Commercial Law

1. Contract of Agency
(Section 182 – 238)
Dr. B. Raja
Assistant Professor of Commerce
Vivekananda College
Tiruvedakam west
Madurai – 625 234
Email: b.vishnuraja@gmail.com

2. Introduction
In India, the agent and principle share a relationship that is contractual in nature, and
therefore it is governed by the terms and conditions of the contract between them. Chapter X
of the Indian Contract Act, 1872 provides the basic structure of rules and regulations that
basically govern the performance and formation of any type of contract including the agency
contract.
Contract of Agency

3. Definition: Agency can be defined as the relationship
between two persons, wherein a person has the authority to act
on behalf of another, bind him/her into a legal relationship with
the third party. There are two parties in a contract of agency –
principal and agent.

4. Who is a Principal?
Any person who employs another person to perform an act and who is being
represented by another person in dealing with the third party is the Principal.
The person acting on behalf of the other is called an agent, and
the person from whom the agent derives authority to act is called the
principal.

5. DUTIES OF PRINCIPAL
1. Agent to be indemnified (Sec. 222) – The employer of an agent is bound to indemnify him against the
consequences of all lawful acts done by such agent in exercise of the authority conferred upon him.
2. Against consequences of the Acts done in Good Faith (Sec. 223) – Where on person employs another to do
an act, and the agent does the act in good faith, the employer is liable to indemnify the agent against the
consequences of that act, thought it causes an injury to the right persons.
3. Non-liability of employer of agent to do a Criminal Act (Sec. 224) – Where one person employs another to
do an act which is criminal, the employer is not liable to the agent either upon the expenses or an implied
promise, to indemnify him against the consequences of that act.
4. Duty to Indemnify the loss for principal’s Neglect (Sec. 225) – The principal must make compensation to his
agent in respect of injury caused to such agent by the principal’s neglect or want of skill.
5. To Pay Remuneration and Dues – It is the duty of the principal to pay the agent all of his dues,
remuneration, commission etc., and also to reimburse all advance and expenses incurred by him in exercise of
his authority.

6. RIGHTS OF THE PRINCIPAL
1. The principal is entitled to enforce all the duties of the agent. This is because agent’s duties are the principal’s
right.
2. He may repudiate the transaction if it shows either that any material fact has been dishonestly concealed from
him by the agent or that the dealings of the agent have been disadvantageous to him (Sec. 215)
3. If an agent, without the knowledge of the principal, deals in the business of the agency on his own account instead
of an account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted
to him from the transaction. (Sec. 216)
4. He is entitled to compensation for any loss or any profit accruing, owing to departure from instructions (Sec. 211)
5. The principal is entitled to demand proper accounts from the agent. (Sec. 213)
6. The principal is entitled to compensation in respect of the direct consequences of the agent’s negligence, want of
skill or misconduct. (Sec. 212)
7. The principal has the right to refuse remuneration if the agent is guilty of misconduct. (Sec. 220)
8. The principal has the right to give instruction in cases of difficulty when contacted by the agent. (Sec. 214)

7. A person employed by the Principal, to act on his behalf, represent
him in the dealings with the third party and also to bring him into a
contractual relationship with the third party, is called an Agent.
Who is an Agent?

8. 1. By express or implied contract- A principal may implicitly or expressly employ an agent.
The appointment may be expressed in writing or it may be oral.
2. By conduct of party or situation– E.g. estoppel- Whereby a person allows another to act
for him to such an extent that a third party reasonably believes that an agency relationship
exists between the two.
3. By ratification- assent is given either to an act done by someone who had no previous
authority to act or to an act that exceeded the authority granted to an agent.
4. By Necessity- a person acts for another in an emergency situation without express
authority to do so.
CREATION OF AN AGENCY

9. DUTIES OF AN AGENT
 Duty in Conducting Principal’s Business (Section 211)
 Use of Ordinary Skill and Diligence (Section 212)
 Duty to Render Accounts (Section 213)
 To get Direction of Principal (Section 214)
 Duty not to Deal on his own account (Section 215)
 Duty not to make secret Profits (Section 216)
 Duty to pay Sums Received for Principal (Section 218)
 Duty to protect the interest of the Principal (Section 209)
 Duty not to delegate (Section 190)

10. RIGHTS OF AN AGENT
1. Right of retainer (Sec. 127)– an agent has the right to hold his principal’s money till the time his
claims, if any, of remuneration or advances are made or expenses occurred during his ordinary course
of business as agency are paid.
2. Right to remuneration (Sec. 219)– – an agent is entitled to get an agreed remuneration as per the
contract. If nothing is mentioned in the contract about remuneration, then he is entitled to a reasonable
remuneration. But an agent is not entitled for any remuneration if he is guilty of misconduct in the
business of agency.
3. Right to effect of Misconduct (Sec. 220)
4. Right of lien (Sec. 221) – an agent has the right to hold back or retain goods or other property of the
principal received by him, till the time his dues or other payments are made.
5. Right to indemnity (Sec. 222) – an agent has the right to indemnity extending to all expenses and
losses incurred while conducting his course of business as agency.

11. RIGHTS OF AN AGENT
6. Right to be Indemnified against consequences of acts done in good faith (Sec. 223)
7. Right to compensation (Sec. 225)– an agent has the right to be compensated for any
injury suffered by him due to the negligence of the principal or lack of skill.
8. To do lawful Acts (Sec. 188) – An agent having authority to do an act has the authority to
do every lawful thing which is necessary in order to do such act.
9. In Emergency (Sec. 189) – 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 a person of ordinary
prudence, in his own case, under similar circumstances.
10. Right of Stoppage of Goods – An agent has the right of stoppage of goods in transit if he
has bought goods either with his own money or by incurring a personal liability for the
price and the principal has become insolvent.

12. PRINCIPAL’S LIABILITY FOR THE ACTS
OF THE AGENT
The position of the principal in relation to third parties under contracts
made by agent may be discussed under the following heads:
1. Acting for a named principal.
2. Acting for an unnamed principal.
3. Acting for an undisclosed principal.

13. 1. AGENT ACTING FOR A NAMED PRINCIPAL
1. Acts of an Agent within the Scope of his Authority
2. Acts of an Agent Exceeding his Authority
1. Acts of an Agent within the Scope of his Authority
2. Acts of an Agent Exceeding his Authority
3. Where the work can be separated
4. Where the work cannot be separated
5. Notice Given to Agent
6. Liability by Estoppel
7. Liability for Misrepresentation or Fraud

14. 2. AGENT ACTING FOR A UNNAMED PRINCIPAL
When an agent contracts, as an agent for a principal but does not disclose his name,
the principal is liable for the contract of the agent. But the unnamed principal should be in
existence at the time of the contract and the acts must be within the scope of agent’s
authority.
Example: A appointed B as his agent to purchase some goods. B entered into an
agreement with C for purchasing those goods. B signed the agreement as a broker “to my
principal” but did not disclose the name of the principal. Here, B is not personally liable
because he contracted in the capacity of an agent.

15. 3. AGENT ACTING FOR AN UNDISCLOSED PRINCIPAL
1. Rights and Liabilities of Agent
2. Rights and Liabilities of Third Party
3. Rights and Liabilities of Principal

16. DISTINCTION BETWEEN AN
AGENT AND A SERVANT:
Agent Servant
An agent is authorized to act on behalf of his principal
and create contractual obligations between the principal
and a third party.
A servant does not have the authority to create
contractual obligations between the principal and a third
party.
The principal has the authority to direct the agent as to
what he has to do but he cannot direct how it is to be
done.
The master can direct a servant as to what has to be done
and also how it should be done
An agent is paid in terms of commission A servant gets his salary or wages.
An agent can work for different principals at the same
time
A servant usually works under one master at a given
point of time.
The agent offers and accepts new proposals from the
third party on behalf of his principal and thus new legal
relations are created in law of agency.
A servant cannot create any such legal relations

17. DISTINCTION BETWEEN AN
AGENT AND INDEPENDENT CONTRACTOR
Agent Independent Contractor
An agent represents his principal and has the
authority to create contractual relationship between
his principal and third parties
An independent contractor does not represent his
employer. And no authority to create contractual
relationship between his master and third parties
An agent is not personally liable in ordinary cases Independent contractor is personally liable for all acts
done by him.
The question of authority arises in case of agency. The question of authority does not arise in the case of
independent contractor.
An agent is bound to act in the matter of agency
subject to the directions and control of his principal.
An independent contractor undertakes to perform a
certain specified work., the manner and means of
performance being left to his discretion,

18. DISTINCTION BETWEEN
AN AGENT AND BAILEE
Agent Bailee
An agent may not have possession of any
goods or property of the principal.
A bailee has possession of goods of the bailor.
An agent has authority to contract on behalf
of his principal
A bailee does not have such authority.

19. DISTINCTION BETWEEN AN
AGENT AND A SUB-AGENT
Agent Sub-agent
An agent is appointed by a principal and is
under his control.
A sub-agent is appointed by an agent and as
such is under the control of the agent.
An agent acts under the principal. A sub-agent acts under an agent.
A privity of contract exists between a
principal and an agent.
No privity of contract exists between a
principal and a sub-agent.
An agent can ask for remuneration from the
principal.
A sub-agent cannot ask for remuneration
from the principal.

20. DISTINCTION BETWEEN A SUB-AGENT
AND A SUBSTITUTED AGENT:
SUB-AGENT SUBSTITUTED AGENT
An agent appoints a sub-agent and therefore a sub-
agent is under the control of an agent.
A substituted agent is only named by the agent but is
under the control of the principal.
A sub-agent acts under the agent.
A substituted agent acts independently for his
principal.
A sub-agent cannot be held liable by the principal,
except in case of fraud.
A substituted agent can be held liable by his
principal.
A sub-agent is not entitled to any remuneration from
the principal.
A substituted agent can ask for his remuneration
from his principal.
No contract exists between a sub-agent and the
principal.
A contractual relationship exists between the
substituted agent and the principal.
An agent is liable for the acts of the sub-agent.
An agent is not liable for the acts of substituted
agent.

21. TERMINATION OF AGENCY
1. Mutual Agreement
2. Revocation of the Agent’s
Authority by the Principal
3. Revocation by the Agent
II. Termination of Agency by
Operation of Law
1. Performance of the Contract
2. Expiry of Time
3. Death or Insanity of Either Party
4. Insolvency of the Principal
5. Destruction of Subject-Matter
6. Principal becoming an Alien
Enemy
7. Dissolution of a Company
8. Termination of Sub-Agent’s
Authority
9. Subsequent event Rendering the
Agency Unlawful

22. IRREVOCABLE AGENCY
1. Where agency is coupled with interest:
Where the agent has himself an interest in the property which forms the subject-matter of
agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of
such interest (Sec. 202).
2. Where the authority has been party exercised?
The principal cannot revoke the authority given to his agent after the authority has been
partly exercised, so far as regards such acts and obligations as arisen from acts already done in the
agency (Sec. 204).
3. Where the agent has incurred personal liability?
When the agent has purchased the goods on his personal liability, or where he made the
payment of the good, the agency cannot be terminated.