Topic: NOTES MAKING
Prof. Shinsa P Mathew
Topics Page No.
When one party delegates some authority to another party whereby the latter performs his actions in a more or less independent fashion, on behalf of the first party, the relationship between them is called an agency. Agency can be express or implied. Relationships relating to principal and agent involve three main parties: The Principal, the Agent, and a Third Party.
APPOINTMENT & AUTHORITY OF AGENTS
An agent is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented is principal.
A principal should authorize an agent.
Mohesh Chandra bosu v Radha kishore bhattacherjee
Principal should authorize the agent to act against on or his behalf to the 3rd person. Without authorization there is no agency. In this case court held that, a person just giving advice cannot be treated as an agent.
Krishna bhatta v Mundila ganapathi bhatta
A.P state coop rural irrigation corp v Coop board of revenue
Loon karan sohan lal v John & corp
State of Madras v Jayalaxmi rice mill contractors
Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.
>Representative capacity should be there and it must be delivered from principal.
>Principal will be binding with the contract made by the agent and 3rd person.
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 an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained.
>Principal can make a minor an agent but in case of failure of his act the principal can’t claim anything from the agent.
No consideration is necessary to create an agency.
Anderson v Jarvis
Lakshmi Narayana Ram Gopal & sons ltd v govt of Hyderabad Section 186:
The authority of an agent may be expressed or implied.
An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstance of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.
>By express agreement
An authority is said to be express when it’s given by words spoken or written.
It can be viewed through power of attorney. The rights should be mentioned and there will be some prescribed format.
Syed abdul khader v Rani reddy
Mohanlal jain v Sawai man singhji
Thangal kunju musaliar v M. Venkatachalam potti
In this case the court held that, for unlawful agreement there can’t be any agency.
An agent, having an authority to do an act, has authority to do every lawful thing which is necessary in order to do such act.
An agent having an authority to carry on a business has the authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.
>By implied agreement:
The implied agreement can occur in 4 ways –
It means that when a person agrees upon a matter, he can’t change that.
Husband and wife relationship
In this relationship, husband is principal and wife is agent. Conditions:
>Co habiting and should live together in a domestic place.
>Wife should be in charge and authority to buy domestic goods. (Whatever the wife purchase for domestic/household, husband will be liable)
Debenham v Mellon
Giridhar lal v Crawford
A situation wherein a person may not be the partner of a firm and he represents the firm while other persons are silent. It means that he can’t be denied with the partnership hereafter.
Pickering v Buck
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 circumstance.
Great northern railway co v swaffield
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.
>In other words a subagent can’t be appointed in normal cases. In exceptional situations sub agents can be appointed.
Nature of work, trade custom, ministerial actions, with principal’s consent.
A subagent is a person employed by, and acting under the control of, the original agent in the business of the agency.
Where a subagent is properly appointed, the principal is, so far as regards third persons, represented by the subagent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal.
>The agent is responsible to the principal for the acts of the subagent
>The subagent is responsible for his acts to the agent, but not to the principal, except in cases of fraud or willful wrong.
Calico printers association v Barclays bank limited
The court held that there is no privity of contract between the principal and subagent.
Suman singh v Bank of New York
Improper delegation: without the authority of the principal subagent is appointed.
Where an agent, without having authority to do so, has appointed a person to act as a sub-agent, the agent stands towards such person in the relation of a principal to an agent, and is responsible for his acts both to the principal and to third persons; the principal is not represented by or responsible for the acts of the person so employed, nor is that person responsible to the principal.
>In this context, no exceptions would be applicable to sub agents.
Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.
In selecting such agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case; and, if he does this, he is not responsible to the principal for the acts or negligence of the agent so selected.
Duty to execute mandate
DUTIES OF AN AGENT
The agent has the responsibility or duty to perform whatever is being instructed by the principal. This is what is called as the duty of the agent to execute mandate. In other words, the agent is supposed to perform the duties assigned to him by the principal in the best manner possible and if any failure occurs from his part, he would be held absolutely liable for it. It could be better understood with the help of a case law.
Ponnalal Janakidas v. Mohanlal
A commission agent purchased goods for his principal and stored them in the go down, pending their dispatch. The agent was under the instruction to insure them. He actually charged the premium for the insurance, but failed to insure the goods. The goods were lost in an explosion. In this case, the agent had failed to perform his duty to perform mandate and hence was held liable to compensate the losses suffered by the principal.
Duty to follow instructions/customs in a trade
This duty is being mentioned in the 211th section of the Indian Contract Act, 1872. As per it, an agent should perform the acts according to the instructions of the principal. If the agent doesn’t obey the instructions or follow the customs, he would be liable for compensating the loss. On the other hand, if he had incurred any profit, it must be returned to the principal. There are certain case laws which would make this much simpler to be understood –
Lilley v. Doubleday
In this case, the agent did not act according to the directions of the principal as a result of which the goods got damaged due to fire and the principal suffered loss. The agent was held liable for it.
Ferrer v. Robbins is also another prominent case which discusses the duty of the agent to follow instructions or customs in a trade.
Duty of reasonable care & skill
As per section 212 of the Indian Contract Act, 1872, the agent is bound to take reasonable care and also should be well versed with the required skills in order to deal with the respective substance/goods. It’s so because the agent is even bound to act according to the instructions of the principal even in hazardous situations.
Not only that, the agent is also supposed to act with reasonable diligence. He/she is also supposed to be compensating for any losses that had occurred due to his neglect. The help of certain case laws could be taken in order to best explain this duty.
Hey v. Tindal
The case was related to a scenario wherein an estate was handed over for rental purposes. In such a case, it was supposed that the agent should have certain knowledge about the existing land laws of that particular land (it comes under the required skills for the agent).
Baxter v. F W Gapp & Co. Ltd
In this case, a person was entrusted to accept mortgage regarding a property. In such contexts, the agents are expected to have the required skill of valuation and related things. If the agent doesn’t have that particular skill, he would be held liable for any losses if occurs.
Other cases like Bank of Bihar v. Tata Scob dealer, State bank of Indore v. National Textile Corporation etc. are the ones that also explains about the duty of an agent to take reasonable care and skill.
Duty to communicate with principal
As mentioned in section 214 of the Indian Contract Act, 1872, an agent shouldn’t deal with a situation himself. If some loss occurs due to it, he would be the person liable for it. In simple terms, the agent always has a duty to communicate with the principal. (For eg: If an agent cannot accommodate all the goods entrusted by the principal in a single go down, it should be properly informed to the principal). A case-law would make the section clearer.
Keppel v. Wheeler
An agent was entrusted to sell the house of principal. One [arty finalized the deal, but a higher bid came after that which wasn’t informed by the agent to the principal. As a result, the principal incurred loss. Here, the agent would be held liable because in case if the agent had informed to the principal about the higher bid, he could have opted and finalized that, as the principal had the means to revoke the previous contract.
Duty not to deal on his own accounts
As per section 215, an agent shouldn’t do anything for himself, while involved in an agency. But he can do it with the consent of the principal. If the agent does something for himself, without the consent of the principal, the principal has the right to repudiate it. (Its so because in contexts wherein the agent acts for himself or if the agent does any dishonest concealment, such dealing of the agent would be of disadvantage to the principal).
As per section 216 of the Indian Contract Act, 1872, the principal has the right to be compensated or get back any profit/benefit that the agent has experienced or incurred by doing an act without the knowledge of the principal; and if the act is done by the agent for his own interests.
De Busche v. Alt
For the sale of a ship, a Japanese agent was appointed. The agent’s partner purchased the ship for a very low price and later sold it for a much higher price. But, this matter that the person who purchased was the agent’s partner wasn’t told to the principal. However, agent didn’t do it intentionally. But since his partner bought the ship, the court came to the conclusion that the agent had acted for himself. In this context, the principal can either repudiate it or demand for the profits incurred from the transaction.
Grant v. Gold Exp. & Development Syndicate and Nabi Khan v. Roojdan are other cases which also further explains the duty of the agent to not deal on his own accounts.
Duty not to make secret profits
In an agency, there would always be some kind of fiduciary relationship and a remuneration would also be paid for the same. Hence, the agent has a duty to not make any secret profits and only has the right to receive the commission/remuneration that is being paid by the principal for the agency. The agent also doesn’t have a right to receive commission form the third party.
Reeding v. Attorney General
A soldier was standing in the border. He allowed a person to carry goods by taking bribe. He allowed that person to enter into the city without a pass. The soldier wasn’t supposed to do that. Hence, he was held liable to pay the received amount/bribe back to that person.
Case laws of Andrews v. Ramsay and Bently v. Gowen are two other ones which also discusses about the duty of the agent to not make any secret profits.
Duty to pay sums received on behalf of the principal
As per section 218 of the Indian Contract Act, 1872, subject to certain deductions, the agent is bound to pay to his principal all the sums received on his account. The case law of Bhola Nath v. Mool Chand would be an excellent example detailing about the section 218 of ICA.
As per section 213, an agent is bound to render proper accounts to his principal on demand. The following case law would best explain it.
Paul & Co. v. State of Tripura
The case was regarding the deceased principal. IT was held that even if the principal had died, his legal representatives would come in action. The death of the principal doesn’t put an end to the agent’s duty. Agent would have the duty towards the legal heirs of the principal and will also have to show the accounts when demanded by them.
Yasuda fire & Insurance Co. v. Orion Marine Insurance underwriting Agency Ltd. is another case which says about the fact that even if the contract terminates, the principal has the right to ask for the accounts from agent and if agent doesn’t give it, then Principal can sue Agent.
Duty not to Delegate
It’s being mentioned in the 190th section of the Indian Contract Act, 1872 and could be best understood with the hep of a case law –
John Maccain & Co. v. Pow
In this case, sub agent was appointed without the permission of the principal. Commission was asked. The court held that the principal isn’t bound to give commission to the sub agent as he was appointed without the permission of the principal and not only that, agent had also violated his duty not to delegate.
Duty to protect the interest of the principal
As per section 209 of the Indian Contract Act, 1872, if death or insanity occurs to the principal, the agent would be liable to the principal’s legal heirs and also must act to protect the interest of the principal. Even in the principal’s absence, the agent should protect the fiduciary relationship and interest of the principal.
Right to retain money
RIGHTS OF AN AGENT
As per section 217 of the Indian Contract Act, 1872, the agent has the right to retain money which he gained from the agency. All the money in respect of advance he paid, expenses incurred, remuneration etc. can be retained.
Right to receive remuneration
Section 219 of the Indian Contract Act,1872 says about the context wherein the agent is asked by the principal to sell certain goods. Even if the sale isn’t actually completed, the agent has the right to retain some amount as his remuneration. (For eg: suppose 1 lakh worth goods are entrusted with the agent and no remuneration has been fixed. Only fifty-thousand worth goods were sold. In such case also, the agent has the right to retain certain amount as his remuneration out of the money that he gained from selling the goods).
From section 220, we could learn about the situation wherein there is some kind of misconduct from the side of the agent. In such cases, the agent cannot make use of his right to remuneration.
Khusheed Alan v. Asa Ram
A broker was entrusted to sell some properties. No special contract was there regarding the remuneration. It was also not a written contract. The court held that even if the agent failed to prove the rate of commission, a reasonable amount should be given to him. When and where it should be paid could be fixed after fixing the remuneration.
Another important case law of Vasanji Modji v. Karsondas Tejpal says about the principle of Quantum Meruit.
Right to Lien on Principal’s property
Section 221 of the Indian Contract Act, 1872 is the provision that discusses about this right of the agent. As per it, in the absence of any contract to the contrary, an agent is entitled to retain goods, papers and other properties; whether movable or immovable of the principal received by him, until the amount due to himself for commission, advances and services in in respect of the same has been paid or accounted for him. There are certain conditions which must be followed for the agent to practice the right to lien on principal’s property. They are as follows –
The possession of the agent on principal’s property must be lawful or legal.
The property can be either movable or immovable.
The possession of agent on principal’s property must be in his capacity as an agent. It means that if a sub agent is retaining the property and not the agent is doing it, it won’t be legal. Sub-agency is not allowed according to section 190. Hence, the capacity of the person who is retaining the property by exercising his right to lien must be of the agent.
The agent has only particular lien. General lien cannot be exercised by the agent.
The right of the agent to lien on principal’s property could be better understood with the help of a case law –
Gopal Das v. Thakurdas
The court decided in this case that ‘the agent is having the right to lien, but its limited to agency’. i.e; the agent can exercise his right to lien only to the extent for which the properties was entrusted to him by the principal (i.e; the purpose of agency).
Suppose if the property is entrusted with the agent for letting it; the agent can only hold that property and can’t sell it because selling was not the purpose of the agency. The agent’s right to lien as well as deal with the property is limited and he/she can’t deal with it in any manner that they wish.
Cases like Kavitha Trehan v. Balsare Hygiene Products Ltd., and London Joint Stock Bank v. Simmons would give us a more in-depth view regarding the right of the agent in exercising lien on principal’s property.
Loss of Lien (Limitation for right to lien)
In some contexts, the right to lien would be lost. Whenever it’s a possessory right and if that possession is lost, the lien also would be subsequently lost. For instance, if I am asking to transport one thing from one place to another; to a particular person, and I am giving it to a carriage to transport it. Once the goods are handed over by the carriage, their possession is lost and hence lien is also lost. Later if I am not paying the commission, they can’t exercise the right to lien as the possession is already lost. Similar context is being discussed in the case of Kishundas v. Ganesh Ram. Hence, when possession is lost, lien is also subsequently lost.
Another instance is where the lien is lost ‘when the agent waves his rights’. In this context, the agent himself is waving his rights. Afterwards, he can’t go and say that he is planning or willing to exercise his right to lien.
Another context is when there is a contract to the contrary. It means that if there is already an agreement stating that the agent doesn’t have the right to exercise lien or retain the goods, then he/she cannot exercise the right to lien.
Right to be indemnified
As per section 222 of the Indian Contract Act, 1872, whatever the agent does legally upon the contract of agency and if he sustains some kind of loss, the principal is bound to indemnify the loss incurred. It could be best explained with the help of a case-law –
Krishnalal v. Bhanwarlal
It was a wagering agreement between the principal and the third party (it’s a known fact that wagering agreements are illegal). The question answered in this case is ‘whether the agent can recover the liability under an unlawful agreement or not?’ The court held that the agent has all the rights to recover from the principal. The principal has to indemnify the agent for all the liabilities under the wagering agreement.
As per section 223, if the agent is entrusted with some duties and when he is doing it with a bonafide intention, and if a loss had occurred to a 3rd person (not the 3rd person in the contract, but a person outside the contract); in such cases, the principal would be liable to make good of such losses. The case of Adamson v. Jarvis is the best example for this provision.
Another important provision is section 224 of the Indian Contract Act, 1872. As per it, when the principal entrusts his agent to do a criminal act, then his liability won’t exist. It’s so because the contract of agency will become illegal in such context and once it becomes illegal, the principal won’t have any liability to make good the loss.
Eg: If a person (A) entrusts another person (B) to beat C. B did it. In this context, C will sue B. In this case, B cannot escape from the liability saying that A asked me to do it. B is having a criminal liability here. Hence, he can’t escape from the liability.
Right to compensation
As mentioned in the 225th section of the Indian Contract Act, 1872, the principal must make compensation to his agent in respect of injury caused to such agent by the principal’s neglect or want of skill. This section indirectly implies a duty to take care from the part of principal. For instance, If I am asking a person to come for construction works in my house, and if I am not taking care or not providing the reasonable care or facilities of work and hence if the worker gets injured or suffers loss because of that, I would be liable. (The worker came for work in the capacity of an agent. Due to my negligence only, he became injured. In such cases, I am supposed to compensate him.
In the duty to take care, there is an element of risk (not the normal one). It should be an unreasonable risk. For instance, if I am going for a construction work, I should be aware that there would be some risk factors involved in it. Unlike that, the unreasonable risk is the one that is caused due to the lack of the principal’s duty to take care. In such contexts only the principal will be held liable to compensate.
AUTHORITY OF AN AGENT
Sections to make note of:
Section 186 - Agent’s authority may be expressed or implied - The authority of an agent may be expressed or implied.
Section 187 - Definitions of express and implied authority - An authority is said to be expressed when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted for in the circumstances of the case.
Section 188 - Extent of agent’s authority - An agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act.
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.
Section 189 - Agent’s 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.
Section 226 - Enforcement and consequences of agent’s contracts - Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences as if the contracts had been entered into the acts done by the principal in person
Express and Implied Authority
Authority of an agent can be both expressed and implied in nature. According to the Section 186 and 187 of Indian Contracts Act, 1872, an agent is said to have an expressed authority, in case it is given verbally or in writing.
According to the same above-mentioned sections, authority can also be implied in nature when it is inferred from the facts and circumstances of the case.
Case Law - Reckitt v. Barnett Pembroke and Slater Ltd. - The House was asked whether a power of attorney included a power to draw cheques on the principal’s bank account in order to pay his own debts. The Court of Appeal by a majority, Russell J dissenting, had held that it did have regard to the terms of a letter written by the principal to his bankers. The decision was reversed. A power of attorney is to be construed strictly. The House adopted the statement of Russell LJ: ‘the primary object of a power of attorney is to enable the attorney to act in the management of his principal’s affairs. An attorney cannot in the absence of a clear power to do so, make presents to himself or to others of his principal’s property’.
Extent of Agent’s Authority
Section 188 explains the extent of the authority of an agent. Implied authority of an agent means such authority which has not been conferred by the express words, but which can be inferred from the circumstances of the case, or the course of dealing between the parties, or the usage of the particular trade or business.
The agent’s implied authority depends on the nature of the business which the agent has been authorized to transact.
If an agent's implied authority to do an act, the principal is bound towards the third person when the agent exercises such authority. The principal continues to be bound towards the third person when the agent exercises such authority. The principal continues to be bound for the same even if he has prohibited or restricted the agent from doing the act, unless the third person knows of the restriction.
Case Law - Ishaq v. Madanlal - In this case, it was held that person with whom the agent has implied authority to accept any consideration from the fact that the agent is armed with the power to take the delivery of the goods and to dispose of them and the fact that the agent accepts the particular terms offered, it is not necessary for the purchases in these circumstances, to make inquiries from the principal about the extent of the agent.
Agent’s Authority in an Emergency
Ordinarily, an agent has to conduct the principal’s business according to the latter’s directions. However, in certain circumstances the law allows the agent to exceed the authority actually conferred upon him by the principal. These are cases of unforeseen emergencies.
Where the doctrine of agency of necessity becomes applicable, it is immaterial that the agent had to exceed his authority. The doctrine of agency of necessity can be invoked only if the course adopted by the agent was the only practicable one in the circumstances; if the agent was not in a position to communicate with the principal and obtain instructions; and if he acted honestly in the interest of the principal.
Sections to make note of:
Section 227 - Principal how far bound, when agent exceeds authority - 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.
Section 228 - Principal not bound when excess of agent’s authority is not separable - 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.
Section 229 - Consequences of notice given to 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, as between the principal and third parties, have the same legal consequences as if it had been given to or obtained by the principal.
Section 237 - Liability of principal inducing belief that agent’s unauthorized acts were authorized - When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent’s authority.
Ostensible Authority - A Summary
It is the authority that other people or outsiders think that an agent has. Sometimes, ostensible authority exceeds actual authority. Even if an agent’s actual authority is limited, a person who deals with the agent without knowing the limitation can bind the principal for the agent’s acts.
An agent is said to be acting within the scope of ostensible authority if the principal in some way represents or holds out the agent as having an authority which is wider than the agent’s actual authority; the agent commits the principal to a third party within the scope of that wider, apparent authority; and if the third party makes a commitment or otherwise alters its position in reliance on that representation of authority.
Case Law - Watteau v. Fenwick - Defendant owned a hotel-pub that employed Humble to manage the establishment. Humble was the exclusive face of the business; Humble’s name was
on the bar and the license of the pub. Defendant explicitly instructed Humble not to make any purchases outside of bottled ales and mineral waters, but Humble still entered into an agreement with Plaintiff for the purchase of cigars. Plaintiff discovered that Defendant was the actual owner and brought an action to collect from Defendant. The court held that the Defendant is liable for damages. Humble was acting with an authority that was inherently reasonable for an agent in that position. The situation is analogous to a partnership wherein one partner is silent but is still liable for actions of the partnership as a whole.
Case Law - Hely-Hutchinson v. Brayhead Ltd. - Lord Suirdale sued Brayhead Ltd for losses incurred after a failed takeover deal. The CEO, chairman and de facto managing director of Brayhead Ltd, Mr Richards, had guaranteed repayment of money, and had indemnified losses of Lord Suirdale in return for injection of money into Lord Suirdale's company Perdio Electronics Ltd. Perdio Ltd was then taken over by Brayhead Ltd and Lord Suirdale gained a place on Brayhead Ltd board, but Perdio Ltd's business did not recover. It went into liquidation, Lord Suirdale resigned from Brayhead Ltd board and sued for the losses he had incurred. Brayhead Ltd refused to pay on the basis that Mr Richards had no authority to make the guarantee and indemnity contract in the first place. Roskill J held Mr Richards had apparent authority to bind Brayhead Ltd, and the company appealed.
Lord Denning MR held that he did have authority, but it was actual authority because (like a "course of dealing" in contract law) the fact that the board had let Mr Richards continue to act had in fact created actual authority.
MISREPRESENTATION or FRAUD
Sections to make note of:
Section 238 - Effect, on agreement, of misrepresentation or fraud by agent - Misrepresentation 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.
Misrepresentation or Fraud
Misrepresentation is about giving inaccurate information by one party, or their agent, to the other before the contract is made which induces them to make the contract. If a person makes a contract in reliance on misrepresentation and has to face a loss as a result, they can revoke the contract or claim damages.
Misrepresentation made completely without fault can be described as an innocent misrepresentation.
Case Law - Fuller v. Wilson - A fraudulent misrepresentation made in the course of pre- contractual discussions by a shareholder in a company. He was subsequently authorised by the other shareholders to continue the negotiations as their agent, and in due course a contract was concluded. The court held the shareholders liable in damages to the other contracting party,
notwithstanding that the representation had been made by the shareholder before he began to negotiate on their behalf.
Where there is an interval between the time when the representation is made and the time when it is acted on, and the representation relates to an existing state of things, the representation is deemed to be repeated throughout the period.
However, a representor can modify or withdraw a prior representation at any time before the agreement is concluded and ‘If false when made but true when acted upon there is no misrepresentation.’
Sections to make note of:
Section 230 - Agent cannot personally enforce, nor be bound by, contracts on behalf of principal - In the absence of any contact 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.
Such a contract shall be presumed to exist in the following cases:
where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;
where the agent does not disclose the name of his principal;
where the principal, though disclosed, cannot be sued.
When the name of the principal is not Disclosed
When the agent is not disclosing the name of the principal, but disclosing the representative characteristic of the agent, it’s a contract of the principal. When the contract is signed by the agent on behalf of the principal, the agent cannot be held personally liable. In this context, the third party does not know who is the principal. But he knows that there is a completely different party as the principal and the person with whom he has entered into the contract with is his agent.
In this case, the agent will be disclosing his representative characteristics and would be signing the contract on behalf of the principal. The agent will not be held personally liable because of the presence of the hidden principal and hence the principal will be the one liable to the third party.
! - this concept is almost similar to the “Disclosed Principal” concept.
AGENT ACTING FOR AN UNDISCLOSED PRINCIPAL
In case of an agent acting for an undisclosed principal, the mutual rights and liabilities of the agent, principal and the third party are as follows:
Rights and Liabilities of Agent
Here agent contracts in his own name. So he is bound by the contract. He is personally liable to the third party also. On such contracts, he can sue and be sued in his own name because in the eyes of law he is the real contracting party. In such cases, the principal and the agent have their respective rights against each other.
Rights and Liabilities of Principal
The principal has the right to intervene and require the performance of the contract from the third party. In such cases, the other party may sue either the principal or the agent or both. The principal if he likes may also require the performance of the contract from the other party. But in such a case, he should 37 Department of Commerce, Gargi College allow, the benefit of all payments made by the third party to the agent, to the third party.
SEC 231, ICA: Right of parties to a contract made by agent not disclosed—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 rights as he would have had as against the agent if the agent had been principal. —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 rights as he would have had as against the agent if the agent had been principal." If the principal discloses himself before the contract is completed, the other contracting party may refuse to fulfil 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.
Example: A contracted with B, a shopkeeper, to purchase furniture. A advanced a part payment of the price to B. Afterwards, A discovered that B is the agent of C. In this case, C may ask A to perform the contract. But he must account for the advance money received by his agent B.
Anne, Gurratt v. Cullum,
Here, the goods were sold by factors to J. S. without disclosing their principal. The factors later went into bankruptcy. Their assignee collected the debt, and the principal then sued him for the money.
Scrimshire v Alderton
In this case, a famer produced oats and a extra-commission agent or broker and sold the oats to the 3rd party. Here the agent will be liable for all the faults. The agent went insolvent and principal (farmer) asked the 3rd person not to give the money to the agent believing the agent was the principal he gave the money to the agent. In the case, the 3rd party is held liable. Principle can interfere at any time of the contract. Once the presence of the principle is known to the third party, the third party is liable. When the principal’s existence is not know, agent is liable.
Rights and Liabilities of Third Party
If the third party has discovered that there is a principal, he may file a suit against the principal, or his agent or both. In such a case, the third party must allow the principal, the benefit of all payments received by him from the agent.
SEC 232, ICA: Performance of contract with agent supposed to be principal.—Where one man makes a contract with another, neither knowing nor having reasonable ground to suspect that the other is an agent, the principal, if he requires the performance of the contract, can only obtain such performance subject to the right and obligations subsisting between the agent and the other party to the contract. —Where one man makes a contract with another, neither knowing nor having reasonable ground to suspect that the other is an agent, the principal, if he requires the performance of the contract, can only obtain such performance subject to the right and obligations subsisting between the agent and the other party to 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. 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."
Example: A sold 100 bales of cotton to B on credit. Afterwards, A discovered that B was acting as an agent of C. In this case, A may sue either B or C, or both for the performance of the contract.
Montagu v Forwood
M employed B and Co. as his agents to collect debt from X. However, B & Co properly employed F to collect the debt. Meanwhile B &Co owed F money, and F, not knowing at the time he was employed that B & Co. were agents, claimed to set off the debt against money owed him by B & Co. It was held that F was entitled to do so.
Cooke and sons v Eshelby
An agent sold some wool to Cooke & Sons with Eshelby as an undisclosed principal. A third party is expected to assume that he is dealing with an undisclosed principal if an agent could have been dealing on his own or on behalf of an undisclosed principal. A third party should ask if he is unsure; if the ‘agent’ then lies, the resulting contract will be voidable for misrepresentation.
Said v. Butt
The claimant, a feared theatre critic, wished to obtain a ticket to the opening night of ‘The Whirligig’, in order to review it. The theatre refused his purchase, and were within their rights to do so. The claimant then purchased a ticket as an undisclosed principal. He was then refused entry. He is not entitled to enter and watch the show.
SECTION 230: Agent cannot personally enforce nor be bound by, contracts on behalf of principal. In the absence of any contract to that effect, an agent cannot personally enforce contracts entered into him on behalf of his principal, nor is he personally bound by them.
But there are certain circumstances in which the agent incurs personal liability. Section 230, which incorporates the principle of agent’s immunity for personal liability, says that there may be a contract to the contrary. In other words, the agent may contract to undertake personal liability.
PRESUMPTION OF CONTRACT TO CONTRARY - Such a contract shall be presumed to exist in the following cases:
Where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad.
Where the agent does not disclose the name of his principal
Where the principal, though disclosed, cannot be sued.
When an agent contracts for a merchant resident abroad there is the presumption that the agent undertakes personal liability (sec230(1)). Generally when the principal is residing abroad the agent can himself sue or be sued on the contract entered into by him on behalf of such principal. He can of course exclude his personal liability even in such a case and if he does so, he cannot be sued on the contract.
Universal Steam Navigation Company Ltd v James McKelvie and Company: If there was inconsistency between a term added to a pre-printed form and general descriptions elsewhere in the text, the former should be regarded as the ‘dominating factor’ and as of ‘preponderant importance’. Cargo owners sought damages for their cargo which had been damaged aboard the ship. The contract had been endorsed with additional terms. That variation may have changed the contract from a charterer’s to a shipowner’s bill.
Tutika Basava Raju v Parry and co: Agents were crucial to the practice of international trade during the period covered by the book. They facilitated the import and export of goods, fixed shipping contracts, arranged insurance and conducted financial services for banks abroad. Agency patterns for goods changed and by about the middle of the nineteenth century sending goods to merchants abroad for sale on consignment was no longer as common as previously. For marketing reasons distributors of manufactured goods like motor vehicles were described as the ‘agents’ of manufacturers, but they were not true agents in law. Agents also came into their own in various parts of the world as so- called managing agents of plantations, mines and factories, and in the result became the fulcrum of powerful business groups. Through doctrines such as undisclosed principal and reasonable compliance with a principal’s instructions, and through devices such as the commission, del credere and confirming agent, the law went further in meeting commercial need. English law recognized that an agent should not always ‘drop out’ of the picture but should bear some responsibility for the underlying principal–third party contract if a
transaction went wrong. The courts glossed over doctrinal difficulties to meet commercial need.
In case of undisclosed principal, the agent is liable. If the agent discloses his representative character, but not disclosing the principal, the agent’s liability can be presumed.
BHOJABHAI VHAYEN SAMUEL: The Honorary Secretary of a school was held personally liable for the rent of a house hired by him in his own name though for purposes of the school.
MACKINNON MACKENZIE & CO V. LANG MOIR & CO: The learned counsel has thereafter relied upon another Judgment of this court in the case of reported and has contended that if there is actual knowledge to the petitioner about the name of the principal then the company is not liable to make any payment and the only principal is liable for the same.
NON-EXISTENT OR INCOMPETENT PRINCIPAL
An agent is presumed to incur personal liability where he contracts on behalf of a principal who though disclosed cannot be sued.
SHET MANIBHAI V BAI RUPALIBA:
The court held that in this case that if the third partyknows that principal is a minor then this presumption can’t be applicable.
KELNER V BAXTOR: A group of promoters for a new hotel company, entered into a contract for wine. This contract was purportedly on behalf of Gravesend, but Gravesend had not at that point been registered. It was a “pre-incorporation contract”. Gravesend was eventually registered, but by that stage the wine had been consumed before the money had been paid. Gravesend soon went into liquidation. The promoters, as Gravesend’s agents, were sued. The promoters argued that, as Gravesend had been incorporated, the contract had subsequently been ratified and the liability had passed to the company. The Court of Common Pleas held that because the company did not exist at the time of the signing of the agreement it would be wholly inoperative unless it was binding on the promoters. A stranger cannot, by subsequent ratification, relieve the promoters from that responsibility of liability. A promoter can avoid liability if a substitute agreement novices the original pre-incorporation contract.
SEC 233. 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."
Illustrations 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. 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."
SEC 234. Consequence of inducing agent or principal to act on belief that principal or agent will be held exclusively liable: 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, or induces the principal to act upon the belief that the agent only will be held liable, he cannot afterwards hold liable the agent or principal respectively.
MADHAV GANGA PRASAD V GOURI SHANKAR: It is said that if the third party leads the agent to believe that only the principal will be held liable or the principal to believe that only the agent will be held liable, he cannot afterwards change his stance. He would have to confine himself to the liability of a person whom he has selected by that process. Thus, where a purchaser of goods gave notice to the seller’s agent that the agent alone would be held responsible if the goods did not turn out to be of contract quality, he could not proceed against the principal.
SEC 235: Liability of pretended agent: 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 has incurred by so dealing.
COLLEN V. WRIGHT: A land agent agreed to grant a lease to the plaintiff. He had no authority from his principal to grant a lease of the length agreed, and so the plaintiff was able to recover damages for the loss he had suffered based on the implied warranty of authority.
SEC 236: Person falsely contracting as agent, not entitled to performance: 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.
GOPAL SRIDHAR V SASHI BHUSHAN: When a person has, in fact, no principal, yet persuades the other other to contract with him as an agent of another, is estopped from saying that he had no principal, and since the contract was with his principal and not with him he has no locus standi to sue under that right. This will be so whether he feigns a named or unnamed principal.
BREACH OF WARRANTY OF AUTHORITY: Closely allied to the liability of a pretended agent is the liability of an agent for breach of warranty of authority.
GANPAT PRASAD V SARJU: Where a person is in fact an agent, but exceeds his authority, or represents to have a kind of authority which he in fact does not have, he commits breach of warranty of authority and is personally liable to the third party for any loss caused to him by reason of acting on the false representation.
Usually, when an agent does an act for which he does not have authority, the principal is not bound for the same. However, to this, there is an exception. If the principal ratifies, i.e accords subsequent approval to an act done without his authority, but on his behalf, the principal would be bound in respect of such activities.
Section 196: Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority.
This means that when an act is done by the agent without the knowledge of the principal, he has 2 options, either to disown them or ratify them. If he does not disown them, it can be assumed that he has ratified them.
Section 197: Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.
Hukumchand Insurance Co Ltd v Bank of Baroda:
Facts: Manager of the insurance company entered into an agreement for something he was not having the authority to do, but the company accepted the insurance premium.
Held: The company ratified whatever assurances are given by the manager.
Bank of Melli Iren v Barclays Bank
Facts: A tenant (third party) carried out some repair works with the help of a worker (3rd party) and the owner didn’t respond to it, he maintained silence.
Held: Keeping silence also amounts to ratification.
Ashok Kumar J Pandya v Suyog Coop Housing Society Ltd
The contract comes into effect right from the date on which it is made. No new contracts can be made after ratification. If the object is illegal, ratification cannot be made.
Conditions for Ratification:
1. Act on behalf of the principal: The agent should have the intention to bind the principal. If the agent acts in his own name and makes no allusion to the agency, his act cannot be ratified by other people.
Keighley Maxseted Co v Durant:
Facts: KM and Company authorized an agent to purchase a quantity of wheat in a joint account, but the wheat was not available in the prescribed price, so the agent purchased wheat at a higher price in his own account. He thought the company will ratify it later. The company was not aware of this price rate and ratified it. Later, he came to know of the price and didn’t give money.
Held: Agent is liable, KM Company is not liable.
Competence of Principal: The principal should be in existence and competent at the time of entering into the contract.
For instance, the agent entered into the contract in the year 2020 and the principal who was 17 years old in 2020, ratified the contract in 2021, when he became a major. In this context, ratification isn’t possible because he was a minor at the time of entering into the contract, for the reason that the liability cannot begin at the time of his minority.
Transactions that are illegal cannot be ratified by the principal.
Transactions that are injurious to the third party cannot be ratified.
Knowledge of the facts and transactions:
Section 198- No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.
Example: Agent entered into a contract to purchase 10 kilos of cotton and principal knew only about 5kg being purchased. This cannot be ratified as the principal was not completely aware of all the facts.
Section 199- A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of which such an act was done. In this scenario, the principal must have complete knowledge.
Reasonable Time: The ratification must happen within a reasonable time. It can differ from case to case according to the nature of the transaction.
If a date is given for performance, it means that it should be ratified within that date.
Doctrine of Relation Back
The ratification relates back to the date of the contract. This principal was established in Bolton Partners v Lambert.
But the decision in Bolton was widely criticized as it creates difficulty to the third party.
Watson v Davies introduced an exception to the doctrine.
In this case, the defendant offered to sell something to a trust. They accepted the offer and waited for the board members to accept it as well. The trust filed a case. The court held that the
revocation is effective because the acceptance was late. The offer unaccepted by the principal, may be revoked by the agent before it is accepted.
TERMINATION OF AGENCY
According to section 201 of Indian Contracts Act, " An agency is terminated by the principal revoking his authority; or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors. "
The contract of agency is defined as one where one party that is the principal, grants authority to another party, the agent, to act on behalf of and under the control of the principal to deal with a third party. An agency is a relationship that is fiduciary in nature. An agency can be created by express or implied appointment, necessity or estoppel. There are certain duties that the parties owe to each other. Since the relationship of agency is one that it is based on the trust, there may also arise some circumstances where this trust no longer subsists and as a result, the agency may have to be terminated.
Thus, termination of agency can either be by
Act of Parties
Operation of Law
The termination by Act of Parties include,
Revocation by Principal
Renunciation by agent
The termination by Operation of Law can either be by
Completion of business
Subsequent impossibility which includes
Destruction of business matter
Unlawful act/ contract
ACT OF PARTIES
The termination of Agency, occurs by the ' Act of Parties ', which may be in the following ways,
The contract of agency can be terminated by creating a mutual agreement between both the Principal and Agent.
REVOCATION BY PRINCIPAL
According to section 203 of Indian Contracts Act, "The principal may, save as is otherwise provided by the last preceding section, revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal"
Thus, the Principal has to revoke the contract of agency only if the agent has not commenced the aim of agency. But if the agent has started to act accordingly to bind the principal to Third Party, then the principal cannot revoke the Contract of Agency.
The Agency as well as the Termination of Agency, both can be Expressed or Implied. But if the Agent is having any interest or needs to receive any money then the revocation of Agency by implied manner is not valid. The revocation of agency can be valid only if reasonable notice is served to the Agent by the Principal.
Rhodes v. Forwood
The agent was given authority to sell coal for seven years by a implied contract. But, before seven years, the business was sold to Third Party. It was held that as there was no terms and conditions in the contract for enforcing the seven years of Agency, thus, the Principal is not liable to the Agent.
Llanelly Rly & Dock Co. v. London & North Western Rly Co.
In this case it was held that when no time limit of agency is mentioned in contract, then the perpetuity of contract can't be presumed and thus it is mandatory to mention time limit in the Contract of Agency.
Turner v. Goldsmith
In this contract of agency, it is expressly written to sell clothes from the textiles for five years. But the textiles was burnt within two years. Thus, the Principal did not reopen the textiles business again. Thus, it was held that there is a express contract for five years, thus, the Principal is liable to compensate the Agent for losses.
Kishni Devi v. State of Rajasthan
The Power of Attorney was given to the Agent to sell a property and thus, the Agent enforced a sale deed. But the Principal revoked the agency in a Newspaper Advertisement. It was held that as the Sale Deed was made before the revocation, the revocation is not valid.
RENUNCIATION BY AGENT
In Revocation of Agency by Renunciation by Agent, the Agent can revoke the Agency as like the principal. In order to perform this method of revocation by Agent, the Agent has to serve a notice of revocation. If there are any acts done completely or partly that binds the Principal to any Third Party, then in such circumstances, revocation cannot be performed by the Agent. Similarly, if the principal has suffered any losses or damages because of the act Agent in the due course of the Agency, then, in such conditions, Agent cannot revoke the Agency or is entitled to give compensation to the principal for the losses suffered.
OPERATION OF LAW
The Agency can be revoked by Operation of Law which involves the following circumstances and methods.
COMPLETION OF BUSINESS
The agency can be terminated by the Principal or by the Agent, if the purpose or goal of the agency is achieved or completed.
Venkatachalam v. Narayanan
The Agent entered into a Sale Deed and it was completed. After the completion of the same, the Agent tried to alter the terms and conditions of the sale deed. It was held that the Agency completed at the time of completion of the sale deed. Thus, the agent has no authority there after to alter the terms and conditions.
Babu Ram v. Ram Dayal
In this case it was held that only after getting the payment of sale and transferring the same to the Principal, the Contract of Agency gets completed.
The contract of Agency gets terminated automatically whenever either of the Principal or the Agent dies.
Girshan Industrial Co. v. Intercharm Corpn.
The Advocate is the Agent in the Court, who died before the completion of the aim of the Agency. It was held that if the Agent is dead, then the acts done by the Agent for the Principal would be valid but if the Principal dies, then the Agent can not act for the Principal.
Mujibunissa v. Abdul Rahim
A Power of Attorney was given to the Agent to dispose his property. But the Principal died before the completion of the sole objective the Contract of Agency. But, the Agent sold the property after the Death. It was held that the Sale Deed of the Property is not valid.
The Contract of Agency gets terminated whenever the Principal or the Agent becomes Insane or of Unsound Mind.
The Contract of Agency get terminated whenever the Principal becomes Insolvent or the company gets dissolved.
Sarton v. New Beston Cycle Co.
In this case it was held that whenever a company is winding up or becomes dissolved, then its effect on the Agency is as same as that of Death of the Principal.
The Termination of Agency can happen through Subsequent Impossibility which occurs through two different means,
Subsequent Matter is destroyed
Thus, Agency gets terminated when the actual purpose of Agency is destroyed. Similarly, whenever Agency is created for a lawful act, but subsequently becomes Unlawful because of amendment of Special Legislation.
Eg for Unlawful business: Sale is valid on the day of Agency, but later in Parliament a new law is created which bans on the sale of liquor. In this scenario, the Agency gets terminated automatically after the implementation of a new law.
Eg for Subject Matter is Destroyed: If the goods were given by Principal to agent for sale, but got destroyed in fire, then the agency would get terminated as the subject matter itself got destroyed