12.7 Agency (Ss. 182-238)

12.7 Agency

Chapter X of the Indian Contract Act runs from Section 182 to Section 238 and rests on a single maxim: qui facit per alium facit per se — he who acts through another acts himself. It is the longest of the special-contract chapters and is examined with a preference for the exceptions: emergency authority, delegation, ratification, and irrevocable agency.

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Creation of Agency (Sections 182-185)

• Section 182 — an agent is a person employed to do any act for another or to represent another in dealings with third persons; the person for whom the act is done or who is so represented is the principal.
• Section 183 — who may employ an agent: any person who is of the age of majority according to the law to which he is subject and who is of sound mind. A minor cannot appoint an agent.
• Section 184 — who may be an agent: as between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and of sound mind can become responsible to his principal. A minor may therefore validly bind his principal, while incurring no liability to him.
• Section 185 — no consideration is necessary to create an agency. This is one of the statutory exceptions to the general rule in Section 25.
• Modes of creation: by express appointment (Section 187), by implied appointment arising from conduct or the relation of the parties, by necessity, by estoppel or holding out (Section 237), and by ratification (Sections 196-200).

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Extent of the Agent's Authority (Sections 186-189)

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Sub-Agents and Substituted Agents (Sections 190-195)

Section 190 codifies delegatus non potest delegare: an agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or from the nature of the agency, a sub-agent must, be employed.

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Ratification (Sections 196-200)

Section 196 — where acts are done by one person on behalf of another without his knowledge or authority, that other may elect to ratify or to disown them; if he ratifies, the same effects follow as if the acts had been performed by his authority.

• Section 197 — ratification may be express or implied in the conduct of the person on whose behalf the acts were done.
• Section 198 — no valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.
• Section 199 — a person ratifying an unauthorised act ratifies the whole of the transaction of which the act formed a part. Partial ratification is impossible.
• Section 200 — an act done by one person on behalf of another, without that other's authority, which if done with authority would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot by ratification be made to have that effect.
• Additional conditions from case law: the principal must have been in existence at the time of the act (which is why a promoter's pre-incorporation contract cannot be ratified by the company), must have been competent to contract both then and at ratification, and the act must be lawful. Ratification relates back to the date of the act (doctrine of relation back).

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Revocation and Termination (Sections 201-210)

• Section 201 — modes of termination: by the principal revoking the authority; by the agent renouncing the business; by the business of the agency being completed; by either party dying or becoming of unsound mind; or by the principal being adjudicated an insolvent.
• Section 202 — agency coupled with interest: where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of that interest. This is the principal statutory instance of an irrevocable agency.
• Section 203 — the principal may revoke the authority at any time before the authority has been exercised so as to bind the principal.
• Section 204 — the principal cannot revoke the authority after it has been partly exercised, so far as regards such acts and obligations as arise from acts already done.
• Sections 205-206 — where there is an express or implied contract that the agency shall continue for a period, revocation or renunciation without sufficient cause obliges the party to compensate the other; and reasonable notice must be given.
• Section 208 — termination does not take effect as against the agent before it becomes known to him, or as against third persons before it becomes known to them.
• Section 209 — on the principal's death or insanity, the agent is bound to take reasonable steps to protect the interests entrusted to him on behalf of the representatives of the late principal.

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Duties and Rights of the Agent (Sections 211-225)

Duties

• Section 211 — to conduct the business according to the principal's directions or, in their absence, according to the custom which prevails in doing business of the same kind at the place where the agent conducts it.
• Section 212 — to conduct the business with the skill and diligence generally possessed by persons engaged in similar business, and to compensate the principal for the direct consequences of his own neglect, want of skill or misconduct.
• Section 213 — to render proper accounts on demand. Section 214 — to communicate with the principal in cases of difficulty.
• Sections 215-216 — the agent dealing on his own account: if the agent deals on his own account without first obtaining the principal's consent and acquainting him with all material circumstances, the principal may repudiate the transaction (Section 215) and may claim from the agent any benefit which may have resulted to him from the transaction (Section 216).
• Section 218 — to pay to the principal all sums received on his account.

Rights

• Sections 217 and 221 — the agent's lien: the agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself for commission, disbursements and services, and in the absence of a contract to the contrary he is entitled to retain goods, papers and other property, movable or immovable, of the principal until the amount due to him is paid.
• Section 219 — the agent's right to remuneration, which in the absence of a special contract becomes due only on the completion of the act.
• Section 220 — an agent guilty of misconduct is not entitled to remuneration in respect of that part of the business which he has misconducted.
• Sections 222-224 — indemnity: the principal must indemnify the agent against the consequences of all lawful acts done in the exercise of the authority conferred, and against the consequences of acts done in good faith even though they cause injury to third persons; but there is no indemnity for criminal acts.

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Effect of Agency on Contracts with Third Persons (Sections 226-238)

• Section 226 — contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner and will have the same legal consequences as if they had been entered into or done by the principal in person.
• Section 227 — where an agent does more than he is authorised to do, and the part within his authority can be separated from the part beyond it, only the former binds the principal. Section 228 — where the two parts cannot be separated, the principal is not bound to recognise the transaction at all.
• Section 230 — the presumption: 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 is he personally bound by them. The presumption of a contract to the contrary exists where (i) the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad; (ii) the agent does not disclose the name of his principal; and (iii) the principal, though disclosed, cannot be sued.
• Sections 231-233 — the undisclosed principal: if the agent contracts without disclosing that he is an agent, the principal may require the performance of the contract, but the other party has, as against the principal, the same rights as he would have had against the agent. If the principal discloses himself before the contract is completed, the other party may refuse to fulfil it if he can show that he would not have entered into it had he known who the principal was. Under Section 233 the third party may sue either the agent or the principal, or both.
• Section 237 — liability by holding out: when an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by those acts or obligations if he has by his words or conduct induced such third persons to believe that they were within the scope of the agent's authority.
• Section 238 — fraud or misrepresentation by an agent: misrepresentations made or frauds committed by an agent acting in the course of his business for his principal have the same effect on agreements as if they had been made or committed by the principal; but those which do not fall within his authority do not affect his principal.