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AGENCY

Table of Contents

(Ss 182 to 238)

QUESTION BANK

Q.1. Define the term Agency, Principal, Agent and give essential features for formation of contract of Agency. Apr. 2002.

Q.2. Describe the rules relating to ratification of Agency. Apr. 2002.

Q.3. Explain the term “Agency by estoppel” and Sate the essentials of agency by estoppel. Oct. 01.

Q.4. Enumerate and illustrate the different kinds of agent. Apr. 01.

Q.5. To what extent is the principal liable for an act done by the agent in excess of his authority? When is the agent personally liable? Apr. 01.

Q.6. When is an agent personally liable? Explain undisclosed principal and his rights and liabilities. Oct. 2000.

Q.7. Define “Agency” State various modes of creating an agency. Oct. 2000. Nov. 03.

Q.8. Explain the different modes of termination of agency. When is the agency irrevocable. Apr. 2000. Apr. 04.

Q.9. State briefly the duties of an agent to the principal. What are his against principal? Apr. 2000, Nov. 09.

Q.10. State briefly the rights and duties of an agent towards his principal. Apr. 04. Nov. 03. Nov.06.

Q.11 Define “Agency” State various modes of terminating an agency. Apr.06.

Q.12 What is ratification? What are the essential requisites of ratification? Apr.06

Q.13 What are the different kinds of agents? Nov.05.

SHORT NOTES.

Deal- creder Agent. Apr. 2000, Oct. 2000.
Sub- agent. Apr.2000, Oct.2001, Apr. 2002.
Agency by estoppel. Apr. 2001.
Delegation. Apr. 04.
Different kinds of agents. Apr. 04. Nov. 03.
Duties of an agent. Apr.06.
Nov. 09.

SYNOPSIS

Definition of Agency.
Essentials of Agency.
Principal should be competent to contract (S.183).
Agent need not be competent (S.184).
Consideration for appointment not necessary (S.185).

III. Kinds of Agent.

Factor.
Broker,
Del-creder agent.
Special Agent.
General Agent.
Auctioneer.
Pakka Adatia.
Modes of creating Agency or Authority of Agent: –
Agency created by express authority (S.186).
Agency created by Implied authority 187.
Agency by Estoppel (S.237).
Agency by Necessity (S. 189).
Agency by Ratification (S.196-200).

– Ratification may be express or implied (S.197).

– When ratification will not be allowed.

Knowledge of fact is defective (S.198)
Act subjecting third person (S.200).

iii. When ratification is not for whole transaction (S.197)

Principal is not inexistence.
Duties of agent to principal (Ss.211 to 216).
Duty to follow instructions or customs (S.211).
Duty of reasonable care and skill (S.212)
Duty to render accounts (S.213).
Duty to communicate with principal (S.214).
Duty to deal on account of principal (s.215).
Duty to remit sum’s (S.218)
Duty not to delegate (S.190).
Right of Agents against principal.
Right to retain of sum (S.217)
Right to remuneration (S.219).
Right to lien (S.221).
Right to indemnity (S.222 and 223).
Right to compensation (S.225).

VII. Effects of Agency on Contract with third person (Ss.226 to 237);

How far principal bound by his agents acts (Ss.226 to 229).
Acts of agent within the scope of his authority binds the principal. (S.226.)
Liability when agent exceeds his authorities. S.227

and 228.

Effects of notice given to principal S.229.
Liability for agents wrongful act. S.238.
When an agent is personally liable S.230.
Foreign principal.
Principal undisclosed.
Right to sue (S.231 and 232)
Right to disclose himself (S.232).

Right of third person against undisclosed

Principal (S.231and232)

Right to sue.
Right to repudiate Contract.
Right to equity.
Non existence or incompetent principal.
Pretended agent (S.235).

VIII. Termination of Agency (S.201)

By revocation.
Renunciation by agent.
By Completion of business.
On expiry of time.
Death of insanity.
Principals insolvency.
Law relating to sub Agent (Ss. 190 to 195): –
Duty of agent not to delegate (S.190).
Nature of work.
Trade custom.
Who is sub-agent (S.191)
Effect of proper delegation (S.192).
Effect of improper delegation (193).
Who is substituted Agent (S.194).

I. DEFINITION OF ‘AGENT’: –

The Act does not define the term ‘Agency’ but defines the terms ‘Agent’ and ‘Principal.’

1) S. 182 of the Indian Contract Act defines “Agent” and “Principal” as “An agent is a person employed to do any act for another or to represent another in dealing with third persons[1]. The person for whom such act is done, or representation is made called the ‘Principal’”.

2) According to ‘Bowstead’ “’ Agency’ is the relationship that exists between two persons, one of whom expressly or impliedly consents that the other should represent him or act on his behalf and the other of them similarly consents thereto”.

The emphasis is on the agent’s power to represent his principal in dealing with third persons[2].

II. ESSENTIALS OF AGENCY: –

1. The principal should be competent to contract (S.183): –

Any major person with a sound mind may employ an agent.

The agent binds the principal at one end and the third party at the other end; therefore, the principal shall be competent to contract.

2. Agent need not be competent (S.184): –

The agent need not be competent to contract because he binds the ‘principal’ at one end and at the other end to a third person. However, he does not bind himself to the contract; therefore, he does not need to be competent. But such an incompetent agent cannot be held liable by the principal for his negligent act causing detriment or loss to the principal.

3. Consideration for appointment not necessary (S.185): –

No consideration is necessary to create an agency. Generally, an agent gets remunerated by commission, but such commission is also not the essence of the agency. But gratuitous an agency does not compel an agent to do an act for the principal.

III. KINDS OF AGENTS: –

Though the word ‘agent’ is mostly abused and used for many activities, the following are some agents known to the business world.

1. Factor[3]: –

The word ‘factor’ in India and in England means “an agent entrusted with the possession of goods by the principal for the purpose of selling them”. He sells goods in his own name as an apparent owner. He can sell them at such time and at the best price. He has discretionary authority to sell the goods, even on credit and receive the price as an actual owner.

2. Broker[4]: –

A broker is an agent whose business is to bring about contractual relations between two parties. It is through his media the contract is made between the principal and the third party. He has no possession of the goods, like factor. He has no authority to contract on his own name, like factor.

3. Del-Creder agent: –

Where an agent undertakes, on payment of some extra remuneration, to be liable to the principal for the failure of the third party to perform the contract, he is called a ‘Del-credit agent’, and his extra commission for the guarantee is known as Del-credit commission.

4. Special agent[5]: –

A special agent is “an agent appointed for a specific purpose when that purpose is accomplished; the agency comes to an end, e.g. agent to sell the particular house, or an advocate, etc.”.

5. General Agent[6]: –

An agent who is authorised to do all acts connected with a particular trade, business, or employment is called a “General Agent.” For example, a firm manager who does everything necessary for carrying on the firm’s business is a “General Agent.”

6. Auctioneer[7]: –

The auctioneer is the person who conducts the auction of the goods owned by the principal. He is entrusted with all the rights relating to the principal’s goods. He is at complete liberty to decide the time and place of the auction. The auctioneer accepts the bid as a sale by falling the hammer thrice. The bid of the highest bidder is generally accepted.

7. Pakka-Adatia[8]: –

‘Pakka-Adatia’ is the practice of agency prevailing in the Mumbai market. He is not an agent in the true sense. He works for commission in his own name even without disclosing the name of the purchaser to the seller and of the seller to the purchaser. Pakka-Adatia is employed for the purpose of ascertaining the price at which the sale and purchase are to be completed. The pakka-Adatia is personally responsible towards his constituent[9] as well as towards the third party. In this sense, he is an agent of both.

IV. MODES OF CREATING AGENCY OR AUTHORITY OF AGENT:-

An agency is created by conferring authority by the principal to the Agent. An act done by an agent within his authority binds the principal.[10] Therefore, the nature of authority conferred determines the mode of agency. Following are the modes of agency created by the nature of authority conferred on the agent by the principal, viz.

1. Agency created by express authority[11] (S.186): –

“The authority of an agent may be express or implied[12] An authority is said to be ‘express’ when it is given by the words spoken or written.[13] Therefore, an agency is created by conferring express authority on an agent.

In Chami Narayan V. R. Krishan Iyer[14].

The Court Held: – that power of attorney, given in writing, is an expressway of creating agency.

2. Agency created by implied authority[15] (S. 187): –

Agency may be created by inferring authority by the principal to an agent. The court can draw such inference from the circumstances of the case or the words spoken or written, or from the ordinary course of dealing in business[16].

Illustration

A owns a shop in Serampur, living himself in Calcutta, and visits the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purpose of the shop and of paying for them out of A’s funds, with A’s knowledge. B has an implied authority from A to order goods from C in the name of A for the purposes of the shop and pay for them from A’s friend.

In Smith V. Mose[17].

Facts: – A woman allowed her son to drive a car for her. She was paying all the expenses of the maintenance and operation of the car. Unfortunately, the car met with an accident, injuring the plaintiff.

The court held: – that the son was an implied agent of the mother, and when he made an accident injuring the plaintiff, the plaintiff could sue the mother for the fault of her agent.

Many times, implied authority coincides with express authority. An agent having the authority to do an act or carry on a business as a manager also has the authority to do every lawful thing which is necessary in order to do that act or in conducting such business[18] (S. 188).

Illustration

(a) A is employed by B, residing in London, to recover at Bombay a debt due to B. A may adopt any legal process necessary for the purpose of recovering the debt and may give a valid discharge for the same.

(b) A constitutes B, his agent to carry on his business as a ship-builder. B may purchase timber and other materials and hire workers for the purpose of carrying on the business.

3. Agency by Estoppel[19] (S. 237): –

An agency by potter is also called an agency by ‘holding out’ or ‘agency by apparent authority’. Sometimes, the conduct of the Principal may give rise to scope for an outsider to draw the inference that authority has been conferred upon an agent even though no authority was ever given. So where the principal and agent by their conduct include a belief in the outsider’s mind that the particular authority is given to the agent by the Principal, while in fact that is not given and on such belief, that if the outsider’s acts or contract with them and suffers loss or damage, the principal is liable for holding out or estoppels.’[20]In such a case, the principal is estopped from denying the agency’s existence. The person is held liable as an agent for holding out.

‘Agency by holding out’ or ‘Estoppel’ has the following essentials-

A representation must have been made to the third party.
The third party must have relied upon such representation and acted with the agent and principal.

Illustrations.

a) A tells B in the presence of P that he is P’s agent, and P does not deny the statement, and later on, B enters into a contract with P, in the belief that A is P’s agent. P would be bound by the contract; he is stopped from denying that the other is not his agent.
b) A consigns goods to B for sale and gives him instructions not to sell under a fixed price. C, being ignorant of B’s instructions, enters into a contract with B to buy the goods at a price lower than the reserved price. A is bound by the contract.
c) A entrusts B with negotiable instruments endorsed in the bank. B sells them to C in violation of private orders from A; the sale is good.

4. Agency by necessity[21] (S. 189): –

Under certain circumstances, a person may be compelled to act as an agent of the other without requiring the consent of the principal. Such an agency is called an ‘agency by necessity’. An agent has authority in an emergency to do all such acts for the purpose of protecting his principal from loss, as would be done by the person of ordinary prudence, in his own case, under similar circumstances (S.189).

Illustrations

(a) An agent for sale may have goods repaired if it is necessary.

(b) A consigns provisions to B at Calcutta, with directions to send them immediately to C at Cuttack. B may sell the provisions at Calcutta if they will not bear the journey to Cuttack without spoiling.

In Great Northern Rly. V. Swafield[22]

Facts: – A horse, having been consigned to the defendant Railway Company, has not been received by anyone at the destination. The company had no arrangement of its own to keep animals and, therefore, placed the horse with a stable keeper.

The court held: – that the company’s action was a reasonable necessity in the circumstances, and, therefore, the company was allowed to recover the charges of the stable keeper.

5. Agency by Ratification[23] (Ss. 196 to 200): –

S.196 of the Act recognises the creation of agency by subsequent ratification by the principal. The principal can rectify the contracts entered into by the agent on his behalf but without his consent.

Where the person acts on behalf of the other without his knowledge or authority, and the other person subsequently accepts or ratifies the act, agency by ratification creates, and the person ratifying becomes bound by the act as if he had expressly authorised the person to do the act on his behalf.

For a person insures the goods of another without his authority, the owner may ratify the policy, and the policy will be as valid as if the agent had been authorised by the principal to insure goods. The principal may either ratify or disown such an act.

Ratification may be express or implied (S. 197): –

Ratification may be express or implied (from the conduct of the person on whose behalf an act is done[24])

Illustration

a) 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 A.
b) A, without B’s authority, lends B’s money to C. Afterwards, B accepts interest on the money from C. B’s conduct implies a ratification of the loan.

When ratification will not be allowed-

Ratification will not be allowed in the following two cases-

1. Knowledge of the fact is defective (S.198).

A person whose knowledge of the facts of the case is materially defective cannot make a valid ratification.

In Damodhar V. Sheoram[25]

Facts: – The agent sold his own property to the principal at a higher price and purchased the principal’s property at a low price. The principal has no knowledge of the facts and ratified the contract. However, on disclosing facts, sued the ‘agent’.

The court held that the ratification was invalid because the principal had no knowledge of all the facts.

2. Act subjecting third persons (S. 200): –

Only valid acts can be ratified. An act that damages a third person or terminates any right or interest of a third person can not be ratified.

Illustration

a) A, without authority by B, demands from C the delivery of the chattel of B, ‘C’ refuses to deliver the chattels to him. In such case, B can not subsequently ratify the demand made by A so as to render C liable for non-delivery.
b) A holds a lease from B, terminable on three months’ notice. C, an unauthorised person, gives notice of termination to A. The notice cannot be ratified by B so as to be binding on A.

3. When ratification is not for the whole transition –

A person can not ratify a part of the transaction that benefits him and repudiate the rest.

4. Principal is not in existence: –

Ratification relates to the time when it was contracted. Therefore, for such ratification, the principal must have existed and been competent to ratify at that time.

Therefore, a contract entered into by a minor, in his minority, can not be ratified in the majority because the minor is incompetent to ratify the contract, e.g. pre-incorporation expenses incurred for the company.

V. DUTIES OF AGENT TO PRINCIPAL

(Ss. 211 to 216):

An agent’s duties to the principal are as follows: –

1. Duty to follow instructions or customs (S. 211): –

An agent is bound to conduct the business of his principal according to his directions. In the absence of any such direction, he should conduct the business according to the custom prevailing in that business at that place. When the agent acts otherwise, and therefore, any loss is sustained by the principal, he must make it good to the principal, and if any profit accrues, he must account for it.

Illustration

(a) A, an agent engaged in carrying on for B a business, in which it is the custom to invest from time to time, at interest, the money which may be in hand, omits to make such investment. A must make good to B the interest usually obtained by such investments.

(b) B, a broker whose business it is not the custom to sell on credit, sells goods of A on credit to C, whose credit was very high at the time. C, before payment, becomes insolvent. B must make good the loss to A.

2. Duty of reasonable care and skill (S. 212): –

Every agent is bound to carry on the agency’s business with reasonable care and skill. If the principal suffers any loss or damage due to his negligence or lack of skill and care, he is liable.

Illustrations

(a) A, a merchant in Calcutta, has an agent, B, in London, to whom a sum of money is paid on A’s account, with orders to remit. B retains the money for a considerable time. A, as a consequence of not receiving the money, becomes insolvent. B is liable for the money and interest from the day on which it ought to have been paid, according to the usual rate, and for any further direct loss—as, e.g., by variation of rates of exchange—but not further.

(b) A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit without making the proper and usual enquiries as to the solvency of B. B, at the time of such sale, has insolvent. A must make compensation to his principal in respect of any loss thereby sustained[26].

3. Duty to render accounts (S. 213): –

An agent is bound to render proper accounts to his principal when demanded.

4. Duty to communicate with the principal (S. 214): –

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

5. Duty to deal on account of principal (S. 215): –

An agent cannot be allowed to deal on his own account (instead of dealing on the principal’s account) in the business of the agency, except with the previous consent of the principal (obtained after full disclosure of the material facts). It is based on the principle that an agent should be completely loyal to the principal[27]. On the contrary, if the agent deals on his own account instead of dealing with the principals account without his knowledge, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction[28].

The agent is not allowed to make a secret profit by dealing on his own account.

Illustration

(A) A directs B, his agent, to buy a certain house for him. B tells A that it cannot be bought and that he will buy the house for himself. A may, on discovering the fact, compel B to sell that house to A at the price he gave for it.

(b) A directs B to sell A’s estate. B, on looking over the estate before selling it, finds a mine on the estate, which is unknown to A. B informs A that he wishes to buy the estate for 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 bought the estate, may either repudiate or adopt the sale at his option.

6. Duty to remit sums (S. 218): –

The agent is bound to pay his principal on all sums received on his account. However, the agent is entitled to deduce his lawful charges.

7. Duty not to delegate (S. 190): –

‘Delegates non-potest delegare’ is a well-known maxim of the law of agency; it means the person delegated power cannot further delegate it to others. It is because the principal chooses a particular agent on whom he has trust and confidence, on his integrity and competence.

VI. RIGHTS OF AN AGENT AGAINST PRINCIPAL: –

Following are some of the rights of an agent against the principal.

1. Right to retain of sum (S. 217): –

The agent has the right to retain his principal’s money until his claims, if any, in respect of his remuneration, advances made, or expenses incurred in conducting the agency’s business are paid.

2. Right to remuneration (S. 219): –

Every agent is entitled to their agreed remuneration or, if there is no agreement, to reasonable remuneration[29].

However, an agent who is guilty of misconduct in an agency’s business is not entitled to any remuneration in respect of the part of the business in which he had misconducted (S.220).

Illustrations

(a) A employs B to recover 1,00,000 rupees from C and to lay it out on good security. B recovers the 1,00,000 rupees and lays out 90,000 rupees on good security but lays out 10,000 rupees on security, which he ought to have known to be bad, whereby A loses 2,000 rupees. B is entitled to remuneration for recovering the 1,00,000 rupees and for investing the 90,000 rupees. He is not entitled to any remuneration for investing the 10,000 rupees, and he must make good the loss of 2,000 rupees to B.

(b) A employs B to recover 1,000 rupees from C. the money is not recovered through B’s misconduct. B is entitled to no remuneration for his services and must make good the loss.

3. Right of lien (S.221): –

An agent is entitled to retain goods, papers and other property received by him as an agent in the course of that agency, relating to which he is entitled to his commission, disbursement and services.

The nature of the lien, in this case, is a particular lien.

The right to lien is lost by-

a). Loss of possession by an agent.

b). Waiver by an agent of his right to lien.

c). The contract to the contrary not to exercise lien between principal and agent.

4. Right to indemnity (Ss. 222 and 223): –

The principal is bound to indemnify the agent, against the consequences of all lawful acts done by such agent in the exercise of the authority conferred upon him (S.222.)

Illustrations

a) B at Singapore, under instruction from A of 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 authorises him to defend the suit; B defends the suit and is compelled to pay damages and costs and incur expenses. A is liable to B for such damages, costs and expenses.
b) B, a broker at Calcutta, by the orders of A, a merchant there, contracts with C for the purchase of 10 casks of oil for A, afterwards A refuses to receive the oil, and C sues B. B informs A, who repudiates the contract altogether. B defends, unsuccessfully, and has to pay damages and costs and incur expenses. A is liable to B for such damages, costs and expenses.

If such an act, made in good faith by the agent, causes an injury to a third person, and consequently, the agent suffers any loss, the principal has to indemnify the agent for that loss[30].

Illustration

a) A, a decree-holder and entitled to execution of B’s goods, requires that the officer of the Court seize certain goods, representing them to be the goods of B. The officer seizes the goods and is sued by C, the true owner of the goods. A is liable to indemnify the officer for the sum which he is compelled to pay to C as consequence of obeying A’s directions.
b) B, at the request of A, sells goods in possession of A but which A has no right to dispose of. B does not know this and hands over the proceeds of the sale to A afterwards, C, the true owner of the goods, sues B and recovers the value of the goods and costs. A is liable to indemnify B for what he has been compelled to pay to C and for B’s own expenses.

But if an agent is employed to do any criminal act and thereby agent suffers a principal is not under a duty to indemnify the agent[31].

Illustration

a) A employs B to beat C and agrees to indemnify him against all consequences of the act. B thereupon beats C and has to pay damages to C for so doing. A is not liable to indemnify B for those damages.
b) B, the proprietor of a newspaper, publishes, at A’s request, a libel upon C in the 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 incur expenses; A is not liable to B upon the indemnity.

5. Right to compensation (S.225):

The principal must compensate his agent for injury caused to such agent by the principal’s neglect or want of skill.

Illustration

A employs B as a bricklayer to build a house and puts up the scaffolding himself, and B is, in consequence, hurt. A must make compensation to B.

VII. EFFECTS OF AGENCY ON CONTRACT WITH THIRD PERSONS (Ss. 226 to 237):-

Following are some rules governing the liability of the principal to a third person for the acts made through his agent.

A. How far principal bound by his agents acts (Ss.226 to 229).:-

1. Acts of the agent within the scope of his authority bind the principal (S. 226)

Contracts entered into through an agent, and obligations arising from acts by an agent may be enforced in the same manner and will have the same legal consequences as if the contracts have been entered into and the acts done by the principal himself.

Illustration

a) A buys goods from B, knowing that he is an agent for their sale but not knowing who the principal is. B’s principal is the person entitled to claim from A the price of the goods, and A cannot, in a suit by the principal, set off against that claim a debt due to himself from B.
b) A, being B’s agent with authority to receive money on his behalf, receives from C a sum of money due to B. C is discharged of his obligation to pay the sum to B.

2. Liability when the agent exceeds his authority (S. 227)

When the agent does more than he is authorised to do, and when the part of what he does which is within his authority can be separated from the part which is beyond his authority, so much only of what he does as is within his authority is binding between him and his principal (S.227).

Illustration

A, being the owner of the ship and cargo, authorizes B to procure insurance for 4000 rupees on the ship. B procures a policy for 4000 rupees on the ship and another policy of 4000 rupees for cargo. A is bound to pay a premium for the policy on the ship but not the premium for the policy on cargo.

But when the agent does more than what he is authorized to do and when he does beyond the scope of his authority cannot be separated from what is within his authority, the principal is not bound to recognize the transaction (S. 228).

Illustration

A authorizes to buy 500 sheeps for him. B buys 500 sheeps and 200 lambs for the sum of 6000 rupees. A May repudiate the whole transaction.

3. Effects of notice given to an agent (S. 229):

Any notice given to or information obtained by an agent in the course of the business transacted by him on behalf of his principal shall, as between the principal and third party, have the same consequences as if it has been given to or obtained by the principal himself.

Illustrations

(a) A is employed by B to buy from C certain goods, of which C is the apparent owner, and buys them accordingly. In the course of the treaty for sale, A learns that the goods really belonged to D, but B is ignorant of that fact. B is not entitled to set off a debt owed to him from C against the price of the goods.

(b) A is employed by B to buy goods from C, of which C is the apparent owner. A was, before he was so employed, a servant of C and then learnt that the goods really belonged to D, but B is ignorant of that fact. In spite of the knowledge of his agent, B may set off against the price of the goods a debt owing to him from C.

4. Liability for agent’s wrongful Act (S. 238):

The principal is liable for the wrong (tort) done by an agent in the course of business for the principal. But not liable for a tort committed outside his authority and out of a course of business.

Illustration

a) A, being B’s servant for the sale of goods, induces C to buy them by a misrepresentation, which he was not authorized by B to make. The contract is Voidable between B and C at the option of C.
b) A, the captain of B’s ship, signs the bill of lading without having received on board the goods mentioned therein. The bills of lading are void between B and the pretended consignor.

B) When an agent is personally liable (S. 230): –

As a general rule, an agent who enters into a contract on behalf of his principal is not entitled to sue, nor is he personally liable for the contract (S. 230), But the same section provides that if the contract is made to the contrary, his personal liability arises.

The contract to the contrary, making agent personally liable, is presumed in the following cases.

1. Foreign Principal[32]: –

When an agent contracts for “a merchant residing abroad” there is the presumption that the agent takes personal liability.

2. Principal undisclosed: –

The presumption of the agent’s personal liability arises when he “does not disclose the name of his principal”. Where an agent enters a contract for an undisclosed principal, he definitely is personally liable, being party to the contract. But where he discloses that he is an agent without disclosing the name of the principal, there is only a presumption of his liability.

a) Rights of Undisclosed Principal[33] (231 and 232): –

1. Right to sue for performance of a contract (Ss. 231 and 232): –

An undisclosed principals can sue subject to the equities between the agent and third party.

Illustration

A, who owes 500 rupees to B, sells 1,000 rupees worth of rice to B. A is acting as agent for C in the transaction, but B has neither knowledge nor reasonable grounds of suspicion that such is the case. C cannot compel B to take the rice without allowing him to set off A’s debt.

2. Right to Disclose himself (S.232): –

The principal has the right to disclose himself before the contract is completed.

b) Right of the third person against the undisclosed principal (Ss.231 and 232): –

1. Right to sue: –

The third party has all rights against such undisclosed principal as if he is the disclosed principal.

2. Right to repudiate contract[34] :-

If the principal discloses himself before the contract is completed, the other contracting party may refuse to fulfil a contract if he does not want to contract with such principal or another person than an agent.

3. Right to equity[35]: –

Though an undisclosed principal can sue for performance to a third person, such right is subject to equities between the agent and third party.

Illustration

A, who owes 500 rupees to B, sells 1000 rupees worth of rice to B. A is acting as an agent of C in the transaction, but B has no knowledge and no reasonable ground for suspicion that such is the case. C cannot compel B to take the rice without allowing him to set off A’s debt.

4. Non-existent or incompetent principal: –

An agent is presumed to incur personal liability where he contracts on behalf of a principal who, “though disclosed, cannot be sued” e.g. an agent who contracts for a minor. The minor being not liable the agent becomes personally liable.

Pretended agent[36] (S.235): –

Where a person pretends to act as the agent of another, he may be saved by the principal by ratifying his act. But if no ratification is forthcoming, the pretended agent becomes personally liable to the third party for any loss he may have suffered by relying upon his representation.

VII. TERMINATION OF AGENCY (S. 201): –

The relationship of a principal and an agent may come to an end in any of the ways mentioned in S.201 as follows: –

1. By Revocation[37]: –

The principal may terminate the agency’s relationship by revoking the agent’s authority at any time.

Such revocation may be expressed or implied.

Illustration

A employs B to sell A’s house. Afterwards, A sells it himself. This is an implied revocation of B’s authority.

2. Renunciation by agent[38]: –

An agent may renounce the agency’s business by giving notice in the same manner as the principal has the right of revocation.

3. By the completion of business: –

An agency is automatically and by operation of law determined (terminated) when its business is completed. For example, an agent appointed to sell the house ceases to be an agent after the sale of the house.

4. On the expiry of time: –

Where an agent is appointed for a fixed term, the expiration of the term puts an end to the agency.

5. Death or insanity: –

An agency is determined automatically by the death or insanity of the principal or the agent.

6. Principal’s insolvency: –

An agency ends with the principal being adjudicated insolvent.

LAW RELATING TO SUB-AGENT[39]

(Ss.190-195)

Question Bank

Q.1. “Delegatus non potest delegare”- Explain. What are exceptions to this maxim?

SYNOPSIS

1) Duty of Agent not to delegate (S. 190): –

Exceptions to this rule: –

Nature of work: –
Trade custom: –

2) Who is sub-agent (S. 191): –

Effect of proper delegation (S. 192): –
Effect of improper delegation (S. 193): –
Who is substituted agent S.194: –

Duty of Agent in naming such substituted agent (S.195): –

1) Duty of Agent not to delegate (S. 190): –

“Delegatus non potest delgare” is a well-known maxim of the law of agency. The principal chooses a particular agent because he has trust and confidence in his integrity and competence. Ordinarily, therefore, the agent can not further delegate the work which has been delegated to him by his principal.

Exceptions to this rule: –

In the following cases, the agent may delegate the work to another.

i. Nature of work: –

Sometimes the very nature of the work makes it necessary for the agent to appoint a sub-agent.

g. an agent appointed to sell an estate may retain the service of the actioner; an agent authorized to file a suit may engage a lawyer.

ii. Trade custom[40]: –

Secondly, a sub-agent may be appointed, and the work delegated to him if there is the ordinary custom of trade to that effect.

g. Suppose a particular custom provides that, the agent appoints an auctioneer for the sale of his goods. The appointment of the such an auctioneer is valid.

2) Who is the sub-agent (S. 191): –

A person who is appointed by the agent and to whom the principal’s work is delegated is known as a sub-agent.

S.191 defines “sub-agent” as “a person appointed by and acting under the directions of the original agent in the business of the agency.”

To hold the principal liable, it is essential that the agent must have properly delegated his authority to the sub-agent. Improper delegation doesn’t hold the principal liable.

i. Effect of proper delegation (S. 192): –

An act of a subagent by proper delegation binds the principal. However, the agent is responsible to the principal for the acts of the subagent, and the subagent is responsible to the agent but not to the principal for his acts.

ii. Effect of improper delegation (S. 193): –

Delegation is improper when it is not authorised by the principal. The effect is that the principal is not bound by appointment. However, the agent is responsible to the principal as well as to the third person for unauthorized delegation to the sub-agent.

iii. Who is the substituted agent[41] (S. 194): –

A person is called a substituted agent when an agent, holding express or implied authority to name another person to act for the principal in the business of the agency, has named another person; accordingly, such person is not a sub-agent but an agent of the principal for such part of the business of the agency as is entrusted to him.

Illustration

a) A directs B, his agent, to sell the estate by auction and to employ an auctioneer for the purpose. B names C, an auctioneer, to conduct the sale; C is not a sub-agent but is A’s agent for the conduct of the sale.
b) A authorises B, a merchant in Calcutta, to recover the money due to A from C & Co. B instructs D, a solicitor, to take legal proceedings against C & Co for the recovery of the money. D is not a sub-agent but is the solicitor for A.

Duty of Agent in naming such substituted agent (S.195): –

For selecting a substituted agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case, and if he does this, he is not responsible to the principal for acts or negligence of the agent so selected.

Illustration

A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of good reputation to choose a ship for A. The survivor makes a choice negligently, and the ship turns out to be un-seaworthy and is lost. B is not, but the surveyor is responsible to A.

*****

[1] अधिकर्ता किंवा दुस-यातर्फे काम पाहायला नियुक्त केलेली व्यक्ती म्हणजे दलाल किंवा अधिकर्ता. [एजेंट एक ऐसा व्यक्ति होता है जिसे किसी दूसरे के लिए कोई कार्य करने या तीसरे व्यक्तियों के साथ व्यवहार करने में दूसरे का प्रतिनिधित्व करने के लिए नियुक्त किया जाता है]

[2] In Chami Narayan V. Krishna Iyer. AIR 1998 Ker.

Court Held: – that by executing a power of Attorney the relationship of principal and agent is created.

[3] अडत्या.

[4] माल, रोखे, भाग, मालमत्तेच्या विक्रीच्या बाबतीतील मध्यस्थ, जो कमीशन किंवा दलाली घेवून काम करतो.

[5] विशिष्ठ अधिकर्ता किंवा दलाल जो विषिष्ठ उद्देषाने केलेला असतो.

[6] सर्वसाधारण अधिकर्ता

[7] लिलाव करण्यासाठी नेमलेला दलाल.

[8] पक्का अडत्या – असा व्यक्ती जो वस्तुची किंमत निष्चितीसाठी मुंबई मार्केटमध्ये नेमलेला असतो

[9] The person who appoints Pakka Adatia.

[10] S.226.

[11] स्पष्ट किंवा व्यक्त अधिकारांना तयार झालेला अभिकर्ता.

[12] S.186.

[13] S.187.

[14] (AIR 1998 Rer.)

[15] अभिप्रेत अधिकार

[16] S.187.

[17] 2 (1940) 1 K.B. 424.

[18] S.188.

[19] प्रतिबंधाने दलाल. – एक व्यक्ती आपल्या कृतीने, निवेदनाने किंवा एखादी गोष्ट टाळून, दुस-या व्यक्तीस काही गोष्टीवर विष्वास ठेवण्यास भाग पाडत असल्यास, त्या दोन व्यक्तीत दावा चालल्यास पहिली व्यक्ती किंवा तिचा प्रतिनिधी वस्तुस्थिती नाकारु ष्षकत नाही. प्रतिबंध, प्रतिबंधक कबुली

[20] S.237.

[21] गरजेमुळे तयार होणारी एजन्सी.

[22] 1874.

[23] मान्यता दिल्याने एजन्सी म्हणजेच कृत्यास नंतरहून मान्यता देणे.

[24] S.197.

[25] 1907.

[26] (c) A, an insurance-broker employed by B to effect an insurance on a ship, omits to see that the usual clauses are inserted in the policy. The ship is afterwards lost, in consequence of the omission of the clauses nothing can be recovered from the underwriters. A is bound to make good the loss to B.

(d) A, a merchant in England, directs B, his agent at Bombay, who accepts the agency, to send him 100 bales of cotton by a certain ship. B, having it in his power to send the cotton, omits to do so. The ship arrives safely in England. Soon after her arrival the price of cotton rises. B is bound to make good to A the profit which he might have made by the 100 bales of cotton at the time the ship arrived, but not any profit he might have made by the subsequent rise.

[27] S.215.

[28] S.216.

[29] S.219

[30] S. 223.

[31] S.224.

[32] जो स्वतःसाठी दलालाची नेमणूक करतो असा मालक की, जो बाहेरच्या देषातील आहे

[33] व्यवहारात नाव न सांगितलेला मालक

[34] करार रद्द करणेचा अधिकार.

[35] समदृश्टीचा अधिकार, न्याय बुध्दीचा अधिकार

[36] ढोंगाने एजन्सी.

[37] मालकाने रद्द केल्याने.

[38] दलालाने रद्द केल्याने

[39] पोट-दलाल- असा दलाल की ज्याला दलालाने स्वतःच्या अधिकाराखाली काम करण्यासाठी नेमलेला आहे.

[40] O व्यवसायातील चाल-रित.

[41] मालकाच्या सांगण्यावरुन दलालाने सुचविलेला दलाल की, जो मालकाचे मार्गदर्षनप्रमाणे काम करतो.