Agency

Introduction
An agent is a person employed to do any act for another or to represent
another in dealings with third person.
The person for whom such act is done or who is so represented is called
the principal.
In an agency one person (principal) employs another person (agent) to
represent him or to act on his behalf in dealing with third persons. The
agent is conferred with an authority by the principal for doing certain acts
on behalf of the principal.
For example if I authorize my agent to sell my house to a third person and
he does so, I become bound for the sale of the house to the third person.
The agent is a connecting link between his principal and the third party.
Contacts entered into through an agent and obligations arising from acts
done by agent may be enforced in the same manner and will have the
same legal consequence as if contract has been entered into and the acts
done by the principal in person.

Who is an agent
Justice Ramaswamy in the case of Krishna V/s.
Ganpati AIR 1955 Mad explained the point in the
following words every person who acts for
another is not an agent. A domestic servant
renders to his master a personal service, a person
may work in a shop or factory or one may act for
another in aiding in the performance of his legal
or contractual obligations of third persons. In
neither of these cases he is an agent and he is not
acting for another in dealing with third persons. It
is only when he acts as a representative of the
other in business negotiations, that is to say, in
creation, modification or termination of
contractual obligations between that other an the
third person that he is an Agent.

KINDS OF AGENT

Auctioneer
An auctioneer is an agent whose business is to sell goods or other property by
public auction. The authority vested in him is to sell the goods only and not to
give warranties on behalf of the seller.
Factor
A factor means a mercantile agent who is entrusted with the possession of
the goods for the purpose of selling them.
Broker
He is an agent who has an authority to negotiate the sale or purchase of
goods on behalf of his principal with a third person. Unlike a Factor he has no
possession of goods. He merely makes the two parties to enter into a
contract. He gets his commission whenever any transaction materializes
through his efforts.
Del Credere Agent
In ordinary cases the only function of an agent is to effect a contract between
the principal and third party. The agent then drops out. But where an agent
undertakes on the payment of some extra commission to be liable to the
principal for the failure of the third party to perform the contract, he is called
del credere agent and his extra commission for the guarantee is called del
credere commission.

1.

ESSENTIALS OF AGENCY

The principal should be competent to contract

According to Sec. 183 any person who is of the age of majority according to the
law to which he is subject and who is of sound mind, may employ an agent
If a person is not competent to contract and therefore he is incapable of making
a contract he cannot make a contract through an agent either. A person can do
only such things through an agent which he is himself personally capable of
doing. Therefore if the principal is a minor or of unsound mind he is incapable of
being bound through the act of his agent.

2.

The agent may not be competent to contract

According to Sec. 184 as between the principal and a third person any person
may become an agent, but no person who is not of the age of majority and of
sound mind can become an agent, so as to be responsible to his principal.
If an agent is a minor through him a valid contractual relationship will be created
between the principal and the third party, through such agent will not himself be
responsible for his acts to his principal.

3.

No consideration is necessary
Sec. 185 provides that no consideration is necessary to create an agency. An
agent is remunerated by way of commission for services rendered, but no
consideration is immediately necessary at the time of appointment.

CREATION OF AGENCY
An agency is created by the following
By Express or implied authority
By Estoppel
By Ratification
By Necessity
By Husband and Wife Relationship

CREATION OF AGENCY
1. By Express or implied authority
A person who is competent to contract has the power to appoint an
agent. He may do so by expressly authorizing an agent to act on his
behalf or such an authority may be implied from the circumstance of the
case.
.

2. By Estoppel
When the agent does not possess actual authority to act on behalf of
the principal, but the principal by his conduct creates an impression in
the mind of a third person that the agent has the power to do so, the
principal is bound because of the doctrine of estopple.
In the case of Kashinath Das V/s. Nisakar Raut AIR 1962 Orissa, the
landlord appointed a Tahsildar to manage his agricultural lands. He let
out the lands to tenants on certain terms.
An authority of this kind was not given to him and therefore the
question was whether the tenancy agreement would bind the landlord.
It was held that the landlord had, by making the tahsildar incharge of the
lands created an appearance of authority which included a right to let.

3. By Ratification
Even though no authority has been conferred on a person to
act as agent, the principal could create an agency with
retrospective effect, by according a subsequent approval to an
act which has been done on his behalf.
In the case of Badri Prasad V/s. State of Madhya Pradesh, AIR
1965 SC, in a sale by auction held on 24th December 1956, the
highest bid which was accepted on that date was approved by
the Chief Conservator of Forests subsequently, and the
contract deed was signed on May 3rd 1957, the date of making
the contract was deemed to be December 24th 1956, and in
such case the property in the goods having passed at the time
of making the contract, the buyers surety could be asked to
pay the balance of the price due.

4. By Necessity
In emergency a person may have the power to act on behalf of another so
as to bind the other. Such power is presumed to be there when the agent
does not have time to communicate with the principal and the act by him
is done in order to protect the property of the principal.
The principal of agency was first applied to cases of marine adventures.
Unforeseen emergencies arose in the course of marine adventures which
threatened the goods and the master of the ship was not able to
communicate with the principal. In such circumstances the master got
power and it was also his duty to sell in order to save their value.
The principal of agency was also applied to carriers by land.
In the case of Sims & Co. V/s. Midland Railway Company, a quantity of
butter was consigned with the defendant railway company. It was delayed
in transit owing to a strike. The goods being perishable the company sold
them.
The sale was held binding on the owner. The Companies action was
justified by the necessities of the case and it was also not practicable to
get instructions from the owner.

5. By Husband and Wife Relationship

A wife living with her husband has the implied authority of the husband to buy articles
of household necessity.
A wifes implied authority to bind her husband by her credit purchases is however
subject to some important limitations.
It is necessary that the husband and wife should be living together. If the wife is living
apart from the husband without his fault and if she has been left unprovided for, she
may become an agent of necessity of her husband to pledge his credit to the extent to
which a reasonable maintenance makes it necessary.
They must be living together in a domestic establishment of their own. The mere fact
of marriage does not make the wife an agent in law of her husband, nor the fact of
living together is sufficient. There must be a domestic establishment of which the wife
is the incharge.
In the case of Debenham V/s. Mellon,
The defendant was the manager of a hotel, where his wife acted as a manageress.
They live together in the same hotel, but had no domestic establishment of their own.
The wife incurred with a tradesman a debt for clothes, payment for which was
demanded from the husband.
He was held to be not liable as the court held that mere fact of cohabitation did not
give rise to presumption of agency,. Unless it was in a domestic establishment.

DUTIES OF AGENT
1.
2.
3.
4.
5.
6.
7.

Duty to follow principles directions

Duty to show proper skill and care
Duty not to delegate his duties
Duty to render proper accounts
Duty to pay sums received for principal
Duty not to deal on his own account
Duty to communicate with principal

Duty to follow principles directions

According to Sec. 211 an agent has a duty to follow the directions
given by the principal. If there are no directions given by the
principal, the agent should conduct the business according to the
customs which prevail in doing business of the same kind at the
place where the agent conducts such business. When the agent
does not act as per the directions of the principal, if any loss is
sustained by the principal, he must make it good to his principal,
and if any profit accrues, he must account for it.
In the case of Pannalal Jankidas V/s. Mohanlala, AIR 1951 SC
A commission agent purchased goods for his principal and stored
them in a godown pending their dispatch. The agent was under
instructions to insure them. He actually charged the premium for
insurance, but failed to insure the goods. The goods were lost in an
explosion in the Bombay harbour. The agent was held liable to
compensate the principal for his loss.

Duty to show proper skill and care

According to Sec. 212 an agent is bound to conduct the business of the
agency with as much skill as is generally possessed by persons engaged in
similar business unless the principal has notice of his want of skill. The
agent is bound to act with reasonable diligence and to use such skill as he
possesses and to make compensation to his principal in respect of the
direct consequence of his own neglect, want of skill or misconduct, but
not in respect of loss or damage which is indirect or remotely caused by
such agent, want of skill or misconduct.
In the case of Keppel V/s. Wheller, 1927 the principal instructed an estate
agent to find a buyer for his estate.
The agent communicated an offer of a prospective purchaser who was
willing to buy the estate for 6150. Before the contract for the sale was
concluded, the agent got an offer of 6750 from another buyer. The agent
did not communicate about the second offer to the principal.
It was held that the agent did not show proper skill and care in the matter
and therefore he was liable to pay damages to his principal for the loss
suffered by him.

Duty not to delegate his duties

The principal chooses a particular agent because he has trust and confidence
in his integrity and competence. Therefore the agent cannot further delegate
the work which has been delegated to him by his principal. The rule is
contained in the maxim Delegatus non potest delegare which means an
agent to whom some authority has been delegated cannot further delegate
the authority to another person.
According to Sec. 190 An agent cannot lawfully employ another to perform
acts which he has expressly or impliedly undertaken to perform personally
unless by custom or nature of agency .
Sec. 192 states that a sub agent properly appointed binds the principal as
regards third person as if he were an agent ordinarily appointed by a principal.
The agent is responsible to the principal for acts of the sub agent. The sub
agent is responsible for his acts to the agent, but not to the principal except in
case of fraud or wrongful acts.

Duty not to delegate his duties

In the case of John McCain and Co. V.s. Pow, 1975 it was laid down that
unless so authorised by the principal, an estate agent has no right to appoint
a sub agent and delegate to him his power which requires special skill and
care.
In this case an implied authority was pleaded as the sub agent had effected a
sale on his own account.
When the agent the plaintiff sued for commission the court negatived the
claim as the contract of agency did not permit appointment of sub agent.

In the case of Summan Singh V/s. N.C. Bank of New York, AIR 1952 Punj.
The Plaintiff in a foreign country appointed the N.C. Bank to deliver a sum of
money to one Pritam Singh of Jullundur, whose address was given. The Bank
instructed it Bombay branch accordingly. The Bombay branch appointed the
Punjab National Bank which delivered the money to a wrong person.
The Plaintiffs action against either bank failed. The Punjab National Bank
was held not liable on principle that a sub agent is not liable to the principal
except when he is guilty of fraud or willful wrong. The wrong delivery was
due only to negligence. The NC Bank had exempted itself from the
consequences of wrong delivery.

Duty to render proper accounts

An agent is bound to render proper accounts to his
principal on demand. He should maintain proper
accounts of the sums belonging to the principal which
are in his hands, he should not mis-utlise and misappropriate them.
Duty to pay sums received for principal
The agent is bound to pay to his principal all sums
received on his account subject to deductions.
An agent may retain out of any sums received on
account of the principal in the business of the agency
all moneys due to himself in respect of advances made
or expenses properly incurred by him in conducting
such business and also such remuneration as may be
payable to him for acting as agent.

Duty not to deal on his own account

An agent is under a duty not to deal on his own account in the business of agency, unless the
principal consents thereto. If in any transaction an agent deals on his own account without the
principals prior consent the principal has the following tow rights:
To repudiate the transaction by showing either

That any material fact has been dishonestly concealed from him by the agent
That the dealings of the agent have been disadvantageous to him

For example :
A directs B to sell As estate. B on looking over the estate before selling it, finds a mine on the
estate which is unknown to A. B inform A that he wishes to buy the estate himself, but conceals
the discovery of the mine. A allows B to buy in ignorance of the existence of the mine. A on
discovering that B knew of the mine at the time he brought the estate, may either repudiate or
adopt the sale at his option.
To claim from the agent any benefit which may have resulted to him from the transaction.
In the case of De Bussche V/s. Alt, an agent was entrusted with the task of selling a ship at a
stated price. He could not find a customer for the same and without the consent of the principal
he purchased that ship at the stated price, himself. Later he sold the ship on profit.
It was held that the agent was bound to account to the principle for profit made by him in the
transaction.

Duty to communicate with principal

It is the duty of the agent, in cases of difficulty to use all reasonable diligence of communicating
with his principal and in seeking to obtain his instructions.

RIGHTS OF AGENT
1.
2.
3.
4.
5.

Right of Remuneration
Right to retain sums
Right to lien on principals property
Right to be indemnified
Right to claim compensation for damages

Right of Remuneration

In absence of special contract, payment for performance of any act is not due to the
agent until the completion of such act, but an agent may detain moneys received by
him on account of goods sold, although the whole of goods consigned to him for sale
may not be sold, or the sale may not be actually complete.
In the case of Sellers V/s. London Country Newspaper, 1951 an agent was appointed to
secure orders for advertisement in a newspaper, the commission in respect of an
advertisement being payable when it was published, the agent was held entitled to
commission on orders actually obtained by him although the advertisement to which
the orders related were not published until the termination of employment
In the case of Sheikh Farid Baksh V/s. Hargulal Singh, AIR 1937, an agent was appointed
to introduce a purchaser willing to purchase the defendants property. He introduced
one and even the sale was settled and earnest money paid, but it could not be
completed through the purchasers inability to find money.
The Allahabad High Court held that the agent was nevertheless entitled to his agreed
consideration.
In the case of Green V.s. Barlett, an agent was appointed to sell a house. He held an
auction but failed to find a purchaser. One of the persons attending the auction
obtained from his the address of the principal and purchased the house from him
without intervention of the agent. Even so the transaction was held to be a result of the
agents efforts.

Right to retain sums

An agent may retain out of any sums received on account of the principal
in the business of the agency, all moneys due to himself in respect of
advances made or expenses properly incurred by him in conducting
business, and also such remuneration as may be payable to him for acting
as agent.
Right to lien on principals property

An agent us entitled to retain goods, papers and other property whether

moveable or immoveable of the principal received by him, until the
amount due to himself for commission, disbursement and services has
been paid or accounted for him.
Right to claim compensation for damages

The principal must make compensation to his agent in respect of injury

caused to such agent by the principals neglect or want of skill
A employs B as a bricklayer in building a house, and puts up the
scaffolding himself. The scaffolding is unskillfully put up, and B is in
consequence hurt. A must make compensation to B.

Right to be indemnified

The employer of an agent is bound to indemnify him against consequences of

lawful acts done by the agent in exercise of the authority conferred upon him.
B at Singapore under instructions from A at Calcutta contracts with C to deliver
certain goods to him. A does not send the goods to B, and C sues B for breach of
contract. B informs A of the suit, and A authorizes him to defend the suit. B defends
the suit, and is compelled to pay damages and costs, and incurs expenses. A is
liable to B for such damages, costs and expenses.
When an act is done by the agent in good faith, the employer is liable to indemnify
the agent against the consequence of that act.
In the case of Adamson V/s. Jarvis the plaintiff an auctioneer, sold certain goods in
good faith on behalf of the Defendant. It turned out that the defendant has no
right to sell the goods, and the plaintiff was made to compensate the true owner.
The Plaintiff was held entitled to be indemnified by the Defendant for loss caused.
However when one person employs another to do an act which is criminal, the
employer is not liable to indemnify the agent against the consequences of that act.
B, the proprietor of a newspaper, publishes at As request, a libel (defamation)
upon C in paper, and A agrees to indemnify B against the consequences of the
publication, and all costs and damages of any action in respect thereof. B is sued by
C and has to pay damages, and also incurs expenses. A is not liable B upon the
indemnity.