Agency under section 182 of The Indian Contract Act, 1872

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DefinitionDefinition
The two terms – ‘agent’ and ‘principal’ – have been defined in
Section 182 of the Contract Act as follows:
An agent is a person employed to do any act for another or to
represent another in dealings with third persons. The person for
whom such act is done, or who is represented, is called the principal.
The contract which creates the relationship of ‘principal’ and ‘agent’
is called an ‘agency.’ For example if Bank of Maharashtra (BoM)
appoints Galaxy4u to purchase 200 Samosas on its behalf, BoM is the
‘principal’ and Galaxy4u is ‘agent’ and the contract between two is
‘agency.’

““He, who does through another, does byHe, who does through another, does by
himself.”himself.”
Whatever a person competent to contract may do by himself, he may
do through an agent, except for acts involving personal skill and
qualifications. In fact, where the work to be done is obviously
personal, no agent can be employed. For example, a person cannot
marry through an agent, cannot paint a picture through an agent and
so on.
Section 226 provides to the same effect: “Contracts entered into
through an agent, and obligations arising from acts done by an agent,
may be enforced in the same manner, and will have the same legal
consequences as if the contracts had been entered into and the acts
done by the principal in person.’’

Test of Agency
Agency exists ‘whenever a person has the authority to act on behalf
of the other and to create contractual relations between that other
and third persons.’ When this kind of power is not enjoyed, the
relationship is not one of agency. Thus a person is not an agent
merely because he gives another advice in matter of business.
Similarly, a person rendering personal service to his master or
working in his factory cannot be called as an agent because in these
cases he is not acting for another in dealing with third persons. It is
only when one acts as representative of the other in business dealing
so as to create contractual relations between that other and third
persons, that he is an agent and there is an agency.

Distinction between Agent & Servant
A servant acts under the direct control and supervision of his
employer, that is, he has to act according to the orders of the master.
He does not create relations between his employer and third persons
and cannot bind the master to third parties. If, for some purpose, he
is authorized to bind the master, then to that extent he is an agent.
An agent is not subject to the direct control and supervision of the
principal. He has often a large discretion to act within the scope of his
authority. A ‘principal’ directs the agent “as to what is to be done”
while a ‘master’ has the further right to direct “how the work is to be
done.”

Distinction between Agent and
Independent Contractor
An independent contractor is one who is employed to perform
certain specified work but the manner and means of performance are
entirely left to his discretion. He is free to do the specified job
independently of the employer’s control and interference. Such a
contractor also differs from an agent. The main point of distinction is
that while the contractor does not represent his employer in relation
to other persons and as such cannot bind the employer by contracts
entered into with others, the agent, on the other hand, does
represent his employer in relation to other persons and can bind the
employer (his principal) by contracts entered into with other persons
within the scope of his authority.

Who may Employ an Agent?
According to section 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.” As such any person competent to
contract may employ an agent and a minor, a lunatic or a drunken
person cannot employ an agent. Per Section 184 “as between the
principal and third persons any person may become an agent.” Thus
even a minor or a person of unsound mind can be appointed as
agent. It is so because the act of the agent is the act of the principal
and therefore the principal is liable to third parties for the acts of the
minor agent. Of course, in appointing a minor or a person of unsound
mind as an agent, the principal runs a great risk because he cannot
hold such an agent liable for his misconduct or negligence.

No consideration is necessary
“No consideration is necessary to create an agency”.
Section 184. The fact that the principal has agreed to be represented
by the agent is a sufficient detriment to the principal to support the
contract of agency, i.e. to support the promise by the agent to act in
that capacity.
It is to be noted, however, that a gratuitous agent is not bound to do
the work entrusted to him by his principal. But once he begins the
work, he is bound to complete it. Usually agent is paid remuneration
for his service.

Kinds of Agents
1) General Agent: A general agent is one who is employed to do all
acts connected with a particular business or employment, e.g. a
manager of a firm.
2) Special Agent: A special agent is one who is employed to do
some particular act or represent his principal in some particular
transaction, e.g. an agent employed to sell a motor car. As soon
as the act is performed, the authority of such an agent comes to
an end.
3) Universal Agent: His authority is unlimited i.e. one who is
authorized to do all the acts which the principal can lawfully do
and can delegate. He enjoy extensive powers to transact every
kind of business on behalf of his principal.

Another Classification - Kinds of Agents
1) Mercantile Agent: A mercantile agent is one who has authority
either to sell goods or to buy goods or to raise money on the
security of goods. The various kinds of mercantile agents are as
follows:
i. Factor: Entrusted for sale
ii. Commission agent: Receives commission for his labor
iii. Del Credere Agent: Occupies the position of a surety
as well as of an agent
iv. Broker: He makes contracts in the name of his
principal
2) Non- Mercantile Agent: They include advocates, attorneys,
insurance agents, wife etc.

Creation of Agency
1) Agency by express agreement: By word of mouth or by agreement in
writing. However, in certain cases, e.g. execute a deed for sale or purchase
of land, the agent must be appointed by executing a formal ‘power of
attorney’ on a stamped paper.
2) Agency by implied agreement: Implied agency arises when there is no
express agreement appointing a person as an agent, but instead the
existence of agency is inferred from the circumstances of the case, or from
the conduct of the parties on a particular occasion or from the relationship
between parties. Such an agency may take the following forms.
i. Agency by estoppel
ii. Agency by holding out
iii. Agency by necessity
3) Agency by Ratification: Section 196

Agency by Estoppel
Such an agency is based on the doctrine of estoppel which may be briefly
stated thus, “where a person by his words or conduct has willfully led
another to believe that certain set of circumstances or facts exists, and that
other person has acted on that belief, he is estopped or precluded from
denying the truth of such statements, although such a state of things did
not in fact exist.”
Section 237 of the Contract Act, which deals with agency by estoppel, also
provides to the same effect. The section lays down that “when an agent has,
without authority, done acts or incurred obligations to third persons on
behalf of his principal, the principal is bound by such acts or obligations, if
he has by his words or conduct such third person to believe that such acts
and obligations were within the scope of agent’s authority.

Agency by Estoppel
We may sum up thus, an agency by estoppel is created when the alleged
principal by his conduct or by words spoken or written, leads willfully the
other contracting party into an honest belief that the supposed agent had
authority t act as such bind the principal. Such a principal will be estopped
from denying subsequently his agent’s authority, although the agent did not
in fact possess any authority whatsoever.
Example: A tells B in the presence and within the hearing of C that he is C’s
agent. C does not contradict this statement and keeps quiet. Later on B
enters into a transaction with A believing honestly that A is C’s agent. C is
bound by this transaction and he will be estopped from denying the
existence of agency, even though such an agency did not in fact exist.

Agency by Holding Out
Such an agency is based on the doctrine of holding out which is a part of the
law of estoppel. In this case also the alleged principal is bound by the acts of
the supposed agent, if he has inducted third persons to believe that they
are done with his authority. But, unlike an agency of estoppel, an agency by
holding out required some affirmative or positive act or conduct by the
principal to establish agency subsequently. Thus, where an employer has
been accustomed to pay for goods bought on his behalf by his employer
from Galaxy4u, the employer may be liable for a purchase made in the
customary manner, even though it is made, by the employee fraudulently
after he has left the employment. The employer’s conduct in holding out his
employee to be his agent (paying for purchases made by the employee on
previous occasions) estops him from denying that his authority was not still
in existence.

Agency by Necessity
In certain circumstances the law confers an authority on one person
to act as agent for another without any regard to the consent of the
principal. Such an agency is called agency of necessity. Bowstead has
rightly observed: “An agency by necessity is conferred by law in
certain cases, where a person is faced with an emergency in which
the property or interests of another are in imminent danger, and it
becomes necessary in order to preserve the property or interests, to
act before the instructions of the owner can be obtained. The law
assumes the consent of the owner to the creation of the relationship
of principal and agent.”

Agency by Ratification
Ratification means the subsequent adoption and acceptance of an act
originally done without instructions or authority. Thus where a principal
affirms or adopts the unauthorized act of his agent, he is said to have
ratified that act and there comes into existence an agency by ratification
retrospectively. Section 196, deals with the effect of ratification. It provides
that “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 authority.” By ratifying the unauthorized act of the agent, the principal
becomes bound by the act as if had been originally done by the authority.
Thus ratification amounts to prior authority. It relates back to the original
making of the contract. This means that the agency comes into existence
from the moment the agent acted and not from the time when the principal
ratified.

Extent of Agent’s Authority
1) Actual authority: An agent can do all such acts as have been assigned
to him either expressly or impliedly and thereby bind the principal to
third parties by acts done within the scope of his actual or real
authority. The authority is said to be express when it is given by words
spoken or written. The authority is said to be implied when it is inferred
from the circumstances of the case or the ordinary course of dealings.
2) Ostensible or apparent authority: An agent can also bind the
principal to third parties by acts done within his apparent authority;
(although the act is in excess of his actual authority). Thus ‘actual’ and
‘apparent’ authority stands on the same footing. Ostensible authority
means an authority which the third parties dealing with the agent can
presume to be with the agent in relation to a particular business
ordinarily.
3) Authority in Emergency: Anything in emergency to save principal

Delegation of Authority
Section 190 provides that “an agent cannot lawfully employ another to
perform acts which he has expressly or impliedly undertaken to perform
personally, unless by the ordinary custom of trade a subagent may, or from
the nature of agency, a subagent must, be employed.” Accordingly an agent
cannot delegate his powers or duties to another without the express
authority of the principal, except in certain cases. This section is based on
the well-known maxim of Roman law, viz, “delegates nonpotest delegare”,
that is “a delegate cannot further delegate.” An agent, being himself the
delegate of his principal, cannot pass on that delegated authority to
someone else. As a rule, he must not depute another person to do that
which he has undertaken to do personally. The reason for this rule is that
confidence in the integrity and competence of a particular person is at the
root of a contract of agency.

Delegation of Authority
But there are exceptions to this general rule. He can appoint sub-agent.
1)Where the principal has expressly permitted delegation of such power.
2)Where the principal has impliedly, by his conduct, allowed such delegation of
authority, e.g. where the principal knows that the agent intends to delegate his
authority but does not object to it.
3)Where by the ordinary custom of trade a subagent may be employed. Thus stock
exchange member brokers generally appoint clerks to transact business on behalf
of their clients.
4)Where the very nature of agency makes it necessary to appoint a subagent. For
example, a manager of a shop may employ sales assistant.
5)Where the acts to be done are purely ministerial and do not involve the exercise
of discretion, e.g. clerical or routine work.
6)Where unforeseen emergencies arise rendering appointment of the sub-agent
necessary.

Sub-agent and consequences of
appointment of sub-agent
“A sub-agent is a person employed by, and acting under the control of, the
original agent in the business of the agency.” Thus a person employed by an
agent is called a sub-agent. A sub-agent acts under the control of the
original agent as for the relation in between themselves is that of agent and
principal. In other words the original agent acts as principal for the sub-
agent.
Consequences of the appointment of sub-agent. The legal effects of the
appointment of a sub-agent as between the principal and the sub-agent
inter se and as regards third parties depend upon whether the sub-agent
has been properly or improperly appointed.

Sub-agent and consequences of
appointment of sub-agent
Where a sub-agent is properly appointed. In such a case, as per Section 192,
the following consequences emerge:
(1)The principal is bound and liable to third parties for the acts of the sub-
agent, as if he were an agent originally appointed by the principal.
(2)The agent is responsible to the principal for the acts of the sub-agent. For
example, if any moneys are due on the sub-agent, the agent is responsible for
same and the principal cannot sue the sub-agent on that account. It is so
because in the eye of law there is no privity of contract between the principal
and the sub-agent and therefore, in general, the principal cannot claim against
the sub-agent for negligence.
(3)The sub-agent is responsible for his acts to the agent and not to the
principal. But in case the sub-agent is guilty of fraud or willful wrong, he is
directly liable to the principal. In such a case the principal has the choice to sue
either the agent or the sub-agent.

Where a sub-agent is improperly
appointed
Where the appointment of a sub-agent is made without authority and
without any justification, as per Section 193, the following consequences
arise:
(1)The principal is not represented by such sub-agent and hence is not liable
for the acts of the sub-agent.
(2)The agent is responsible for the acts of the sub-agent to the principal as
well as to the third parties.
(3)The sub-agent is not responsible to the principal at all. He cannot be held
liable by the principal even for fraud or willful wrong. He is responsible for
his acts only to the agent (his employer).

Section 194 - Substituted Agent
Accordingly, “When an agent has an express or implied authority of his
principal to name another person to act for the principal and the agent
names another person accordingly, such person is not a sub-agent but a
substituted agent of the principal in respect of the business which is
entrusted to him.” Thus an agent simply names or appoints a substituted
agent at the request of the principal and thereafter drops out altogether
from the scene. The substituted agent is directly responsible to the principal
and a privities of contract is deemed between him and the principal.
Example: You directs Galaxy4u, your solicitor, to sell your estate by auction
and to employ an auctioneer for the purpose. Galaxy4u names Avinash, an
auctioneer, to the conduct the sale, Avinash is not a sub-agent, but is your
agent for the conduct of the sale.

Duties of Agent
1) Duty to follow principal’s directions or customs (Section 211)
2) Duty to carry out the work with reasonable skill and diligence (Section
212)
3) Duty to render accounts (Section 213)
4) Duty to communicate (Section 214)
5) Duty not to deal on his own account (Section 215-216)
6) Duty not to make any profit out of his agency except his remuneration
(Section 217-218)
7) Duty on termination of agency by principal’s death or insanity (Section
209)
8) Duty not to delegate authority (Section 190)
Example: You directs Galaxy4u, your solicitor, to sell your estate by auction
and to employ an auctioneer for the purpose. Galaxy4u names Avinash,
an auctioneer, to the conduct the sale, Avinash is not a sub-agent, but is
your agent for the conduct of the sale.Avinash Murkute | Galaxy4u | Pune | M: 9822698070 | E: avnash@galaxy4u.in

Principal’s Liability for the acts of the
Agent
The extent of principal’s liability to third parties for the acts of the agent is
determined by the following rules.
(1)When agent acts within the scope of his actual and apparent authority.
(2)When agent exceeds his actual as well as apparent authority.
(3)Liability of agent’s misrepresentation or fraud.
(4)Notice given to agent as notice to principal.
(5)Liability based on the doctrine of estoppel.

Termination of Agency
An agency may be terminated in any of the following ways:
1)By act of the parties
i. Agreement
ii. Revocation by the principal
iii. Renunciation by the agent
2)By operation of law
i. Completion of business of agency
ii. Expiry of time
iii. Death of the principal or the agent
iv. Insanity of the principal or the agent
v. Insolvency of the principal
vi. Destruction of the subject matter
vii. Dissolution of the company
viii. Principal and agent becomes alien enemy

Contact in Confidence!
Q & A
Doubt is the key to knowledge!
Faculty: Avinash MurkuteAvinash Murkute
LLM International Laws
Galaxy4u, Pune – 412 115 India
Mobile: +91-9822698070, +91-9637796308
E-mail: avinash@murkute.com | avinash@galaxy4u.in
Web: www.Galaxy4u.in
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Disclaimer: Refer the official publications. This presentation and illustrations is just an
introduction for legal awareness purposes only.

Agency under section 182 of The Indian Contract Act, 1872

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