CONTRACTS OF
AGENCY
INTRODUCTION
In modern business it is not always possible for a
person to do everything by himself. So, it
becomes necessary to delegate some of the acts
to be performed by another. Such another person
is called an agent & the contract under which
such person is appointed is called a “contract of
agency. “ The law of agency is based on the
principal, “what a person does by another, he does
by himself.”
MEANING
The contract which creates the relationship of
principal & the agent is known as the contract of
agency. According to English law, the contract of
agency implies one person appointing another
person to establish lawful business relations with
third parties.
DEFINITION
According to section 182 of the Indian contract
Act, “An agent is a person employed to do any act
for another or to represent another in dealings
with third parties. The person for whom such act
is done or who is represented, is called the
principal.”
ESSENTIAL ELEMENTS OF AGENCY
 Express Or Implied Agreement
 Contractual Capacity In Principal
 Consideration Not Necessary
 Appointment Of Agent By The Principal
WHO MAY EMPLOY AN AGENT ?
According to Section 183 of the Indian Contract
Act, “Any person who is of the age of majority
according to law to which he is subject & who is
of sound mind may employ an agent.” Thus the
principal must be capable of making a contract.
So, it is necessary that the principal should have
competency to make a contract. If the principal
is himself a minor or is of unsound mind, he
cannot be made liable for the acts done by the
agent.
WHO CAN BECOME AN AGENT ?
Since the acts done by the agent are taken as
the acts done by the principal, any person may
become an agent for creating relationship
between the principal & the third parties.
Competency to make a contract is not necessary
to become an agent.
According to Section 184 of the Indian Contract
Act, “As between the principal & third person any
person may become an agent, but no person who is
not of the age of majority & of unsound mind can
become an agent, so as to be responsible to his
principal according to provisions.”
IS CONSIDERATION NECESSARY ?
One of the essentials elements of a valid contract
is consideration. But, Section 185 of the Act
states that, “No consideration is necessary to
create an agency.”
Therefore, it is not necessary that the agent
should get any consideration for his services. It
makes no difference on the rights & duties of the
agent whether he gets some consideration or not.
The only difference is that if the agent is paid
any consideration, he is bound to perform the act
assigned by the principal.
CREATION OF AGENCY
 By Express Agreement
 By Implied Authority
 By Estoppel Or Holding Out
 By Necessity
 By Ratification
LEGAL POSITION OF A WIFE AS AGENT FOR
HER HUSBAND
 When The Husband & Wife Living Together
Case: Girdhari Lal vs. Crowford
 When Wife Living Separately From Husband
DOCTRINE OF RATIFICATION
According to Section 196 of the Act, “where Acts
are done by one person on behalf of another, but
without his knowledge or authority, he may elect
to ratify or to disown such acts. If he ratifies
them, the same effects will follow as if they had
been performed by his authority.”
RULES GOVERNING RATIFICATION
 Act Must Be Done On Behalf Of The Person
Ratifying
 Existence Of The Principal
 Contractual Capacity
 Lawful Acts
 Express Or Implied Ratification
 Whole Transaction
 Full Knowledge
 Within Reasonable Time
 No Damage to Third Party
EFFECT OF RATIFICATION
 An Agency Is Established By Ratification & The
Principal Becomes Liable For The Act ratified
 Invalid Acts Become Valid Acts After
Ratification
 The Agent Become Entitled To Receive
Necessary Expenses & Commission
 The Effect Of Ratification Is Retrospective
EXTENT OF AGENT’S AUTHORITY
 Under Normal Condition
 In Emergency
SUB - AGENT
According to Section 191, “Sub-agent is a person
employed by & acting under the control of the
original agent in the business of agency.”
This section states that the sub-agent is
appointed by the agent & acts under the control
of original agent in the business of agency.
CONDITIONS OF APPOINTMENT OF SUB-AGENT
 Where The Principal Has Clearly Authorised The
Agent To Appoint Sub-Agent
 Where The Ordinary Custom Of Trade Allows
Employment Of Sub-Agent
 Where The Nature Of Business Is Such That It
Is Necessary To Appoint Sub-Agent & The
Performance Become Difficult Without A SubAgent
 Where The Principal Is Aware That His Agent
Wants to Appoint Sub-Agent & Does Not Object
 Where An Emergency Requires Delegation
LEGAL POSITION BETWEEN PRINCIPAL,
AGENT & SUB-AGENT
 Where Sub-Agent Is Properly Appointed
a. Liability Of Principal To Third Party
b. Liability Of Agent To Principal
c. Liability Of Sub-Agent To Agent
 Where Sub-Agent Is Not Properly Appointed
SUBSTITUTED AGENT
According to Section 194, “Where an agent
holding an express or implied authority to name
another person to act for the principal in the
business of 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.”
TYPES OF AGENTS
 General Agent
 Specific Agent
 Mercantile Agent
a. Broker
b. Factor
c. Auctioner
d. Commission Agent
e. Banker
f. Del-Credere Agent
DUTIES OF AN AGENT TO PRINCIPAL
 To Work According To Directors
 To Work With Reasonable Skill & Diligence
 To Render Proper Accounts
 To Inform The Principal In Difficulties
 Not To Deal On His Own Account
 To Pay The Sum Received For The Principal
 To Protect The Interest Of The Principal
 Not To Delegate The Authority
 Not To Use The Information Obtained In Course
Of Agency Against Principal
 Not To Set Up An Adverse Title
RIGHTS OF AN AGENT
 Right Of Compensation For Premature Breach Of
Agency
 Right Of Retainer
 Right To Receive Remuneration
 Right Of Lien
 Right Of Indemnification For Lawful Acts
 Right Of Indemnification For Acts Done In Good
Faith
 Right Of Compensation For Principal’s Negligence
RIGHTS OF PRINCIPAL
 To Get The Agency Business Conducted
According To Directions
 To Recover Compensation Due To Negligence
 To Get Proper Accounts
 To Give Instructions In Case Of Difficulty
 Right To Repudiate
 To Claim Secret Benefits
 To Receive all Sums From The Agent For Principal
 To Forfeit Remuneration In Case Of Misconduct
DUTIES OF PRINCIPAL
 To Pay Remuneration To The Agent
 To Indemnify For All Lawful Acts
 To Indemnify For All Acts Done In Good Faith
 To Make Compensation Due To Negligence
 To Compensate For Premature Breach Of Agency
PRINCIPAL’S LIABILITY TO THIRD PARTY

a.
b.
c.
d.
e.


a.
b.
c.
Agent Acting For Named Principal
When An Agent acts Within His Authority
When An Agent Exceeds His Authority
Effect Of Notice Given To Agent
Consequence Of Doctrine Of Estoppel
Misrepresentation Or Fraud By Agent
Agent Acting For Unnamed Principal
Agent Acting For Undisclosed Principal
Position Of Principal
Position Of Agent
Position Of Third Party
PRETENDED AGENT
When a person, who is not an agent, claims to be
an authorised agent of the another person &
thereby induces a third person to make a
contract with him, such person is called a
pretended agent.
 Legal Position Of Pretended Agent:
 To Make Compensation To Third Party
 Not Entitled To Claim Performance
PERSONAL LIABILITY OF AGENT TO THIRD
PARTY
 When Acting for Foreign Principal
 When Acting For An Undisclosed Principal
 When For The Principal Who Cannot Be Sued
 When The Agent Exceeds His Authority
 By Express Agreement
 Agency Coupled With Interest
 Non-Existence Of The Principal
 When The Agent Signs The Contract In His Own
Name
 When Custom Or Trade Usage
 Misrepresentation Or Fraud
TERMINATION OF AGENCY
 Termination By The Act Of Parties
a. By Mutual Agreement
b. Revocation By The Principal
i. Agency Coupled With Personal Interest Of
Agent
ii. Partial Use Of Authority By The Agent
iii. Personal Liability Undertaken By The Agent
c. Renunciation By The Agent
i. Compensation For Revocation
ii. Notice Of Revocation
iii. Revocation Express Or Implied
CONTD.
 Termination Of Agency By Operation Of Law
a. Completion Of The Agency Business
b. On Expiry Of Fixed Period
c. By Death Or Insanity Of The Principal/Agent
d. Insolvency Of Principal
e. Destruction Of The Subject Matter Of Agency
f. Principal Becoming An Alien Enemy
g. Winding Up Of A Company
THANKS