Chapter

Contract of Agency
Introduction
Before the Industrial revolution, business was carried on largely by
individual artisans in their homes and in small family operated shops. As
population and trade expanded and division of labour and specialisation
became the order of the day, there arose the problem of distribution of
goods.

Today, the legal terms master-servant and employer-employee are used

interchangeably.

Over time, employers delegated a broader range of responsibilities to their

employees – for example, by giving them authority to contract for raw
materials, to sell finished products and even to employ other employees. In
these expanded roles, the employees became known as agents and their
employers were called principals.
Definition of Agent and Agency
Meaning of Agent and Agency (s.182). Agent is “a person employed to do
any act for another or to represent another in dealings with third person”.
The function of agent is to bring about contractual relation between the
principal and a third party. The agent is only a connecting link between the
principal and the third party and is rightly called as ‘conduit pipe’.

Who can Employ Agent? 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 agent (s.183).

Who may be Agent? Since agent is a mere connecting link or a ‘conduit

pipe’ between the principal and the third party, it is immaterial whether or
not the agent is legally competent to contract.
Different Kinds of Agencies
A contract of agency may be created by an express agreement or by implication
(implied agreement) or by ratification. Thus, there are different kinds of agencies.
 Express Agency (s.187)
 Implied Agency (s. 187)
 Agency by Estoppel (s. 237)
 Agency by Holding Out
 Agency of Necessity (s.189)
 Agency by Ratification (Ss.196-200)
 Agency Coupled with Interest
Classification of agents
Agents may be classified from different points of view. One broad classification
of agents is: (i) mercantile or commercial agents and (ii) non-mercantile or
non-commercial agents. Another classification of agents is: (1) general and (2)
special.
 Special and General Agents
 Mercantile or Commercial Agents
 Non-mercantile or Non-commercial Agents
 Sub-agent and Substituted Agent (Ss. 190-195)
Duties and rights of agent
Duties of Agent
1. To conduct the business of agency according to the principal’s
directions (s.211).
2. The agent should conduct the business with the skill and diligence.
3. To render proper accounts (s.213).
4. To communicate with the principal in case of difficulty (s.214).
5. Not to make any secret profits.
6. Not to deal on his own account.
7. Not entitled to remuneration for misconduct (s.220).
8. Not to disclose confidential information supplied.
9. To take all reasonable steps for the protection and preservation of the
interests entrusted to him.
Rights of Agent

1. Right to remuneration (Ss.219-220).

2. Right of retainer (s.217).

3. Right of lien (s.221).

4. Right of stoppage in transit.

5. Right of indemnification (Ss. 222-224).

6. Right to compensation for injury caused by principal’s neglect (s.225).

Principal’s duties to the agent and his liability to third
parties
Duties of a Principal. The rights of agent are in fact the duties of the
principal. Thus a principal is (i) bound to indemnify the agent against the
consequences of all lawful acts done by such agent in exercise of the
authority conferred upon him (s.222); (ii) liable to indemnify agent against
the consequences of an act done in good faith, though it causes an injury
to the rights of third persons (s.223); (iii) bound to compensate his agent in
respect of injury caused to such agent by the principal’s neglect or want of
skill (s.225).

The principal is, however, not liable for acts which are criminal in nature
….
though done by the agent at the instance of the principal (s.224).
Liability of Principal to Third Parties
1. Agent being a mere connecting link binds the principal for all his acts
done within the scope of his authority (s.226).
2. The principal is liable for the acts of the agent falling not only within
the actual authority but also within the scope of his apparent or ostensible
authority.
3. The principal will be liable even for misrepresentations made or frauds
committed by agent in the business of agency for his own benefit.
4. The principal is bound by any notice or information given to the agent
in the course of business transacted by him.
Undisclosed Principal. Where agent, though discloses the fact that he is
agent working for some principal, conceals the name of the principal, such
a principal is called an undisclosed principal.
Concealed Principal. Where agent conceals not only the name of the
principal but the very fact that there is a principal, the principal is called a
concealed principal.
Power of Attorney
Meaning. A power of attorney is defined by s.2 (21) of the Stamp Act, as
including “any instrument not chargeable with a fee under the law relating
to court fees for the time being in force,” which empowers “a specified
person to act for and in the name of the person executing it”. It is the
Powers of Attorney Act, 1882, which deals with the subject, but does not
define it.
A Power of Attorney may be Special or General. If the deed conferring
power by one to another relates to one single transaction, it is known as
special power of attorney.
Registration. As a general rule, registration of power of attorney is not
necessary but if it authorises the donee to recover the rents of an
immovable property of the donor for the donee’s benefit, it would require
registration.
Personal liability of agent
Agent is only a connecting link between the principal and third parties.
Being only a medium, he can, in the absence of a contract to the contrary,
neither personally enforce contracts entered into by him on behalf of his
principal, nor is he personally bound by them (s.230).
Agent incurs a personal liability in the following cases:
1. Breach of warranty.
2. Where the agent expressly agrees to be personally bound.
3. Where agent signs a negotiable instrument in his own name.
4. When agent is guilty of fraud or misrepresentation in matters which do
not fall within his authority (s.238).
5. Where trade usage or custom makes agent personally liable.
6. Where the agency is one coupled with interest.
Termination of agency
Circumstances under which Agency Terminates or Comes to an End
(s.201).
1. On revocation by the principal.
2. On the expiry of fixed period of time.
3. On the performance of the specific purpose.
4. Insanity or death of the principal or agent.
5. Insolvency of the principal.
6. By renunciation of agency by the agent.
When Termination of Agency takes Effect?
1. The termination of the authority of agent does not, so far as regard the
agent, takes effect before it becomes known to him (s.208).
2. As regards third parties, they can continue to deal with the agent till
they come to know of the termination of the authority (s.208).