Vol. 1, 4th Edn., in
para 807 at p. 485, the following observations are made:
construction of the agreement it could not but be held to 'be a contract of sale. Learned counsel
strongly relied on a decision Of this Court in Sri Tirumala Venkates- wara Timber and Bamboo
Firm v. Commercial Tax Officer, Rajahmundry, (1) where this Court held the transaction to be a
sale in almost similar circumstances. Speaking for the Court, Ramaswami, J., observed as
follows: (1) 21 S.T.C. 313; 316 583 "As a matter of law there is a distinction between a contract
of sale and a contract of agency by which the agent is authorised to sell or buy on behalf of
the principal. The essence of a contract of sale is the transfer of title to the goods for a price paid
or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the
price to be paid ; and not as agent for the proceeds of the sale. The essence of agency to sell is
the delivery of the goods to a person who is to sell them, not as his own property but as the
property of theprincipal who continues to be the owner
"Now it is well known that in certain trades the word "agent" is often used without any reference
to the law of principal and agent. The motor trade offers an obvious example, where persons
described as "agents" are not agents in respect of any principal, but are purchasers who buy

from manufacturers and sell independently of them; and many difficulties have arisen from this
habit of describing a purchaser, sometimes a purchaser upon terms, as an agent."

Tirumala Venkateswara Timber ... vs Commercial Tax Officer, ... on 28 November, 1967
Equivalent citations: 1968 AIR 784, 1968 SCR (2) 476

sent the goods for sale had already paid the tax and the appellant could not be taxed again on the
same transaction as there was only one sale; (iii) that the Explanation was violative of Art. 14 of
the Constitution as it made an arbitrary classification. HELD : (i) The real effect of the third
Explanation is to impose the tax only when there was a transfer of title to the goods and not
where there is a mere contract of agency. The Explanation says in effect that when there is in
reality a transfer of property by the principal to the agent and by the agent in his turn to the
buyer there are two transactions of sale. The phrase "when the goods are transferred" in cls. (1)
and (2) of Explanation III on a proper construction means "when title to the goods is transferred"
and so construed it is impossible to say that the Explanation enlarges the scope of the main
section. Explanation III is not. there fore ultra vires. [480 B-E] State of Madras v. Gannon
Dunkerley & Co. (Madras) Ltd. 9 S.T.C. 353. referred to. (ii) As a matter of law there
words and includes 479 a transfer of property in goods involved in the execution of a works
contract. Explanation III :-Notwithstanding anything contained in this Act or in the Indian Sale
of Goods Act, 1930 (Central Act III of 1930), two independent sales or purchases shall, for the
purposes of this Act, be deemed to have taken place- (1) when the goods are transferred from
aprincipal to his selling agent and from the selling agent to the purchaser, or (2) when the
goods are transferred from the seller to a buying agent and from the buying agent to
hisprincipal, if the agent is found in either of the cases aforesaid- (i) to have sold the goods at
one rate
In our opinion the real object of the Explanation is to prevent the misuse by the assessee of the
relationship of principal and agent for the purpose of evading tax. The first situation

contemplated by the legislature is that covered by cl. 2(i) of Explanation III where the agent has
sold the goods at one rate and passed on the sale proceeds to its principal at another rate. The
second situation is where the agent has purchased the goods at one rate and has passed them on
to the principal at another rate. The third situation is where the agent has not accounted to
hisprincipal for the entire collections or deductions made by him in the sales or purchases
effected
building materials appointed a firm of builders' merchants "sole selling agents of all bricks and
other materials manufactured at their works". The agreement was expressed to be for three years
and afterwards continuous subject to twelve months' notice by either party. While the agreement
was in force the manufacturers informed the merchants that they intended in the future to sell
their goods themselves without the intervention of any agent, and thereafter they effected sales
to customers directly. It was held by the Court of Appeal that the agreement was one of vendor
and purchaser and not one of principal and agent. The same principle is enunciated in Hutton v.
Lippert(2), in which there was a contract between the defendant and E, which in its terms
purported to be one of guarantee or agency; that is to say, the defendant guaranteed the sale of
E's property in whole or by lots at a fixed price, E giving the defendant a power of attorney to
deal with the property as he thought fit, and agreeing that he should receive any surplus over and
above the fixed price as his commission on and recompense for the said guarantee.