Commercial Law-Law of Agency

Commercial Law-Law of Agency

Book Name: Commercial Law and Industrial Law 26th Edition

Writer: Arun Kumar Sen, Jitendra Kumar Mitra


 Definition and Nature of Agency

 “An Agent’ is a person employed to do any act for another or to represent another in dealings with third persons.”-Sec.182. The person for whom such act is done, or who is so represented, is called the Principal. P appoints X to buy 50 bales of cotton on his behalf. P is the principal and X is his Agent. 

 Power of Attorney

There are two kinds of Power of Attorney : General and Special Commercial Law.

Enforcement and consequences of Agent’s contracts

The function of an agent is to bring about contractual relations between the principal and third parties. Acts of the agent within the scope of the instructions bind the principal as if he has done them himself. There is a legal maxim regarding agency viz., ‘Quit facit per alium facit per se’, which means–“He who does through another does by himself.” The act of an agent is the act of the principal.


(a) A buys goods from B, knowing that he is an agent for their sale, but not knowing who is the principal.

(b) A, being B’s agent with authority to receive money on his behalf, receives from C a sum of money due to B.

The Test of Agency

Agency exists whenever a person can bind another by acts done on his behalf. When this power does not exist the relationship is not one of agency. Thus a wife is not the agent of the husband except under special circumstances and for special purposes.

Agent and Servant

The differences between an Agent and a Servant were discussed in the case Lakhminarayan Ram Gopal & Sons v.Hyderabad Government.

1. An agent is to exercise his authority in accordance with the principal’s instructions ; but he is not subject to the principal’s direct control or supervision. A servant has to act according to the orders of the master in every particular.

2. The servant cannot do that.

3. An agent can bind the principal to the third parties. A servant cannot do so.

4. The mode of remuneration of an agent may vary, including a commission on the basis of the work done.

5. An agent may work for several principals. A whole-time servant serves only one master.

Agent and an Independent Contractor

An independent contractor does not represent the other contracting party nor can he bind him by contracts entered into with others. An agent is one who acts according to the instructions of the principal and can bind the principal by entering into contracts with other persons within the scope of his authority.

Agent and Bailee

1. The bailee has possession of goods of the bailor An agent may not have possession of any goods or property of the principal.

2. The bailee has no power to create any contractual relationship with the third party. An Agent has that authority.

3. Under certain circumstances a bailee may act as an agent.

Who can appoint an Agent ?

“Any person who is of the age of majority according to the Commercial Law to which -he is subject, and who is of sound mind, may employ an agent.”-Sec. 183.

Who may be an Agent ?

Any person may be an agent, even a minor. A minor acting as agent can bind the principal to third parties. But a minor is not himself liable to his principal.-Sec. 184.

 Joint Principals

 Several principals can jointly appoint one agent. Syed Abdul Khader v. Rami Reddy and others. The Supreme Court in the judgment quoted Halsbury, “co  principals may jointly appoint an agent to act for them and in such case become jointly liable to him and may jointly sue him.”

Consideration in Agency Contracts

No consideration is necessary to create an agency (Sec. 185). The agency contract generally provides for the amount of remuneration payable by the principal to the agent.


1. Broker

A broker is one who brings buyers and sellers into contract with one another. The contract of sale and purchase is entered into directly by the parties. The broker does not keep the goods or the property of the principal in his possession.

2. Factor

He has got discretionary powers to enter into contracts of sale with third parties. He has a general lien on the goods for money due to him as agent.

3. A Commission Agent

A commission agent is one who secures buyers for a seller of goods and sellers for a buyer of goods in return for a commission on the sale. A commission agent may have possession of the goods or not. His position is very similar to that of a broker.

4. Auctioneer

He has a particular lien on the goods for his remuneration. He has the goods in his possession and can sue the buyer in his own name for the purchase price. An auctioneer acts in a double capacity. Up to the moment of sale he is the agent of the seller. After the sale he is the agent of the buyer. An auctioneer has implied authority to sell the goods without any restriction. Therefore a sale by him in violation of instructions is binding on the owner. If the owner directs the auctioneer not to sell below a reserve price and the auctioneer sells it below the price the sale is binding on the owner except in cases where the buyer knew that there was a limitation on the auctioneer’s authority.

5. A Del Credere Agent

A del credere agent is one who, for extra remuneration, guarantees the performance of the contract by the other party. If the other party fails to pay the price or otherwise causes damage to the principal, the del credere agent must pay compensation to the principal.

6. General Agent and Particular Agent

A general agent is one who represents the principal in all matters concerning a particular business. Factors and commission agents are usually general agents. .


l. Agency by Express Agreement

The agreement may be either oral or written. It is usual in many cases to appoint agents by executing a formal power of attorney

2. Agency by Implied Agreement

Agency by estoppel and agency of necessity are cases of implied agency.

3. Agency by Estoppel or by r Holding Out

Agency may be created by estoppel, Commercial Law.

Examples :

(i) Y allows his servant .X to buy goods for him on credit regularly.

There are three possible cases of agency by estoppel :

(a) A person can be held out as an agent although he is, actually not so-Example (i) above.

(b) A person acting as an agent may be held out as having more authority than he actually has-Example (ii) above.

(c) A person may be held out as agent after he has ceased to be so.

 Examples :

(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 goods.

4. Agency of Necessity

Circumstances sometimes force a person to act on behalf of another without any express authority from him.

(a) It must be impossible to get the principal’s instructions.

(b) There must be an actual necessity for acting on his behalf.

(c) The agent of necessity must act honestly in the interest of the parties concerned.

Examples :

(i) The captain of a ship finds himself in a distant port without money. The captain can pledge the ship for obtaining money.

(ii) A horse, sent by a train, arrived at a station with nobody to receive it. The railway company fed the horse.

Husband and Wife

If the husband gives her a sufficient allowance, she has no authority to pledge his credit. and can never be the agent of necessity. In Gray (Miss) Ltd. v. Cathcart2 a wife was supplied with clothes of the value of £ 215 by a shopkeeper. The shopkeeper sued the husband.

The general rule is that the wife is not the agent of her husband and the husband is not the agent of his wife. But one of them may be the agent of the other by express appointment, by holding out, by ratification, or because of necessity.

5. Agency by Ratification

Ratification means the subsequent adoption and acceptance of an act originally done without instructions or authority. P buys ten maunds of wheat on behalf of Q.Q did not appoint P as his agent and did not instruct him to buy wheat for him may, upon hearing of the transaction, accept it. If he does so, the act 1s ratified and P becomes his agent with retrospective effect.

examples of implied ratification :

(i) D, 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 by D for him.

(ii) D, 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.

Ratification when validly made is retrospective in operation, it relates back and dates from the time when the agent entered Into the contract.

conditions :

To be valid, a ratification must fulfill the following conditions :

1. The agent must expressly contract as agent. A man cannot enter into a contract in his own name and later shift it on to a third party.

2.The act to be ratified must be a lawful one. There can be no ratification of an illegal act or an act which is void.

3. Ratification must be made within a reasonable time.

4. No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.-Sec. 198.

5. Ratification must be of the whole contract. There cannot be partial ratification and partial rejection Section 199

6. For valid ratification, the agent must have a principal who is in actual existence at the time of the contract. Example-a company cannot ratify a contract entered into by a promoter on its behalf before the company came into existence by incorporation.

7. The principal must, have contractual capacity at the date of the contract and at the date of the ratification.

8. Ratification is not valid where the effect of ratification is to subject a third person to damages or of terminating any right or interest of a third person.-Sec. 200.Examples :

(i) A, not being authorised 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.

(ii) :t holds a lease from B, terminable on three months’ notice. C an unauthorised person, gives notice of termination to A. The notice cannot be ratified by B, so as to be binding on A.


Express and implied authority

“The authority of an agent may be expressed or implied. ” Sec. 186.

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 to be inferred from the circumstances of the case. The inference as to implied authority; may be drawn from things spoken or written, or the ordinary course of dealing between the parties and others.-Sec. 187.

 Example :

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 purposes 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.

Extent of agent’s authority

“An agent having an authority to do an act has author,, to do every lawful thing which is necessary in order to do such act.An agent having an authority to carry on a business ha authority to do every lawful thing necessary for the purpose, usually done in the course of conducting such business.” Sec. 188.

examples :

(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.

Authority in an emergency

“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.”-Sec. 189.

Examples :

(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.

What happens when the agent exceeds his authority ?

when the authority is separable :

“When an agent does more than he is authorized to do, and when the part of what he does, which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his authority, is binding as between him and his principal.”-Sec. 227.

Example :

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.

When the authority cannot be separated: “Where 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 is not bound to recognize the transaction ” Sec. 228.

 Example :

A, authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of 6,000 rupees. A may repudiate the whole transaction.When the principal is bound by unauthorized acts of agent. The principal may be bound by unauthorized acts of the agent in two cases :

(i) Where by the rule of estoppel the principal is precluded from denying the authority of the agent. (See cases cited under “Agency by Estoppel!”, p. 179.)

(ii) Where an agency has been terminated, but notice of termination has not been received by the other parties concerned (See pp. 188-189)

 Effects of notice to agent or information obtained by agent

Any notice given to or information obtained by the agent (provided it be given or obtained in the course of the business transacted by him for the principal) shall have the same legal consequences as if it has been given to or obtained by the principal.-Sec. 229.

Examples :

(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 realty belonged to D, but B is ignorant of that fact In spite of the knowledge of his agent, Bmay set-off against the price of the goods a debt owing to him from C.

Representation as to Liability

When a person who has made a contract with an agent induces the agent to act upon the belief that the principal only will be held liable, he cannot subsequently hold the agent liable on the contract. Similarly if a person induces the principal to act on the belief that the agent only will be held liable, he cannot afterwards hold the principal liable. on the contract.-Sec. 234.

 Pretended Agents

  • A person untruly representing himself to be the authorized agent of another, and thereby inducing a third person to deal with him as such agent, is liable, if his alleged employer does not ratify his acts, to make compensation to the other in respect of any loss or damage which he had incurred by so dealing. Sec. 235.
  • A pretended agent has no authority to act as agent. When the other party to the contract suffers damage as a result of such want of authority, he can sue the agent for breach of warranty
  • of authority. The pretended agent is liable to pay damages under the Commercial Law of Torts. The liability arises even when the agent acted innocently.

Example :

  • A firm of solicitors were instructed by a client to defend a suit. Subsequently the client became insane (and the solicitors’ authority as agent terminated by Commercial Law). The solicitors in ignorance of the fact took steps to defend the suits. Held, the solicitors were personally liable for the cost of the other side, as on a breach of warranty of authority. yonge v. Toynbee.
  • A person with whom a contract has been entered into in the character of agent, is not entitled to require the performance of it if he was in reality acting, not as agent, but on his own account.-Sec. 236.

Misrepresentation and Fraud by Agents

  • Misrepresentations made, or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been made or committed by the principals.
  • But misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals.-Sec. 238.

Examples :

(i) A, being B’s agent for the sale of goods, induces C to buy them by a misrepresentation, which he was not authorised by To make. The contract is voidable, as between B and C, at the option of C.

(ii) 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 pretended consignor.

(iii) A solicitor’s managing clerk had authority to transact conveyancing business on behalf of his employer. He induced a client, who was an old lady, to sign a conveyance of her properties to himself With the help of the document the clerk sold the properties to another and decamped with the proceeds. Held, that as the clerk was acting in course of the business of the solicitor, the solicitor must make good the loss of the lady. Lloyd v. Grace Smith & Co.



 The general rule is that an agent cannot appoint an agent. ‘ ( “Delegatus nom potest delegare. “) “An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally.”-Sec. 190.


But there are two exceptions to this rule. An agent can appoint an agent

(i) when it is permitted by the custom of the; trade with which the agency is concerned ; and

(ii) when it is necessary because of the nature of the agency.


An agent appointed by an agent is called a 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.”-Sec. 191.

The consequences of the appointment of a sub-agent are stated below :

1. A sub-agent is appointed by and acts under the control of the original agent.-Sec. 191.

2. The principal is represented by the sub-agent and is bound; by and responsible for his acts as if he was an agent

appointed by the principal.-Sec. 192.

3. The agent is responsible to the principal for the acts of the sub-agent.-Sec. 192.

4. The sub-agent is responsible for his acts to the agent. The sub-agent is not responsible to the principal except in case of fraud and willful wrong.-Sec. 192.

5. Where an agent improperly appoints a sub-agent, the I agent is responsible for his acts both to the principal and to third parties. The principal in such cases is not ! represented by the sub-agent nor is he responsible for the ‘ acts of the sub-agent Sec. 193.


A co-agent is a person appointed by the agent according to the express or implied authority of the principal, to act on behalf of the principal in the business of the agency.-Sec. 194.

Such a person is an agent of the principal and is responsible to Him. A co-agent is sometimes called a Substituted Agent.

In case of a co-agent there is direct privity of contract between the principal and the co-agent. There is no direct privity of contract between the principal and the sub-agent, except  cases of fraud and willful wrong-doing.

Examples :

(i) 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 his agent for the conduct of the sale.

(ii) A authorizes B a merchant in Calcutta to recover the moneys 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.

An agent in appointing a co-agent must exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case. If he does this he is not responsible to the principal for acts of negligence of the co-agent.-Sec. 195.

Examples :

 (i) 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 unseal  worthy and is lost. B is not, but the surveyor is, responsible to A

(ii) 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.


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Commercial Law

An agency may be terminated by ac: of parties or by operation of law The different possible circumstances leading to the termination of agency are enumerated below.-Sections 201-210.

 I. Termination by act of parties

Revocation and Renunciation : The principal may, by notice, revoke the authority of the agent. The agent may similarly, by notice, renounce the business of agency.Revocation and renunciation can be express or may be implied from the conduct of the parties.

Example :

A empowers B to let A’s house. Afterwards A lets it himself. There is an implied revocation of B’s authority.

 Compensation for revocation or renunciation 

Irrevocable agency:

The principal cannot revoke the author ity of the agent in the following cases :

Examples :

(i) A gives authority to B to sell A’s land to pay himself out of the proceeds, the debts due to him from A.

(ii) A consigns 1000 bates 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.

When the agent has partially exercised his authority, the principal cannot by revocation affect the acts already done. II.

Termination by operation of Law

 An agency may terminate by operation of Commercial Law in any of the following ways :

I. Efflux of time : When the agency is for a fixed period of time, it terminates on the expiry of that time.

2. Performance of the object : Where the agency is for a particular object, it terminates when the object is accomplished or when the accomplishment becomes impassible.

3. Determination of subject-matter When the subject-matter of the agency comes to an end, the agency terminates.

4. Death or insanity of the principal or agent : Death or insanity of the principal or the agent, terminates the agency. In case of a company, its winding up and in case of a firm, its dissolution has the same effect.

5. Insolvency of the principal : If the principal is adjudicated an insolvent, the agency terminates. But insolvency of the agent does not terminate the agency.

6. The principal becoming an alien enemy : If the principal and the agent belong to different countries and war breaks out between the two countries, the contract of agency is terminated.

7. Termination of the sub-agent’s authority : The sub-agent’s authority comes to an end when the agent’s authority terminates.

When termination of agent’s authority takes effect

The termination of the authority of an agent takes effect, as regards the agent from the time it becomes known to him. As regards third parties it becomes effective when it becomes known to them.-Sec. 208.

 Examples :

 (i) A directs B to sell goods for him, and agrees to give B five per cent commission on the price fetched by the goods.

(ii) 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. B’s payment is good as against A.

(iii) A directs B, his agent, to pay certain money to B. .9 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.


 l. Agent’s duty in conducting principal’s business : An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business.

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

(b) B. a broker, 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.

 2. Skill and diligence required from agent :

An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business . unless the principal has notice of his want of skill.

and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct, but not in respect of loss or damages which are indirectly or remotely caused by such neglect, want of skill, or misconduct.-Sec.212.

Examples :

(a) A. a merchant in Calcutta, B retains the money for a considerable time. A, in consequence of not receiving, the money, becomes insolvent.

(b) .4. 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 must make compensation to his principal in respect of any loss thereby sustained.

(c) 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.

(d) K employed K’ to sell a house. On 29th May K’ received an offer of f6,150 from E and communicated it to K who directed him to accept it “subject to contract”. K sued li’ for breach of duty in not communicating D’s offer. Keppel v. wheeler.

3. Agent’s duly to render accounts : An agent is bound to render proper accounts to his principal on demand, or periodically if so provided in the agreement.-Sec. 213.

4. Agent’s duty to communicate to principal : It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and .in seeking to obtain his instruct ions.-Sec.214.

 5. Agent not to deal on his own account :

The agent has a duty to avoid conflict of interest between the agent and the principal.

examples :

(a) A directs B to sell .A’s estate. B buys the estate for himself in the name of G. A. on discovering that B has brought 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 allows B to buy, in ignorance of the existence of 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.

(c) The agent has a duty not to make secret profits.Example :A directs B, his agent, to buy a certain house for him. and buys the house for himself. A may, on discovering that B has brought the house, compel him to sell it to a at the price he gave for it.

 7. Agent ‘s duty to pay sums received for principal 

8. Principal’s death or insanity

9. Miscellaneous:

The Agent has other duties also. The agent must give all information to the principal.. He must not delegate his authority.


Examples :

(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 authorised him to defend the suit. 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 .4, a merchant there contracts with C for the purchase of 10 casks of oil for A. Afterwards A , refuses to receive the oil, and C ;sues B. B informs A. who repudiates ‘ the contract altogether. B, defends, but unsuccessfully, and has to pay damages and costs and expenses. A is liable to B for such damages, costs and expenses.

2. Agent 1o be indemnified against consequences of acts dare in good faith : Where one 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, though it causes an injury to the rights of third persons Sec. 223.

examples :

(a) A, a decree-holder and entitled to execution of B’s goods, requires the officer of the Court to seize certain goods, representing them to be the goods of B.

(b) B, at the request of A, sells goods in the possession of A, but which A had not right to dispose of. B does not know this and hands over the proceeds of the sale to .4. Afterwards C, the true owner of the goods, sues B and recovers the value of the goods and costs.

3. Non-liability for criminal acts : But where one person employs another to do an act which is criminal, the employer isn’t liable to the agent, either upon an express or an implied promise, to indemnify him against the consequences of that act. sec 224.

 examples :

(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 .-1’s request, a liable upon C in the paper, and .9 agrees to indemnify Bagainst the consequences of the publication, and all costs and damages of any action in respect thereof. A is not liable to B upon the indemnity.

4. Compensation for principal’s neglect : The principal must make compensation to his agent in respect of injury caused to Ii agent by the principal’s neglect or want of skill.-Sec. 225.

example :

A employs B as a bricklayer in building a house and puts up the scaffolding himself. The scaffolding; A must make compensation to B.


 l. Compensation : The principal is entitled to compensation for any breach of duty by the agent.

2. Agent ‘s duties : The agent’s duties are the principal’s right 3. Revocation : The principal can revoke the agent’s authority subject to certain conditions.


1. Enforcement of rights : The agent can enforce all the duties of the principal. The principal’s duties are the agent’s rights.

2. Agent ‘s Right of Retainer : An agent may retain, out any sums received on account of the principal in the business of the agency, a11 moneys due to himself in respect of advance made or expenses properly incurred by him in conducting such business, and also such remuneration as may be payable to hi for acting as agent.-Sec. 217. that part of the business which he has misconducted.-Sec. 22

examples :

(a) A employs B to recover Rs. 100,000 and to lay it out on g security. B recovers, Rs. 100,000 and lays out Rs. 90,000 on g security but lays out Rs. 10,000 on bad security whereby A loss Rs. 2,000. B is entitled to remuneration for recovering Rs. 100, and for investing Rs 90,000. He is not entitled to any remuneration for investing Rs. 10,000 and must make good the loss of Rs. 2,000 to A

(b) A employs B to recover Rs. 1,000 from C.

5. Agent’s Lien : In the absence of any contract to t contrary, an agent is entitled to retain goods, papers and of property, whether movable or immovable of the principal, received by him, until the amount due to himself for commission,disbursements and services in respect of the same has been paid or accounted for to him.-Sec. 221.


  • It is provided by Section 130 that, in the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor i; he personally bound by them.
  • But if there is an agreement to that effect, express or implied, the agent may enforce the contract and may also be personally liable on it.

1. Foreign principal : Where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad.

 2. Undisclosed principal : Where the agent does not dis close the name of his principal.

 4. Fictitious person or a non-existent person : If the principal does not exist.

 5. Unauthorised Acts : Agent acting beyond the principal’s authority.-Secs. 227, 228. (p. 183)

 6. Misrepresentation or fraud by agent : An agent is personally responsible if he makes misrepresentations or frauds acting in course of the business of the principal . Sec. 238. (p. 185)

 7. Pretended agents : A pretended agent does not have authority. When the other party to the contract suffers damage, he can sue the agent for breach of warranty of authority. The pretended agent is liable to pay damages under the Commercial Law of Torts. The liability arises even when the agent acted innocently.-Sec.235.

Right of person dealing with agent personally liable : In cases where the agent is personally liable, a person dealing with him may hold either him or his principal, or both of them liable.-Sec. 233.


An agent may enter into a contract with a person without disclosing the name of the principal. The legal consequences of contracts with undisclosed principal are as follows :

 1. Principal ma v require performance of the contract : If an agent makes a contract with a-person who neither knows, nor has reason to suspect, that he is an agent, his principal may require the performance of the contract. But the other contracting party has, as against the principal, the same right as he would have had as against the agent if the agent had been principal.  Sec. 231, (Para 1)

2. Other party may refuse to fulfill the contract 

Example :A, who owes Rs. 500 to B, sells Rs. 1,000 worth of rice to /3. .4 is acting as agent for C in the transaction, but R 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 his debt.

 4. Agent is personally liable. In contracts with an undisclosed principal, the agent is in the absence of a contract to the contrary, personally liable on the contract. The other party may hold either the agent or the principal or both liable.  Sec. 233.Example :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 8 or C, or both, for the price of the cotton.