The contract which creates the relationship of 'principle' and agent is called an agency. Thus where A appoints B to buy ten bags of sugar on his behalf, A is the principal', B is the agent and the contract between the two is agency. If in pursuance of the contract of agency, the agent purchases the bags of sugar from C a wholesale dealer in sugar on credit, then in the eye of law the 'principal' and the wholesale dealer are brought into direct contractual relations and the contract of purchase is enforceable both by and against the principal.
Section 182 of this Act defines an agent as a person employed to do any act for another to represent another in dealing with third persons.
Motilal Chanoalal Vaish v. Golden Tobacco Co., MANU/MP/0092/1957 : AIR 1957 MP 223: The rule as to agency is expressed in the Maxim 'qui facit per alium, facit per se'. It is founded on a contract either express or implied by which one of the parties confides to the other management of some business to be transacted in his name on his account and by which the other assumes to do the business and render an account of it.
Agency is often created by actual authority given by principal to the agent on principal's ratification of contract entered into by the agent on his behalf but without authority.
According to Anson's law of contract: Although a general rule one man cannot by contract with another confer or rights to impose liabilities upon a third party yet he may represent another, as being employed by him, for the purpose of bringing him into legal relation with a third party.
Krishna v. Ganapathi, AIR 1953 Mad 648: The concept of 'Agency' has been explained by Ramaswami J. of the Madras High Court. In legal pharaseology, every person who acts for another is not an agent. A domestic servant renders to his master a personal service, a person may tills another field or lends his flocks as work in his shop or factory or mine or may be employed upon his roads or ways one may act for another in aiding in the performance of his legal or contractual obligation of third persons.
Loon Karan v. John & Co., MANU/UP/0102/1967 : AIR 1967 All 308: Dhawan J. of the Allahabad High Court expressed that, "Agency depends on true nature of relationship. It was held in several decisions that the fact that the parties have called their relationship an agency is not conclusive if the incidence of this relationship, as disclosed by evidence does not justify a finding of agency, and that the court must examine the true nature of the relationship and the functions and responsibilities of the alleged agent.
According to Pollock & Mulla: The list of determining agency is whether the person is purporting to enter into the transaction on behalf of the principal or act.
Illustrations
(i) Certain millers were appointed licensee by the Government to buy wheat at a fixed price and to sell the same to particular persons at a price fixed by the Government. The said millers received commission for their labour. Did the relationship of principal and agent exist between the Government and the said millers?
They cannot be said to be the agents of Government for the representative character and derivative authority which is essential to absent here.
(ii) P represents to Q that he (P) in acting as agent for R. Relying on that representation Q delivers goods to P as buyer. Is there a valid contract between P and Q. Does any property pass to P and can he (P) make a valid contract
For a valid contract between P and Q it is essential that P must have derivating authority of R. If there is not such authority the contract is not valid. The title to goods shall not pass to P and that he cannot make a valid pledge of goods.
Under section 183 of the Contract Act, any person who is competent to contract and who is of sound mind may appoint an agent. The appointment may be expressed in writing or it may be oral. Under this section a person who is sui juris has a right to appoint an agent for any purpose whatsoever, but this rule is subject to certain well-known exception as when the act to be performed is personal in character or is annexed to a public office or to an office involving fiduciary obligation.
T.C. Mathai v. District and Sessions Judge, MANU/SC/0224/1999 : AIR 1999 SC 1385: Every person who in sui genris has a right to appoint an agent for any purpose whatsoever, and that he can do so when he is exercising a statutory right no less than when he is exercising any other right. This rule is subject to certain well-known exceptions. As per the exceptions mentioned by the Supreme Court in that case, a person's right to appoint an agent does not extend to the following acts:
(1) Where the act to be preformed is personal in character, or
(2) Where the act to be performed is annexed to a public office, or
(3) Where the act to be performed is annexed to an office involving any fiduciary obligation, or
(4) Where the law requires that a particular act should be done by a party in person.
Shephard v. Cartwright, (1953) 1 Ch 728: "An infant cannot appoint an agent to act for him neither by means of a power-of-attorney, nor by any other means. If he purports to appoint an agent, not only is the appointment itself void, but everything done by the agent on behalf of the infant in also void and incapable of ratification."
An infant has not sufficient discretion to choose on agent to act for him. He is all too likely to choose a wrong man and so the law declares him to be incapable of choosing agent at all.
Mahendra Pratap Singh v. Padam Kumar Devi, AIR 1993 All 182: Since the defendant is weak, mentally infirm and cannot comprehend for herself, the power-of-attorney which authorised to act as agent of the defendant had been exhausted because of the defendant's incapacity.
The agent need not be competent to contract. Section 184 lays down very clearly that as between the principal and third person any person may become an agent. Ordinarily, an agent incurs no personal liability while contracting for his principal and, therefore, it is not necessary that he should be competent to contract. Thus a person may contract through a minor agent but the minor will not be responsible to his principal.
Gopimal Durga Das v. Jain Bank of India Ltd., Lahore, AIR 1918 Lah 269: It was held that (i) as a minor can act as an agent under section 184, Contract Act, the fact that at the time of the application the member was not sui juris did not vitiate the contract between the Bank and the firm and that the firm was therefore liable on the shares, (ii) that as the minor did not give notice within reasonable time after attaining majority of her repudiation, he was also equally liable.
Under the provisions of this section; No consideration is necessary to create an agency. In all cases of general agency, the relation may be generally fiduciary, but in other kinds of agencies, the relation may vary with the confidence, which the principal choose to repose in the agent. It may also noted upon the power which the agent exercise over the subject-matter under the terms of the contract of agency or by virtue of the incident of law and usage of the business, which the relationship implies. Thus the fiduciary element in agency, though the key to much of the law governing this relation, is not the essential element in the relation.
Smt. Chandra Kantaben J. Modi and Narendra Jayantilal Modi v. Vadilal Bapalal Modi, MANU/SC/0506/1989 : AIR 1989 SC 1269: The Supreme Court clarified the fiduciary position of the agent vis-a-vis his principal. Delivering the judgment Lalit Mohan Sharma J. observed it is well-settled that the possession of the agent is the possession of the principal and in view of the fiduciary relation agent cannot be permitted to claim his own possession.
Illustration
A owns a shop in Serampur, living himself in Calcutta, and visiting 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.
The relationship of principal and agent need not be expressly constituted and can be brought about by implication of a law on a particular situation arising from the necessity of a case.
Agency need not be created by written document and can be inferred from the circumstances and conduct of the parties.
The scope of express authority is worked out by construction of the words used in the document. For example, where a principal, while going abroad, authorised his agent and partner to carry on the business, and his wife to accept bills on his behalf for the personal business, he was held not bound when his wife accepted bails for the business, which the agent was conducting and which was different from his personal business. An authority is said to be express when it is given by words spoken or written. An implied authority is one which can be inferred from the circumstances of the case
Bank of Bengal v. Ramanathan, AIR 1915 PC 121: While interpreting the authorization of an agent in money-lending business, the Privy Council applied the following canon of construction-"where an act purporting to be done under power-of-attorney is challenged as being in excess of the authority conferred by the power, it in necessary to show that on a fair construction of the whole instrument the authority in question is to be found within the four corners of the instrument, either in express terms or by necessary implication.
The distinction between express or implied authority is not fundamental, but depends merely on whether the authority is limited by words or by conduct. If P tells A that he is to act as manager, this is really a compendious way of stating that he is to do all the acts as manager would ordinarily do. Those acts might well be termed as express authority.
An agent having an authority to carry on a business, has authority to do every lawful thing necessary for the purpose, or usually done in the course of conducting such business.
Illustrations
(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 of a ship-builder. B may purchase timber and other materials, and hire workmen, for the purpose of carrying on the business.
Under section 188 of the Contract Act, the authority of every agent whether express or implied is confined within the limits of the powers of his principal and an agent of a corporation order incorporated company cannot have any authority express or implied to do any act on behalf of the corporation or company which is ultra vires:
Robinson v. Mollet, (1874) LR 7 HL 802: 'R authorised a broker M to purchase for him 50 tons of tallow. M supplied his own tallow as there was a custom in his trade to buy large quantities of tallow in his own name and then to allocate it to his principals.
The House of Lords held that the custom to be unreasonable. It made M, a wholesaler rathers than an agent. It also created a conflict between his duty to the principal and his personal interest.
Where a principal gives an express authority to do a particular act or class of acts on his behalf the principal is bound as against third person by every act done by the agent who is so expressly authorised, which is necessary for the proper execution of the business, even though the express authority is unknown to the third person.
Illustrations
(a) An agent for sale may have goods repaired if it be 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.
It is a liability of an agent in general in an emergency to do all works for protecting his principal from loss as would be done by a person of ordinary prudence in regard to his own case. Under this section when an agent acts in emergency what is to be considered is whether he acted as an average prudent man and has taken reasonable care.
The principal will not normally be liable for the unauthorised criminal act of the agent or for the other acts done by him in excess of his authority. When an agent having no authority to borrow money does so and such borrowing is neither justified by necessity nor it is in the usual course of business, the principal is not liable.
I. From the point of view of the extent of their authority agents may be classified into-
(a) General agent.-A general agent is one was is employed to do all acts connected with a particular business or employment e.g., a manager of a firm. He can bind the principal by doing any thing which falls within the ordinary scope of that business. Whether he is actually authorised for any particular act or not, is immaterial, provided that third party acts bona fide.
(b) Special agent.-A special agent is one who is employed to do some particular act or represent his principal in some particular transactions e.g., an agent employed to sell a motor car. If the special agent does anything outside his authority, the principal is not bound by it and third parties are not entitled to assume that the agent has unlimited powers.
(c) Universal agent.-A universal agent is said to be one where authority is unlimited i.e., who is authorised to do all the acts which the principal can lawfully do and can delegate.
II. From the point of view of the nature of work performed by them agents may be classified into-
(a) Factor.-A factor is a merchantile agent to whom goods are entrusted for sale. He enjoys wide discretionary powers in relation to the sale of goods. A factor is the agent who is entrusted with the possession and contract of the goods to be said by him for his principal. According to Anson- He has possession of the goods, authority to sell them in his own name and a general discretion as to this sale. He may sell on the usual term of credit may receive the price and give a good discharge to the buyer.
(b) Broker.-He is one who is employed to make contracts for the purchase and sale of goods. He is not entrusted with the possession of goods. He simply acts as a connecting link and beings the two parties together to bargain and if the circumstances materialises he becomes entitled to his commission called brokerage. He makes contracts in the name of his principal. Thus, a broker is an agent primarily employed to negotiable a contract between two parties. Where he is broker for sale he has no possession of the goods to be sold.
(c) Del Credere Agent.-He is one who in consideration of an extra-commission guarantee his principal that the third persons with whom he enters into contracts on behalf of the principal shall perform their financial obligation that is, if the buyer does not pay, he will pay. Thus he occupies the position of a surety as well as of an agent.
Couturie's v. Hastie, (1852) 8 Exch 40: "The defendants acting or del credere agents sold the plaintiff's goods which were supposed to be on a voyage but which unknown to the parties had already been sold by the captain owing to the damage by heat. The buyer repudiated the contract and, therefore, the agents were sued for the buyer's failure to perform."
The question was "whether the defendants are responsible by reason of their changing a del credere commission", though they have not guaranteed by writing. Thus is main object of the reward being given to them. Keeping this in view the court held that a del credere agency is not a contract of guarantee even if it may terminate in a liability to pay the debt of another because the agent has a personal interest in the transaction and therefore writing is not necessary.
(d) Commission agent.-A commission agent is a merchantile agent who buys or sells goods for his principal on the best possible terms in his own name and who receives commission for his labours. He may have possession of goods or not.
(e) Pakka Adatia & Kachha Adatia.-Pakka Adatia in an agent of his constituent only upto a certain point only for the purpose of ascertaining and giving a correct quotation of the price. But thereafter when the transaction takes place, he cease to be an agent and assumes towards his constituent the character of a principal, and the transaction must be regarded as a contract between principal and principal.
sub-agent may, or, from the nature of the agency, a sub-agent must be employed.
Sub-agent is defined in section 191 as 'a person employed by and acting under the control of the original agent in the business of the agency.
Union of India v. Mohd. Nizam, MANU/SC/0588/1979 : AIR 1980 SC 431: Every agent who employs a sub-agent is liable to the principal for money received by the sub-agent to the principal's use and is responsible to the principal for the negligence and other breaches of duty of sub-agent in the course of his employment. The principle of law is based on this maxim 'qui per alium facit per seipsum facere vindetur' which means 'he who does an act through another in deemed in law to do it himself.
Every agent who employs a sub-agent is liable to the principal for money received by the sub-agent to the principal's use, and responsible to the principal for the negligence and other breaches of duty of the sub-agent in the course of his employment.
Summon Singh v. N.C. Bank of New York, AIR 1952 Punj 172: The plaintiff in a foreign country appointed to N.C. Bank to deliver a sum of money to one Pritam Singh of Jullundur whose address was given. The bank instructed its Bombay Branch accordingly. The Bombay branch appointed the Punjab National Bank which delivered the money to a wrong person.
The plaintiff's action against either bank failed. The PNB was held not on the principle that a sub-agent is not liable to the principal except when he is guilty of fraud or wilful wrong. The wrong delivery was due only to negligence. The N.C. Bank had exempted itself from the consequences of wrong delivery. A sub-agent is, however, bound by all the duties of an ordinary agent.
The principal in not represented by or responsible for the acts of the person so employed, nor is that person responsible to the principal. Delegation is improper when it is not authorised, that is. When it is not within any of the recognised exception. The effect is that the principal is not bound by the appointment.
Illustrations
(a) A directs B, his solicitor, to sell his 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 authorizes B, a merchant in Calcutta, to recover the monies 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 solicitor for A.
Illustrations
(a) 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 surveyor makes the choice negligently and the ship turns out to be on sea worthy and is lost. B is not, but the surveyor is responsible.
(b) A consigns goods to B, a merchant, for sale. B, in due course, employs an auctioneer in good credit to sell the goods of A, and allows the auctioneer to receive the proceeds of the sale. The auctioneer afterwards becomes insolvent without having accounted for the proceeds. B is not responsible to A for the proceeds.
The true test to determine whether the person appointed by an agent authorised in that behalf to perform part of the business of agency is a substituted agent of the principal or the sub-agent of the against is to see if there is a privity of contact between the principal and the person so appointed, and the test to be applied in the same whether the case falls within section 194 or whether the person so appointed in the nominee of the principal although there is a difference in the obligation under taken by the agent, for section 195 applies to a case falling within the section 195.
A sub-agent has to be distinguished from a substituted agent-Sections 194 and 195 contain special provision about substituted agents. As per section 194 when an agent has an express or implied authority of his principal to name a person to act for him and the agent has accordingly named a person, such person is not a sub-agent, but he becomes an agent for the principal in respect of the business which is entrusted to him.
By ratification we mean act which the principal confirms unauthorised acts of the agent. That is to say, even if the agent enters into a contract, without the authority, consent or knowledge of the principal may if he likes rattify and thereby accept the benefits and obligations arising out of such a contract.
Mulamchand v. State of Madhya Pradesh, MANU/SC/0009/1968 : AIR 1968 SC 1218: The following conditions are necessary before another can ratify an act of a person namely:-
(1) An act must have been done by one person on behalf the other person (the supposed principal) and not on account of the agent himself.
(2) The act must not be void act. There is no question of ratification of a void contract.
(3) The act must have been done without the knowledge or authority of that other person who may elect to ratify or to disown much act. If he ratifies it the same effects will follow as if it had been performed by his authority. Such ratification may be express or implied from the conduct.
(4) What is essential under section 196 is an effective ratification. Effective ratification necessarily involves knowledge of all the material facts on the part of him who ratifies.
Hukumchand Insurance Co. Ltd. v. Bank of Baroda, AIR 1977 Karn 204: When an agent acting for and on behalf of another stipulates a benefit for the principal under a contract and the principal without demur avails himself of the benefit, the law implies a ratification of that contract on the part of the principal.
Illustrations
(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.
The agent must contract as agent for a principal who is in contemplation, and who must also be in existence at the time for such things as the principal can and lawfully may do.
State of Madras v. Saifuddein Abdul Hussain, MANU/TN/0051/1963 : AIR 1963 Mad 140: It is the duty of a person entering into contract with officers of the government acting on behalf of the government to equire and ascertain whether they had the authority and power and satisfy himself. A contract for supply of goods to government, entered into on behalf of the government by an officer or a person not authorised by the rule is not binding on the government, even though the person who supplied the goods on such order might have been induced to believe that he will be paid.
In order to binding adoption of acts a priori unauthorised these conditions must exist-
(i) the act must have been done for and in the name of the supposed principal, and
(ii) there must be full knowledge of what these acts were or such as unqualified adoption that the inference may properly be drawn that the principal intended to take upon himself the responsibility for such acts whatever they are.
Thus if a person ratifies an act which is a part of a transaction it will be deemed as if the whole transaction has been ratified. Thus a person cannot choose to ratify part of a transaction and repudiate the terminating part.
Illustrations
(a) A, not having authorized thereto by B, demands, on behalf of B, the delivery of a chattel, the property of B from C who is in possession of it. This demand cannot be ratified by B, so as to make C liable for damages for his refusal to deliver.
(b) A holds a lease from B, terminable on three months' notice. C, an unauthorized person, gives notice of termination to A. The notice cannot be ratified by B, so as to be binding on A.
Halsbury's law of England.-The rule is thus stated - "A ratification does not relate back when persons other than the contracting party have acquired interest prior to rectification."
State of Uttar Pradesh v. Murari Lal, MANU/SC/0028/1971 : (1971) 2 SCC 449: Only lawful acts are open to ratification. An act which is void from the very beginning cannot be ratified. The ratification must be in relation to a transaction which may be valid in itself and not illegal. Where money was entrusted to a person for investment and he put it to his own use, it was held by the privy council that the doctrine of ratification could not be used to validate this breach of fiduciary relationship.
This section provides for the following modes of revocation-
(a) Termination by Act of the parties:
(i) Agreement,
(ii) Revocation by the principal,
(iii) Renunciation by the agent.
(B) By operation of Law:
(i) Completion of the business,
(ii) Expiry of time,
(iii) Death of principal or agent,
(iv) Insanity of principal or agent,
(v) Insolvency of the principal,
(vi) Destruction of the subject-matter,
(vii) Dissolution of a company,
(viii) Principal or agent becomes alien enemy.
Illustrations
(a) A gives authority to sell to B, A's land, and to pay himself, out of the proceeds, the debts due to him from A. A cannot revoke this authority, nor it be terminated by his insanity or death.
(b) A consigns 1,000 bales of cotton to B, who has made advances to him on such cotton, and desires B to sell the cotton, and to repay himself out of the price the amount of his own advances. A cannot revoke this authority, nor is it terminated by his insanity or death.
Corporation Bank, Bangalore v. Lalitha H Halla, MANU/KA/0019/1994 : AIR 1994 Kant 133: A power-of-attorney executed in favour of an agent recording or recognising an interest of the Agent/Attorney in the property which is the subject-matter of the agency cannot be revoked or terminated, even if the instrument does not state specifically that it is irrevocable, as then it would be a power coupled with an interest but a power-of-attorney simplicitor which merely authorized an agent to do certain acts in the name or on behalf of the excutant at any time in spite of the instrument that power-of-attorney revoked or cancelled by the executant at any time in spite of the instrument stating that the power-of-attorney is irrevocable.
Illustration
A empowers B to let A's house. Afterwards A lets it himself. This is an implied revocation of B's authority.
Southern Roadways Ltd., Madurai v. S.M. Krishnan, MANU/SC/0124/1990 : AIR 1990 SC 673: The principal has right to carry on business as usual after the removal of his agent. The courts are rarely willing to imply a term fettring such freedom of the principal unless there is some agreement to the contrary. The agreement between the parties in this case does not confer right on the respondent to continue in possession of the suit premises even after termination of agency on the contrary, it provides that respondent could be removed at any time without notice and after removal the company could carry on its business as usual.
The agent acquires no interest in the property of the principal and he cannot, therefore, non-suit the principal on the possessory title as agent.
Illustrations
(a) A authorizes B to buy 1,000 bales of cotton on account of A and to pay for it out of A's money remaining in B's hand. B buys 1,000 bales of cotton in his own name, so as to make himself personally liable for the price. A cannot revoke B's authority so far as regards payment for the cotton.
(b) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A's money remaining in B's hands. B buys 1,000 bales of cotton in A's name, and so as not to render himself personally liable for the price. A can revoke B's authority to pay for the cotton.
Hariprasad Singh v. Kesho Prasad Singh, MANU/BH/0181/1924 : AIR 1925 Pat 68: When the agent carries on business even after his authority has been revoked by the principal the latter cannot recover profits, if any made by the agent in that business. The agent cannot have any claim to remuneration for a period after the revocation.
S.R.M.S.T. Narayan Chettiar v. Kaleswaran Mills Ltd., MANU/TN/0211/1952 : AIR 1952 Mad 515: The power to revoke an authority gives to an agent after the authority has been partially exercised has been recognised by section 204, but the revocation cannot have effect of invalidating acts and obligations already done in the exercise of that authority as an agent. Section 204 preserves the validity of the acts and obligations made prior to the revocation. The section makes renovation effective only in respect of future acts.
Where an agent who has entered into a contract in his own name for the purchase of goods deliverable at a future date, rescinds the contract of agency for sufficient cause before the period of termination, the principal is entitled to credit for the price of the goods on the date of business is terminated.
The word 'such' means 'of the kind' or 'of the like kind'. The word 'such' always refers to something else and it generally and naturally refers to its last antecedent where an agency has been created for a fixed period, compensation would have to be paid for its premature termination, if the termination is without sufficient cause. Thus no compensation is payable in the following cases:
(i) Where the agency has not been created for any definite period.
(ii) Where, though created for a specified length of time, reasonable. Notice for its termination has been given on the termination is otherwise based upon a sufficient cause.
Illustrations
(a) A directs B to sell goods for him, and agrees to give B five per cent. commission on the price fetched by the goods. A afterwards by letter, revokes B's authority. B after the letter is sent, but before he receives it, sells the goods for 100 rupees. The sale is binding on A and B is entitled to five rupees as his commission.
(b) A, at Madras, by letter directs B to sell for him some cotton lying in a warehouse in Bombay, and afterwards, by letter revokes his authority to sell, and directs B to send the cotton to Madras. B after receiving the second letter, enters into a contract with C, who knows of the first letter, but not of the second for the sale to him of the cotton. C pays B the money, with which B absconds. C's payment is good as against A.
(c) A directs B, his agent, to pay certain money to C. A dies, and D takes out probate to his Will. B, after A's death, but before hearing of it, pays the money to C. The payment is good as against D, the executor.
P directs Q to sell electric goods for him and agrees to pay Q five per cent commission on the sale. P afterwards, by a letter revokes Q's authority. Q, after the letter has been sent but before he receives it sells the goods worth Rs. 5,000 and claims five per cent commission on it. P pleads that Q's authority as his agent was terminated and hence he (Q) is not entitled for any commission will Q succeed?
According to section 208 the termination of the authority of an agent, does not, as regards the agent take effect before it comes known to him. Therefore the termination of authority of or did not become effective untill Q received it. P is therefore liable to pay five per cent commission to Q. This is also clear from Illustration (a) to section 208 given above.
Mohindranath v. Kali Prasad, MANU/WB/0082/1929 : AIR 1930 Cal 265: If the agent is aware of the revocation and the third persons will be bound by this revocation only when they come to know of it. If they are ignorant of it and contract with the agent, the revocation will not affect them. It is, however, not necessary that the notice to the third parties must always be express. It will be sufficient if the revocation comes to the knowledge of the third party. But the onus of proving that the third party had the knowledge of the revocation will be on the principal.
The revocation of the authority of an agent may take effect insofar as third parties are concerned only when it is made known to him. Where a person acted as an agent in series of transaction, unless the authority is expressly revoked to the knowledge of other party to the contract, the agent would be presumed to have acted as such in subsequent transaction with that party.
The section provides that when agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take on behalf of the representatives of his late principal. All reasonable steps for the protection and preservation of the interests entrusted to him.
Section 210 provides that the termination of an agent's authority amounts to termination of all sub-agents appointed by him.
Illustrations
(a) A, an agent engaged in carrying on for B a business, in which it is the custom to invest him from time-to-time, at interest, the monies which may be in hand, on its to make such investments. A must make good to B the interest usually obtained by such investments.
(b) B, a broker in whose business it is not the custom to sell on credit, sells goods of A on credit to C, whose credit at the time was very high. C, before payment, becomes insolvent. B must make good the loss to A.
Firm Munshilal Hariom Raj Nands v. Bankey Lal Hari Lal, MANU/UP/0107/1973 : AIR 1973 All 302: In this case the defendants placed an order for supply of Arhar at the prevailing market rate with the plaintiffs, the commission agents. The plaintiff were to receive a fixed commission. They purchased it for the defendants and sent a part of it by rail. The defendants accepted it but refused to take the remaining quantity of Arhar. Consequently, the plaintiff resold the remaining quantity and claimed the loss suffered by them on resale. The High Court observed:
Section 211 only say that an agent is bound to conduct the business of his principal according to the directions of the latter, or in the absence of any such direction, according to the customs which prevails in doing business of the same kind.
Lilley v. Doubleday, (1881) 7 QBD 510: "An agent was instructed to
ware-house in principal's goods at a particular place. He placed a part of them at a different warehouse which was equally safe. But the goods were destroyed without negligence.
The agent was held liable for the loss. Any disobedience of or departure from, the instructions makes the agent, absolutely liable for the loss.
An agent is also under a duty to maintain confidence, secrecy and non-disclosure of any sensitive information about the affairs of his principal. A banker may be liable if the state of his customer's account is leaked, except where the disclosure is under compulsion of law, e.g., duty to obey an order under Banker's Books Evidence Act, or under higher duty owed to State or public institution which supersedes lower duty or under any statement in a formal claim or with customer's permission.
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, in consequences 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 rate 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 is insolvent. A must make compensation to his principal in respect of any loss thereby sustained.
(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 consequences 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 of ship arrived, but not any profit he might have made by the subsequent rise.
State Bank of Indore v. National Textile Corporation, (2004) 4 MP LJ 214: A bank was instructed by the plaintiff to collect a certain amount on his behalf and to remit it to him. There was a no specific instruction as to the manner of remittance. The bank set the amount by draft. Placed in a letter sent by ordinary part. The bank was held negligent in sending the amount like that certain cheques were paid into a bank for collection. The bank sent them to the drawee bank for collection, but they were lost in transit. The bank was held liable to the customer for the principal value of the cheques.
Pannalal Jankidas v. Mohanlal, (1950) 1 SCR 979: An agent having been instructed to insure certain goods, failed to do so. The goods were lost in an explosion at the docks. Even if the agent had taken out a fire insurance policy in the usual from it would not have covered a loss of this kind, as fire due to the explosion would have been an excepted peril.
Jayabharthi Corporation v. SV P.N. SN Rajasekara Nadar, MANU/SC/0108/1992 : AIR 1992 SC 596: The defendant-respondent had grossly misconducted himself firstly when he communicated to the appellant that the goods have been purchased at the rate of Rs. 36 per pound when they had not been and further stating that these goods would be dispatched as soon as the transporters' strike was over. The defendant later on informed the appellant that the goods could not be purchased as that delivery was dependant on yet another party. The defendant had misinformed his principal and his misconduct squarely comes within section 218 of Contract Act and the defendant must bear the brunt to pay the damages.
A principal is bound by the knowledge of his agent provided that knowledge is on a material point and the knowledge in such that the agent was bound to communicate the knowledge acquired by him to his principal.
(a) A directs B to sell A's estate. B buys the estate for himself in the name of C. A, on discovering that B has bought the estate for himself, may repudiate the sale, if he can show that B has dishonestly concealed any material fact, or that the sale has been disadvantageous to him.
(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.
A transaction, which necessarily puts the agent's duty in conflict with the interest, must be presumed to be disadvantageous to a principal who is not informed of the fact. Thus, section 215 may be invoked if any of the following element is satisfied-
(a) that any material fact has been dishonestly concealed from the principal by the agent, or
(b) that the dealings of the agent have been disadvantageous to the principal.
Illustration
A directs B, his agent, to buy a certain house for him. B tells A it cannot be bought, and buys the house for himself. A may, on discovering that B has bought the house, compel him to sell it to A at the price he gave for it.
An agent is bound to render account to his principal for all profits made by him in the course of his employment, and is compelled to account in equity. At the same time there is a legal duty, incumbent upon him whenever any profits so made have reached his hands to pay over the amount as money absolutely belonging to his employer, unless there is an account remaining to be taken between him and his employer.
The principal is the full owner and has complete control over his properties in the hands of the agent subject only to the latter's statutory right of retainer and lien. But when a principal sells his export licence through his agent to a third party, the transaction is illegal and therefore, the principal is not entitled to recover back the sum received by the agent.
National Shipping Co. of Saudi Arabia v. Sentrans Industries Ltd., (2004) 2 Bom CR 1: If an agent receives money on his principal's behalf under an illegal and void contract, the agent must account to the principal for the money so received and cannot set-up the illegality of contract as a justification for withholding payment which legality the controlling party has waives by paying the amount.
Dalpathi Jhanjhrani v. West End Watch Co., AIR 1953 WB 18: When a person wrongfully converted the goods of another person and received the amount, the owner of the goods may sue for the recovery of the money on the basis of an implied contract of agency the defendant being fictitiously assumed to have rightly received the money as the plaintiff's agent and to have failed to pay it over to the principal.
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 2,000 rupees to B
(b) A employs B to recover 1,000 rupees from C. Through B's misconduct the money is not recovered. B is entitled to no remuneration for his services, and must make good the loss.
Turner v. Goldsmith, 1 QB 544: In this case, the plaintiff was employed by the defendant a manufacturer of shirts for a period of five years as his agent and canvasses. It was his duty to obtain order for and sell the goods either manufactured or sold by the defendant. Before the lapse of the period of five years, the factory was burnt by fire and he did not, thereafter, restart his business. Consequently the agency of the plaintiff was terminated. He sued the defendant for breach of the contract of his employment as an agent.
It is observed that it is the right of the agent to receive from his principal the remuneration which was agreed. If remuneration was not agreed, he will be entitled to receive reasonable remuneration, regard being had to the nature of the work performed by him.
Alopi Prasad & Sons Ltd. v. Union of India, MANU/SC/0057/1960 : AIR 1960 SC 588: Compensation quantum meruit is awarded for work done as services rendered, when the price thereof is not fixed by a contract. Fees work done or services rendered pursuant to the terms. Compensation quantum meruit cannot be awarded where the contract provides for the consideration payable in that behalf.
Section 221 of the Contract Act provides that in the absence of a contract to the contrary, an agent is entitled to retain goods, papers and other property, whether movable or immovable of the principal received by him, until the amount due to him for commission, disbursements and services in respect of the same has been paid or accounted for to him. An agent who is entitled to be reimbursed from the principals' property for the expenses incurred, advances made or losses sustained during the course of the agency or who is entitled to be compensated for his services has a lien upon the principal's good or property which comes lawfully in his possession during the course of agency from which the right to indemnity on compensation arise.
(i) The agent must be in lawful possession of the goods.
(ii) There must not be any right inconsistent with the lien. Example. If the property is handed over to the agent for some particular purpose which is unconsistent with his right of lien. He cannot claim the lien
(iii) The property should belong to the principal
(iv) The property should have been received by him in his capacity as an agent
(v) The right of lien is subject to the rights of third parties and equities against the principal.
(i) loss of possession
(ii) waiver of right of lien by agent
(iii) Agreement entered into by agent inconsistent with his right of lien.
Southern Roadways Ltd. v. S.M. Krishnan, (1989) 2 SCC 603: MANU/SC/0124/1990 : AIR 1990 SC 673: It was held by Supreme Court that an agent holds the principal's property only on behalf of the principal. He acquires no interest for himself in such property. He cannot deny principal's title to property.
Illustrations
(a) B, at Singapore, under instructions 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 incurs 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 inform A, who repudiates the contract altogether. B defends, but unsuccessfully, and has to pay damages and costs and incur expenses. A is liable to B for such damages, cost and expenses.
Alopi Prasad v. Union of India, AIR 1960 SC 558 (594): The Supreme Court observed that section 222 does not entitle the arbitrator to award compensation to the agent in excess of the expressly stipulated consideration.
The Bhopal Sugar Industrial Ltd. v. Sales Tax Officer, Bhopal, MANU/SC/0284/1997 : AIR 1997 SC 1275: Section 222 mandates that if any loss is suffered by the agent, the principal would indemnify the same. This is so since a contract of agent is different from a contract of sales as an agent after delivery of the property does not sell it as his own property but sells the same as property of the principal and under his instruction and directions. The loss thus suffered by the agent has to be indemnified.
J. Ramaraj v. Iliyaz Khan, AIR 2007 Kant 2031: The contract was for supply of goods. The petitioner was working as a commission agent transacting business on behalf of the company. The court said that once the cheque was issued duly signed by the petitioner, he become liable to be prosecuted against. There was failure on the part of the agent to reply to the notice to inform the complainant that the primary liability was that of the principal for the amount due if any.
Illustrations
(a) A, a decree-holder and entitled to execution of B's goods requires that officer of the Court to 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, in consequence of obeying A's directions.
(b) B, at the request of A, sells goods in the possession of A, but which A had 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.
Illustrations
(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 incurs expenses. A is not liable to B upon the indemnity.
Firm Pratap Chand v. Firm Kotrike, MANU/SC/0028/1974 : AIR 1975 SC 1223: The Supreme Court observed that "A claim for indemnification, under section 222 of Contract Act, is only maintainable if the acts, which the agent in employed to do are lawful. Agreements to commit criminal acts are expressly and specifically excluded by section 224 of the Contract Act, from the scope of any right to an indemnity."
Illustration
A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The scaffolding is unskillfully put up, and B is in consequence hurt. A must make compensation to B.
Illustrations
(a) A buys goods from B, knowing that he is an agent for their sale, but not knowing who is the principal. 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, receive from C a sum of money due to B. C is discharged of his obligation to pay the sum in question to B.
Nandlal Thanvi v. LR of Goswami Brij Bhushan, (2004) ICC 103: The authority of an agent means his capacity to bind the principal. It refers so "the sum total of the acts it has been agreed between principal and agent that the agent should do on behalf of the principal. When the agent does any of the such acts it is said he has acted within his authority.
Illustration
A, being owner of a ship and cargo, authorizes B to procure an insurance for 4,000 rupees on the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum on the cargo. A is bound to pay the premium for the policy on the ship, but not the premium for the policy on the cargo.
Illustration
A, authorizes B to buy 500 sheeps for him. B buys 500 sheeps and 200 lambs for one sum of 6,000 rupees. A may repudiate the whole transaction.
Ahmad v. Mammad Kunhi, MANU/KE/0052/1987 : AIR 1987 Ker 228: When an agent does more than he is authorized to do, and what he does beyond the scope of his authority cannot be separated from what is within it, the principal in not bound to recognize the transaction.
Aulapa Nayak v. Narse Keshawji, (1871) 8 Bom HC: Where an agent was instructed to contract for the purchase of cotton to be delivered at the end of January, the principal was held not liable when the agent contacted for delivery in the middle of that month.
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 the 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 owing to him from C against the price of the goods.
(b) A is employed by B to buy from C goods 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 before C.
According to this provision, notice to be received by the agent must be in the course of business transacted by this for the principal if receiving a notice in question is not within his authority and is the agent's lack of authority in this regard is known to the party serving the notice, then certainly the party serving the notice cannot rely upon the service of the notice on such as agent as the service on the principal.
Presumption of contract to contrary.-Such a contract shall be presumed to exist in the following cases:-
(1) where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;
(2) where the agent does not disclose the name of his principal;
(3) where the principal, though disclosed, cannot be sued.
Union of India v. Chinoy Chablani & Company, MANU/WB/0089/1982 : AIR 1982 Cal 365: Section 230 has two parts. The first part provides than an agent can neither personally enforce nor he is personally bound by contracts entered into by him on behalf of his principal unless there is a contract to the effect that the agent may personally enforce or be bound by contract. The second part of their section engrafts an exception to the above rule. If says that although there is no specific contract to the effect that the agent may personally enforce the contracts or be personally bound by them, yet the law will presume the existence of such contract that an agent may personally enforce the contracts and be bound by them.
Jagva Industries and Sales Co. Pvt. Ltd. v. Mst. Anis Fatima Begum, AIR 2007 (NOC) 81 Cal: Section 230 is no bar to implead agent as party for other purpose or may be for effective adjudication of the suit it called for.
If the principal discloses himself before the contract is completed, the other contracting party may refuse to fulfil before the contract, if he can show that, if he had known who was the principal in the contract, or if he had known that the agent was not a principal, he would not have entered into the contract.
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 no knowledge nor reasonable ground of suspicion that such is the case. C cannot compel B to take the rice without allowing him to set-off A's debt."
Davison v. Donaldson, (1882) 9 QBD 628: The managing owner and the ship's husband purchased goods on credit from the plaintiff for the purposes of the ship. The undisclosed partner settled his account with the husband believing that the latter had paid the plaintiff. But he had not done so and had gone bankrupt. The plaintiff sued the principal.
The court said: "Where a person is supplied with goods it is his duty to see that the seller is paid.....partners ought not to settle with their co-partner without satisfying themselves that the payment have been actually made."
Illustration
A enters into a contract with B to sell him 100 bales of cotton, and afterwards discovers that B was acting as agent for C. A may sue either B or C, or both, for the price of the cotton.
Section 233 of the Contract Act gives the party dealing with an agent who is personally liable a double form of election, he can choose between suing both principal and jointly or elects to sue one of them. In any case, if he sues one of them, a suit against the other will be barred. But if sues both and one constants to judgment that cannot be a bar to his continuing the suit against the other.
Kishori Prasad v. Secy. of State, MANU/WB/0187/1937 : AIR 1938 Cal 151: This section applies to a person who represents that he has the authority from another whereas he has no such authority. To render the agent liable it is necessary that the representation is construe. If the defendant represents himself to be the authorized agent of his father and enters into a contract with the telegraph office but his father did not ratifies his acts, the defendant will be liable to make compensation to the plaintiff in respect of any loss or damage which the plaintiff has suffered by dealing with him.
Illustrations
(a) 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.
(b) A entrusts B with negotiable instruments endorsed in blank. B sells them to C in violation of private orders from A. The sale is good.
Illustrations
(a) A, being B's agent 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, as between B and C, at the option of C.
(b) A, the captain of B's ship, signs bills of lading without having received on board the goods mentioned therein. The bills of lading are void as between B and the pretende consignor.
O entrusted diamonds to S, a diamond broker. On S's representation that two specified terms would probably by them. S did not show the jewels to either firm but pledged them with A who advanced money in good faith. O produced evidence than in diamond trade a broker employed to sell had no authority to pledge. O sues S & A.
Since S had no authority to pledge, under section 238. O will not be affected ay his fraud or misrepresentation. O can recover diamonds from A because the contract of pledge between S and A is void. A cannot recover from O the money he gave to S.
An agent appointed to sell his principal's good or property has often to make statements concerning the nature and quality of the property and, in his enthusiasm to find a customer, may make exaggerated statements. The law does not like to hold the principal liable for the agent's extravagant statement unless if finds some fault with the principal himself.
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