In the current time of trade and commerce, it is not possible for person to
carry out all the task by its own. But at some point of time and at some
juncture of business, there is requirement of a person who is representing you
Infront of third party with whom you are entering in the course of business or
when you are dealing. The person who is representing you is known as "AGENT".
Agent can perform various business project.
They are good for Principle since
agent make the work easy and convenient for them. Contract of agency is a
bilateral contract in which a legal relation formed between two people in which
one person is authorised to perform the task on behalf of other for the third
party. The person on whose behalf the act is done is known as "PRINCIPLE" and
the person acting on behalf of principle is "AGENT". In this paper we will
discuss various cases which have important role in creation and development of
the Contract of Agency.
This paper makes an effort to examine how the contract of Agency is formed and
what are its essentials to form the contract of agency and what are the modes of
creation of contract of agency and its determination. This paper also describes
the difference between servant and agent
Indian Contract Act is a law that deals with mercantile laws (Business Law). It
enforced on 1 September 1872. Initially it is a Common law but passed in the
Indian Contract Act consist of 11 Chapter but chapter 7 "Sale of Goods" in 1930
and Chapter 9 "Partnership" in 1932 was repealed. Under it various aspect is
given and explained in ,much broader way, it describes aspects like offer,
acceptance, essential of contract, consideration, void, voidable and void ab
initio, contingent contract, indemnity, guarantee, bailment and agency. It
explains the contractual legal relationship between two or more parties.
Agency comes under chapter 10 of Indian Contract Act, 1872 from section 182 to
section 238. Section 182 of Indian Contract Act 1872 defines Agent and
Principal, an "agent' is a person who is hired to carry out any task for another
or to speak on another person's behalf. The "principal" is the person acting on
their behalf or being so represented
"Quit facit per alium, facit per se" it means "He who acts through another does
the act himself" is a foundational legal maxim of the law of agency. This maxim
is mentioned while addressing the employer's responsibility in terms of
Agency Under Indian Contract Act ,1872,
- In agency two contract form i.e.
In the case of P. Krishna Bhatta v Mundila Ganapathi Bhatta the concept of
agency was explained. It was held that every person who work for principal does
not became his agent
- The first contract form between the agent and principle under which
principal giving the authority to agent to work on behalf of him/Principal
- Second Contract form between third party and the principal through
the work of agent
To comes under the contract of agency it has to fulfil all the essential which
is required to form the contract given in contract act 1872 i.e.
*making an agency require no essential thought
- Valid contract must include two parties or more with offer and acceptance
- Agreement, which is the foundation of a contract, is defined in sec 2(e) of the Indian Contract Act 1872
- Valid contract requires free consent
- Intention to create a legal relationship
- Contractual Capacity: Parties to the agreement must be of the age of majority, i.e., 18 years and of sound mind
- Valid contract should be supported by consideration, which should be lawful in nature
- Lawful object
- Essential Features of Agency
- Principal should be competent to contract:
This essential comes under sec. 183 of Indian contract act 1872 which talk
about the capacity that any person who is of sound mind and who is of age of
majority according to law to which he is subject, may employ an agent. It
was also stated that a contract of agency is void if it is entered into by a
minor and all the liability of agent if he/she is minor will shift to the
principal automatically. So it is important that whenever any one who is
reading sec.183 may read it with sec 10 that is "what agreement are
contract" and sec.11 "who are competent to contract". It was observed in
case of Shephard v Cartwright.
In this case, it was held that the
person who is acting in course of agent cannot be appointed by the principal who
is minor that below the age of majority neither in form of attorney nor in any
other form which make him agent and if this happened then the whole contract
will became void and not capable for ratification. The judge of this judgement
had said that in order to select or employ an agent you should according to way
of reasonable man's way. But who is minor is not capable and abide by law to
choose a person as his agent it is beyond of its capacity
- Person should have capacity to became an agent:
This essential comes under sec. 184 of Indian Contract act 1872, which talk
about capacity that any person who is of sound mind and who is of age of
majority according to which he is subject can became an agent. If the
principal appoints agent who is minor than all responsibility of that agent
will shift automatically to the principal. It was observed in case of Unit
Trust of India v Ravindra Shukla. It was held
that cheque was sent by union trust of india by registered post but it was not
received by the payee. There was no understanding with or request by the payee
that it should be sent by post. Held that the post office acted as the agent of
union trust of india. Liability for non-delivery was that of the union trust of
india and not the post office
- Consideration is not necessary for the agency:
This essential comes under sec.185 of Indian Contract act1872, which talk
about that when at the desire of the promisor, the promisee or any other person has done or abstained from doing
or does or abstain from doing or promises to do or to abstain from doing is
called consideration and in agency. The payee did not consent to or make a
request for postal service forwarding
- Liability of Principal:
The principal is answerable and liable for the act of the agent to the third
party since the agent acts for and on behalf of the principal and not on his
- Difference between agent and Bailee
In spite of the fact that, bailee and agent looks similar to each other but in
they are not.
- An agreement that stipulates that the items must be returned or otherwise
disposed of in accordance with the instructions of the person supplying them
is known as a bailment. items are delivered to another person for a specific
purpose under a bailment. The recipient of the commodities is referred to as
- In bailment, bailee has no authority to represent the bailor but in case of
agency, agent is representing or acting on behalf of principal under his
authority in front of third party in agency
- In bailment, the role of bailee ends as soon as he is free from the
possession of goods which is with him in bailment but in agency, contract can
continue for longer period of time
- In contract of agents are generally reimburse with a commission but in
contract of bailment it can be gratuitous/ gift deed as well as reward
- Difference between agent and servant
- A servant is a person who is under the master's control, and the contract of service is used to determine the servant's connection to the master.
- In agency, the agent works for the principal, but in the case of a servant, he works for the master.
- In agency, the agent works on the basis of commission, but in the case of a servant, they work on the basis of salary/wages.
- In agency, the agent is under the supervision and control of the principal, but in the case of a servant, it comes under the control of the master.
- In agency, the principal is liable for the act committed by the agent under his scope of authority, but in the master-servant relation, the master is liable for the act committed by the servant in the course of employment.
- Difference between agent and independent contractor
i. A person neither an agent nor a servant and comes into picture by the medium of 'contract for service' I.e., what is the work to be done. The independence of the independent contractor gives him or her the freedom to complete the assignment as he or she sees fit.
ii. Independent contractor works for Master/Principal/Employer
iii. Since, Principal is liable for the act of agent under his authority but in case of independent contractor neither the master, principal or employer is liable for the tort committed by the independent contractor
iv. Principal will be held liable for the work of agent either by contract, request, authorization or delegation to fulfil the purpose of principal. The work done by independent contractor comes under 'contract of service' which tells only "What work is to be done?". Independent contractor acquires the freedom to do the given task in the manner he prefers
- Kinds of Agent
- On the basis of authority agent can be classifies as:
- General agent:
one who is hired to perform every task associated with a specific business
or occupation. For instance, a firm's shop manager, etc. He can bind the
principle by engaging in any activity that is consistent with the normal
course of that business, regardless of whether he is actually authorised
for any particular act or not is immaterial provided third party acts bona fide.
- Special agent:
A special agent is one who is employed to do some particular
act or represent his principal in some particular transaction, eg an agent
employed to sell a house. As soon as the house is sold his authority would end
- Universal agent- A universal agent is said to be one whose authority is
unlimited, i.e. Who is entitled to carry out all actions that the principal
may lawfully carry out and may delegate. He enjoys extensive powers to act
on behalf of principal
- On the basis of nature of work performed agent can be classified as
- Mercantile agent
One who has authority either to sell the goods or to buy goods or to raise money
on the security of goods(Sec2(9) of Sale of Goods Act)
Kinds of mercantile agent:
A factor is a mercantile representative given goods to sell. In terms of the sale of items, he has a lot of discretion. In his own name, he sells the items on the terms he sees fit. He might also promise the items.
- Commission agent:
A commission agent is a mercantile agent that purchases or sells products on behalf of his principal at the most favorable conditions under his own name. recia ves commission for his labours, He may have possession of the goods or not.
- Del Credere Agent:
He is a person who, in exchange for an additional commission, promises his principal that the third party with whom he enters into contracts will uphold their end of the bargain of the principal, i.e., the seller will pay the buyer if the buyer fails to fulfill his financial commitments. As a result, he also becomes surety.
He is a person who works for a company that makes contracts for the sale and purchase of things. He does not have any stuff in his possession. He merely serves as a link in the chain.
- Non mercantile agent
Advocates, attorneys, insurance agent, wife etc.
- Creation Of Agency
The Indian Contract Act recognises both express and implicit agency contracts.
Any agency agreement need not be taken into account as a necessary component of
When the principal hires someone to represent him before a third party and the
agent accepts payment in exchange for performing the duty, a contract of agency
- Through Expressed Appointment
Principal can appoint the agent through expressed appointment defines in sec.
187 of Indian contract Act, which defines that the appointment of agent can be
made in writing or oral. In Indian Law the idea of employment of an agent is a
broad definition compared to what is defined in English Law. According to sec.
182 of Indian Contract Law 1872, agent can be employed any person authorised by
law. In English law the will of the person is necessary to be an agent. But it
is not that principle an force the person to be an agent in order to create a
contractual or legal relationship consent of both principal and agent is
The case law which tells about express agency is Delhi Electric Supply
Undertaking v. Basanti Devi 1999. In this case it was held that Employers
(DESUs) were permitted by LIC to deduct premium payments from employees'
salaries and send them to LIC under the Salary Savings Scheme adopted by LIC of
India. As a result, DESU served as LIC's agent for that objective. As a result,
LIC was deemed responsible for paying under the terms of the policy due to
DESU's failure to collect a premium at the point when the employee's policy was
set to expire.
However, the laws of England provided a broader viewpoint and stated that two
principals could jointly engage a single agent, who would then be jointly liable
to both of them and subject to joint litigation.
- Through Implied Agencies
In addition to the formal contract of agency an inferred contract of agency
might also exist. It is described in Indian Contract Act sec. 187. Implied
contract refers to a contract that is made by a person's actions or that pots
him in a situation where it is..A lives in calcutta and runs a store in
Serampore . He occasionally comes to store The shop is managed by B, and he is
in the habit of ordering goods C in the name of A. For the purpose of the shop
and of paying for them out of A's fund with A's knowledge. B is implicitly
authorised by A to place orders with C on behalf of A for the purposes of the
- Kinds of Implied Agency
- Agency by Estopple
According to the estoppel doctrine, if someone intentionally misleads another
into believing a particular set of circumstances or facts exist and that someone
else has acted on that belief through their words or conduct, they are estopped
or barred from denying the truth of those statements, even if the situation in
question did not actually exist. When an agent acts without authorization on
behalf of his principal, he is subject to liability under section 237 of the
Indian Contract Act, which states: the principal is responsible for those
actions if, through his words or conduct he led the third parties to believe
that the agent's actions and obligation fell within the scope of that authority
In case of Ram Chandran v. Registrar, Co-operative Societies. In this case it
was observed that A society's clerk could also serve as the cashier. Later, the organisation forbade him from receiving contributions from its members. In cases
involving the collection of money from members, the clerk was represented as the
society's agent. Thus, Sec. 237 was applicable since it was determined that the
clerk had an ostensible (apparent) authority.
- Agency by Holding Out
Part of Doctrine of Estopple
If the alleged principle has led a third party to assume that anything was done
on his behalf, then he is responsible for what the alleged agent does. Agency by
holding out, as contrast to "agency by estoppel," calls for some affirmative
activity or good behaviour.
For ex- E permits F, his servant, to buy items from G on credit on his behalf,
and then E pays for them. E once offers F cash so she can buy things. F steals
the funds and gives G credit to buy products from F. Because E had previously
represented F as his agent, G can now sue E for the cost of the items.
- Agency by Necessity
In times of need and emergencies, the implicit agency may also manifest. The
Indian Contract Act's Section 189 addresses the agency by urgency or necessity.
Section 189 of the Indian Contract Act of 1872 gives an agent the authority to
take the necessary steps to safeguard his principal from any kind of damage.
The Indian Contract Act, 1872 also outlines the scope of an agent's authority
and grants an agent the freedom to do everything that is legal and advantageous
to his principal. Therefore, it is a requirement of agency that an agent work in
good faith to protect the principal's property or avert loss on their behalf.
In case of Great Northern Railways Co. v. Swaffield.It was held that the
principal sent a horse to his agent by railroads, but the agent was away working
other jobs and was unable to receive the horse. So when the horse arrived at its
destination, no one was there to meet it.
- Conditions for agency by necessity:
- There should be real necessity
- Communication is impossible
- Bona fide action of the agent
As a result the railway station master accepted the horse and took the necessary
actions to keep it alive. As a result the station master acted as the
principal's agent and the latter is responsible for praying the sum that the
railway company expended to keep the horse alive.
- Agency By Law
Employment of any agent by any entity designated by law as having the authority
to do so and do not just by the principal
Ex- When a company is first formed, its original directors are its agent by
operation of law.
- Agency By Ratification
Sections 196-200 of the Indian Contract Act of 1872 deal with ratification.
Ratification to put it simply is the subsequent adoption of an action.
Ratification typically occurs when someone acts as an agent without the proper
authority when they go beyond that authority or when the principal is not
obliged by the terms of agent's contract. However the principal will be able to
approve the act or transaction of the agent and assume responsibility for it.
Following condition must be met for ratification to be valid
Sec-196. Right of person as to acts done for him without his authority.
Effect of ratification-B
He may choose to approve or repudiate actions taken on his behalf by another
individual without his knowledge or consent though he approves them, the same
results will occur as though they were carried out on his authority.
Sec-197.Ratification may be expressed or implied:
The individual acting on behalf of another person may imply or express
ratification in their actions.
Ex- A, without authority, buys goods for B. Afterwards B sells them to C on his
own account; B's conduct implies a ratification of the purchase made for him by
- Essentials of a valid ratification
- The agent must represent themselves as acting on behalf of a principle who is considering acting.
- There should be an act capable of ratification-illegal, prohibited acts cannot be ratified
- The principal must be in existence at the time of origin contract
- The principal needs to be able to enter into a contract
- The principal needs to be fully informed of relevant facts
- Whole transaction must be ratified
- Ratification must be within stipulated time for the performance of contract or within reasonable time
- Ratification cannot cause harm to a third party (Section 200)
- Rules of ratification
In case of Ashbury Railway carriage and Iron Co. Ltd v. Riche. This case law
regarding an incompetent agent's ratification of a contract is particularly
significant. In this instance it was decided that the principal could not ratify
the contract later on if the agent had pretended to make it on the principal's
behalf when the principal was actually incapable of doing so.
- Ratification can be done only by person, for whom the act was done, professing him to be a principal
- Ratification goes back to when the act was passed
- It can be expressed or implied by the acts of the principal
- Ratification must be whole act and cannot be of a part of it
- Ratification cannot be done to cause injustice to the third party
- Ratification cannot be done if the principal ratifying is in knowledge of facts which are materially defective
- Illegal and void acts cannot be ratified
Agency in Husband-and-Wife relationship:
Cohabitational agency is another name for husband-and-wife agency. If a man and
woman live together and appear to be husband and wife to a third party the woman
will have the same legal authority over the guy as if she were his wife.
However, this presumption may be void in the following situations: when the wife
is prohibited from borrowing money or making any purchases on credit; when the
goods being purchased on credit are not necessities; when the wife is provided
with enough cash or allowances; and when the trader has been specifically warned
not to extend credit to his wife.
If the wife lives separately from the husband, the husband is legally required
to Support her but if they were living apart for no good reason, the wife would
not be considered the husband's agent. When the husband and wife do not
reside in a domestic establishment, the husband is not responsible for the
- Termination of Agency
Section 201 defines Termination of Agency:
An agency ends when the principal
revokes his authority, the agent renounces the agency's business, the agency's
business is completed the principal or agent passes away or loses mental
capacity or the principal is declared insolvent in accordance with the terms of
any act currently in effect for the relief of insolvent debtors.
A type of general contract is an agency contract. As a result unless the agency
is irrevocable it may be terminated in the same manner as a contract is
discharged. Only an act or agreement between the parties to the agency or a
change in the law can end the relationship between the principal and agent.
Unless a sufficient amount of time has passes to disprove the presumption an
agency will be presumed to have remained once it has been established that it
existed. When an agency relationship ends, the agent's obligation to act on
behalf of the principal also ends. A contract might specify the duration of an
There are several ways to dissolve an agency:
- By the act of the parties
The principal or agent can end the agency by engaging in any of the following
- Mutual agreement between the parties:
By mutual agreement between the parties i.e., Principal and agent the agency
can be terminated at any time or any stage.
- Revocation by the Principal:
The principal has the right to revoke an agent's authority at any moment.
However unilateral withdrawal that isn't done in line with the agency
agreement rules could make the principal accountable to the agent for
violating the terms of the arrangement
- Where Authority has been partly exercise Principal cannot revoke his
Sec. 204 talks about it that insofar as actions and duties that result
from actions already taken in the agency the principal cannot rescind the
authority granted to his agent after it has been partially exercised.
- Termination of agency where agent has interest in subject-matter:
According to Section 202, this situation arises when an agent has a personal
stake in the real estate that is the topic of the agency the agency cannot
absent a specific agreement to the contrary, contract to the determent of
such interest be cancelled, this kind of agency is also known as irrevocable
agency pr agency linked with interest.
- Compensation for revocation by principal or renunciation by agent:
Sec. 205 talks about it that the principal must pay the agent compensation
for any previous services rendered or the agent must pay the principal money
where there is an express or implied agreement that the agency should
continue for any period of time.
- Notice of revocation or renunciation:
Sec. 206 talks about it that if such a revocation or renunciation occurs,
reasonable notification must be given or the principal or agent as
applicable will be responsible for making good on any damage
- By Operation of Law
- Competition of business:
Sec.201 talks about it that when the business of agency is completed the relationship between agent and principal comes to an end automatically
- Expiry of time:
after the expiry of time the agency is automatically terminated
- Death of Principal or agent:
When either the principal or agent fied the agency relationship is automatically terminated
- Insanity of Principal or agent:
When either of them became of unsound mind the agency came to an end
- Insolvency of Principal:
When the principal became insolvent the agency came to an end
- Subsequent impossibility:
Agency is terminated after the creation of agency
- The subject matter of agency business is destroyed
- Business of the agency became lawful
In case of R. Sayani v. Bright Bros(P) Ltd
. In this case it was observed that
if an agency is terminated early without good reason after being established for
a specific amount of time compensation must be paid. There was no reasonable
advance notification of the agency premature determination. The agent received Rs. 4,000 each month. According to the court, there should have been at least
three months' notice given. As a result, a compensation of Rs. 12,000 was
* When the agent's authorization is revoked with respect to both the agent and a
third party- Sec. 208- Insofar as the agent is concerned, and insofar as third
parties are concerned, the termination of an agent's power does not take effect
prior to either of those parties being aware of it.
This paper has tried to show the multiple facets of the contract of agency. It
explains the various methods by which it can be formed and comes to an end. This
paper has also threw light on the essentials required for the contracts of
agency, what are the different types of agents under it and how to create the
contract of agency and this paper also highlight some basic and most confusing
issues like how a bailee or servant or independent contractor is different from
the agent and how the owner is different from the principal. If Contract is the
genes than Law of Agency is the species
- AIR 1955 Mad 648
- 1935 AC 431
- 1619 of 2005
- 6113 of 1995
- AIR 1963 Mad 105
- 1874 LR 9
- 1875 LR 7 HL 653
- AIR 1980 Mad 162