CHAPTER X: AGENCY – Appointment and authority of agents
Section 182: “Agent” and “principal” defined
Legal Text: “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 called the ‘principal’.”
Simple English: This section defines the two key players in any agency relationship.
Agent: The person who is hired or asked to act or represent someone else.
Principal: The person for whom the agent is acting. The principal is the “boss” or the one in charge.
Real-World Example: You (Principal) want to sell your apartment. You hire a real estate agent (Agent) to find buyers. The agent is acting on your behalf when they negotiate with potential buyers (Third Persons).
Section 183: Who may employ agent
Legal Text: “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.”
Simple English: To become a “principal” (the boss who hires an agent), you must be legally qualified to make a contract yourself. This means you must be:
An adult (age of majority, which is 18 in most cases).
Of sound mind.
Real-World Example: A 15-year-old cannot legally hire a property manager (Agent) to handle their affairs. Any such agreement would be void because the 15-year-old (the “Principal”) is not “competent to contract” (as we saw in Section 11).
Section 184: Who may be an agent
Legal Text: “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.”
Simple English: This is a tricky but important two-part rule.
Rule 1 (For the outside world): A principal can hire anyone to be their agent, including a minor or a person of unsound mind. If that agent makes a deal with a third party, the principal is still bound by that deal.
Rule 2 (For the principal): However, a minor or person of unsound mind is not legally responsible to the principal for their mistakes, negligence, or for any losses they cause.
Real-World Example:
Part 1: A cafe owner (Principal) hires a 17-year-old (Agent) to work the cash register. The 17-year-old sells a coffee to a customer (Third Person). This is a valid contract. The owner (Principal) is bound by the sale made by his minor agent.
Part 2: Later, the 17-year-old (Agent) carelessly forgets to lock the cash register, and money is stolen. The owner (Principal) cannot sue the minor agent to recover the lost money, because the minor is not legally “responsible to his principal.”
Section 185: Consideration not necessary
Legal Text: “No consideration is necessary to create an agency.”
Simple English: This is a major exception to the normal rules of a contract. Usually, a contract needs “consideration” (something for something, as in Sec 10 & 25). But an agency relationship does not. You can be someone’s legal agent even if you are doing it for free.
Real-World Example: You are leaving the country and ask your neighbor, “As a favor, could you please deposit this rent cheque for me at my bank?” Your neighbor agrees (for free). At that moment, a valid agency is created. Your neighbor is your (unpaid) Agent, and you are the (Principal). If your neighbor loses the cheque, they are still bound by the duties of an agent (like acting with reasonable skill, as per Sec 212).
Section 186: Agent’s authority may be expressed or implied
Legal Text: “The authority of an agent may be expressed or implied.”
Simple English: An agent’s power (“authority”) to act for the principal can be given in two ways:
Expressed Authority: Stated clearly in words (spoken or written).
Implied Authority: Not stated, but understood from the situation or what is necessary to do the job.
Real-World Example: (See Sec 187 for the full breakdown).
Section 187: Definitions of express and implied authority
Legal Text: “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 circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.”
Simple English:
Express Authority: This is your “official instructions.”
Example: You email your travel agent: “Please book me one round-trip flight to Goa for the first week of December.” This is express authority.
Implied Authority: This is the authority that is not in the instructions but is understood. It’s based on circumstances, common sense, and “the ordinary course of dealing” (what is normal for that job).
Example (From the Act’s Illustration): You (Principal) live in Calcutta but own a shop in Serampore, which is managed by your agent (B). B is in the habit of ordering goods from C in your name for the shop, and you (the Principal) have been paying for them. B has implied authority to keep ordering from C, because your past actions (“ordinary course of dealing”) show that you approve of it.
Section 188: Extent of agent’s authority
Legal Text: “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.”
Simple English: This section defines the scope of that “implied authority” mentioned in Sec 187. It says an agent has the power to do two things (even if not expressly told):
Necessary Acts: Anything essential to complete the main job.
Example (From the Act’s Illustration): You (Principal) hire an agent (A) in Bombay to “recover a debt” owed to you. Agent A has the implied authority to hire a lawyer and file a lawsuit, because that is “necessary in order to do such act.”
Usual Acts (Customary Authority): Anything that is normal or customary in that specific business.
Example (From the Act’s Illustration): You (Principal) hire B as an agent to “carry on your business as a ship-builder.” B has implied authority to buy timber and hire workmen, because that is “usually done in the course, of conducting such business.” You cannot later refuse to pay the timber merchant by saying, “I never told B to buy wood.”
Section 189: Agent’s authority in an emergency
Legal Text: “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.”
Simple English: In an emergency, an agent’s power automatically expands. They get a temporary “emergency authority” to do whatever is necessary to protect the principal from loss. The test is: “What would a reasonable person have done in this crisis to protect their own property?”
Real-World Example (From the Act’s Illustration):
You (Principal) send a shipment of fresh vegetables to your agent (B) in Calcutta, with instructions to “send them immediately to C in Cuttack.”
When the vegetables arrive in Calcutta, they are spoiling fast and will be rotten by the time they reach Cuttack. This is an emergency.
The agent (B) has the authority to disobey the express instruction (send to Cuttack) and instead sell the vegetables at the Calcutta market for the best price he can get. This act protects you (the Principal) from a total loss. The sale is valid, and you are bound by it.
Section 190: When agent cannot delegate
Legal Text: “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.”
Simple English: This is the famous legal rule: “A delegate cannot further delegate.” If you were hired (as an agent) because of your personal skill, trust, or qualifications, you cannot just pass the job off to someone else (a “sub-agent”).
Real-World Example (Cannot Delegate): A company (Principal) hires a specific, famous lawyer (Agent) to argue their case in the Supreme Court. That lawyer cannot send his junior to argue the case instead. The job requires his personal skill.
This section also gives two big exceptions:
Exception 1: Custom of Trade: You can delegate if it is the normal, accepted practice in that business.
Example: You hire a main contractor (Agent) to build your house. It is the “ordinary custom of trade” for him to hire sub-agents (plumbers, electricians, painters) to do parts of the job.
Exception 2: Nature of Agency: You can delegate if the job requires it.
Example: Your bank in Mumbai (Agent) is hired to collect a payment from a person in a tiny, remote village. The “nature of the agency” implies they must hire a local agent (a sub-agent) in that village to go and collect the cash.
Section 191: “Sub-agent” defined
Legal Text: “A ‘sub-agent’ is a person employed by, and acting under the control of, the original agent in the business of the agency.”
Simple English: A sub-agent is the “agent’s agent.” The original agent (who works for the Principal) hires and controls the sub-agent to help them get the job done.
Real-World Example:
A real-estate company (Agent) is hired by you (Principal) to sell your house.
The company (Agent) tells one of its junior employees (Sub-agent) to “go and conduct the open house on Sunday.”
The junior employee is the sub-agent. They are employed by and controlled by the real-estate company (the Agent), not by you.
Section 192: Representation of principal by sub-agent properly appointed
This section is critical. It explains the legal consequences when a sub-agent is “properly appointed” (meaning the agent had the authority, as per Sec 190, to hire them).
Part 1: Principal’s Responsibility to Third Parties
Legal Text: “Where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal.”
Simple English: If the sub-agent was hired properly, the principal is bound by the sub-agent’s actions (when dealing with outsiders) just as if the principal had hired them personally.
Real-World Example: A main contractor (Agent) is hired by you (Principal) to build a house. The contractor properly hires a plumbing company (Sub-agent). The plumber (Sub-agent) orders pipes from a store (Third Person). You (the Principal) are legally responsible for paying the pipe store, because the sub-agent was properly appointed.
Part 2: Agent’s Responsibility to Principal
Legal Text: “Agent’s responsibility for sub-agent. — The agent is responsible to the principal for the acts of the sub-agent.”
Simple English: The original agent is the “middle-man” who is responsible to the principal for the sub-agent’s work. If the sub-agent messes up, the principal sues the agent.
Real-World Example: In the house-building example, if the plumber (Sub-agent) installs the pipes badly and causes a massive leak, you (the Principal) sue the main contractor (the Agent). The main contractor is responsible to you for the sub-agent’s bad work.
Part 3: Sub-agent’s Responsibility to Agent
Legal Text: “Sub-agent’s responsibility. — The sub-agent is responsible for his acts to the agent, but not to the principal, except in cases of fraud or wilful wrong.”
Simple English: The sub-agent’s “boss” is the agent. They are legally responsible to the agent for their mistakes. They are not responsible to the principal…
The Exception: …unless the sub-agent’s act is more than just a mistake; it’s an act of “fraud or wilful wrong” (like deliberate sabotage or theft).
Real-World Example:
(Responsibility to Agent): The plumber (Sub-agent) makes a negligent mistake (a “wilful wrong”). The main contractor (Agent), after being sued by the principal, can then sue the plumber to recover the money.
(Exception): If the plumber (Sub-agent) deliberately steals all the expensive copper pipes from your house, you (the Principal) can sue the plumber directly for this “fraud or wilful wrong.”
Section 193: Agent’s responsibility for sub-agent appointed without authority
This section explains what happens when an agent hires a sub-agent without permission (i.e., “improperly”).
Legal Text: “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.”
Simple English: This creates a “firewall.” If the agent hires someone improperly, the principal is completely cut off from the sub-agent.
The Agent becomes the “principal” for the sub-agent.
The Agent is responsible to the principal for whatever the sub-agent does.
The Agent is also responsible to the third party for the sub-agent’s actions.
The Principal is not responsible for the sub-agent’s acts. The deal is not their problem.
The Sub-agent is responsible only to the agent.
Real-World Example:
You (Principal) hire a specific artist (Agent) known for his unique style to paint a portrait. This is a personal skill, so he cannot delegate (as per Sec 190).
The artist (Agent) secretly hires his student (Sub-agent) to paint it instead.
The student (Sub-agent) buys paint from an art store (Third Person) on credit in your name.
Result: You (the Principal) are not bound by this. You don’t have to pay the art store, and you don’t have to accept the painting. The artist (Agent) is personally responsible for paying the art store and is also responsible to you for breaching the original contract.
Section 194: Relation between principal and person duly appointed by agent to act in business of agency
Legal Text: “Where an agent, holding an express or implied authority to name another person to act for the principal… has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business…”
Simple English: This is the other way to delegate, and it’s totally different. This is not a sub-agent. This is a “Substituted Agent.”
A Sub-agent (Sec 191) works for the agent.
A Substituted Agent (Sec 194) works for the principal.
This section says that if the agent’s job includes an “authority to name another person,” the person they name becomes the principal’s own agent. The original agent’s job is just to find this person.
Real-World Example (From the Act’s Illustration):
You (Principal) hire a lawyer in your city (Agent) and tell him, “My case is in a different state. Please hire a good lawyer there to handle the case.”
Your lawyer (Agent) finds and “names” a lawyer in that other state (let’s call her the “Substituted Agent”).
Result: The new lawyer in the other state is your agent, not the original lawyer’s sub-agent. You (the Principal) are now in a direct relationship with her.
Section 195: Agent’s duty in naming such person
Legal Text: “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.”
Simple English: This section defines the agent’s only duty in the “substituted agent” (Sec 194) scenario. The agent’s job is to choose the new person carefully.
If the agent uses “ordinary prudence” (due diligence) in selecting the new person, their job is done. They are not responsible for what the new person does.
If the agent is negligent in choosing (e.g., hires a known drunk), they are responsible for that bad choice.
Real-World Example:
(Duty fulfilled): In the lawyer example (Sec 194), your agent carefully researches and selects a highly-rated, qualified lawyer. If that new lawyer then makes a mistake, your original agent is not responsible. You must sue the new lawyer directly.
(Duty breached): Your agent, without any research, just picks his cousin (who just graduated) to handle your complex corporate merger. This is a negligent choice. If the cousin messes up, your original agent is responsible for his negligence in the selection process.
Ratification
This next set of rules deals with “Ratification”—the act of retroactively approving something that was done on your behalf without your permission.
Section 196: Right of person as to acts done for him without his authority. Effect of ratification.
Legal Text: “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 ratify them, the same effects will follow as if they had been performed by his authority.”
Simple English: If someone (an “agent”) does something in your name but without your permission, you (the “principal”) have two choices:
Disown: You can say “I didn’t approve that. It’s not my problem.”
Ratify: You can say “I approve of what they did.”
The Effect: If you choose to ratify, the law back-dates your approval. The contract is treated as if you had given permission from the very beginning.
Real-World Example:
Your agent has authority to rent your apartment, but not to sell it.
The agent finds a great buyer, panics, and sells the apartment for ₹1 crore (an unauthorized act).
You (the Principal) find out. You can:
Disown: “You had no right to sell! The deal is off!”
Ratify: “Wow, ₹1 crore is a great price. I’ll allow it.” If you ratify, the sale is now 100% valid and is back-dated to the moment the agent signed the papers.
Section 197: Ratification may be expressed or implied
Legal Text: “Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.”
Simple English: You can ratify a deal in two ways:
Expressed: You clearly state it with words (e.g., “I approve this deal.”)
Implied: You don’t say you approve, but your actions show that you do.
Real-World Example:
Your agent, without permission, buys a truck on your company’s behalf.
Expressed Ratification: You send an email: “I have seen the purchase of the truck, and I approve it.”
Implied Ratification (From Act’s Illustration): You say nothing. But when the truck arrives, you start using it for your company’s deliveries. This conduct (using the truck) implies that you have accepted the deal. You can’t later refuse to pay for it.
Section 198: Knowledge requisite for valid ratification
Legal Text: “No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.”
Simple English: This is a crucial limit. You cannot be tricked into ratifying something. Your “approval” is only valid if you know all the important facts of the deal. If the agent hides a key detail from you, your ratification is invalid.
Real-World Example (From Act’s Illustration):
Your agent (B) is supposed to sell your estate. Instead, he buys it for himself in someone else’s name (C’s name).
He comes to you and says, “C has offered to buy your estate. It’s a bit of a low price, but you should take it.”
You, not knowing the material fact (that your agent is the real buyer), ratify the sale.
Result: This is not a valid ratification. When you find out the truth, you can cancel the sale.
Section 199: Effect of ratifying unauthorized act forming part of a transaction
Legal Text: “A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of which such act formed a part.”
Simple English: You can’t “cherry-pick.” When you ratify an unauthorized act, you automatically ratify the entire transaction that it’s connected to. You can’t just ratify the good parts and disown the bad parts.
Real-World Example:
Your agent, without authority, buys a laptop for you for ₹50,000 and also buys a 3-year extended warranty for ₹10,000 as part of the same deal.
You can’t say, “I ratify the purchase of the laptop, but I disown the warranty.”
By ratifying any part of the deal (like accepting the laptop), you are legally considered to have ratified the whole deal, including the warranty. You have to pay the full ₹60,000.
Section 200: Ratification of unauthorized act cannot injure third person
Legal Text: “An act done by one person on behalf of another, without such other person’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 such effect.”
Simple English: This is the second major limit on ratification. You cannot use ratification as a “time machine” to go back and hurt a third party who was not involved in the deal. Ratification can only be used to validate the contract between the principal and the other party.
Real-World Example (From Act’s Illustration):
You (Principal) have a tenant (Third Person) in your house. The lease agreement says the tenant has a right to three months’ notice before you can terminate the lease.
A random person (an unauthorized “agent”) sends a termination notice to your tenant, saying “Get out in 30 days.”
A month later, you realize this person sent the notice, and you think, “Good, I want the tenant out.” You try to “ratify” the unauthorized notice.
Result: This is illegal. You cannot ratify this act, because it would “injure a third person” (the tenant) by terminating their legal right to a proper three-month notice.
Revocation of Authority
Section 201: Termination of agency
Legal Text: “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.”
Simple English: This section is a master list of all the ways an agency relationship can legally end. It’s terminated (ends) when:
The Principal fires the Agent: (“The principal revoking his authority.”)
Real-World Example: The homeowner (Principal) calls the real estate agent (Agent) and says, “You’re fired. I’m taking my house off the market.”
The Agent quits: (“The agent renouncing the business.”)
Real-World Example: The real estate agent (Agent) calls the homeowner (Principal) and says, “I quit. I will no longer represent you.”
The job is finished: (“The business of the agency being completed.”)
Real-World Example: The real estate agent (Agent) successfully sells the house and the deal is closed. The agency is now automatically over because the job is done.
Death or Insanity: (“Either the principal or agent dying or becoming of unsound mind.”)
Real-World Example: If the homeowner (Principal) dies, the agent’s authority to sell the house is immediately terminated.
The Principal goes bankrupt: (“The principal being adjudicated an insolvent.”)
Real-World Example: A company (Principal) goes into bankruptcy. The CEO’s (Agent’s) authority to sign new deals on behalf of the company is terminated, as the company’s assets are now controlled by the court.
Section 202: Termination of agency, where agent has an interest in subject-matter
Legal Text: “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 such interest.”
Simple English: This is a major exception to the rules in Section 201. It describes an “agency coupled with an interest,” which is irrevocable (cannot be cancelled).
The Rule: If the reason for creating the agency was to give the agent a way to protect their own money or interest, the principal cannot fire them, and the agency does not end on death or insanity.
Real-World Example (From the Act’s Illustration):
You (Principal) borrow ₹5,00,000 from your friend (Agent).
To secure the loan, you give your friend authority to “sell my farmland (the ‘subject-matter’) and pay yourself back from the money.”
Result: This is an “agency coupled with an interest.” You cannot later call your friend and say, “I revoke your authority to sell!” The agency is irrevocable. Even if you die, your friend still has the right to sell the land to get their ₹5,00,000 back.
Section 203: When principal may revoke agent’s authority
Legal Text: “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.”
Simple English: This is the general rule (S.202 was the exception). A principal can fire their agent (revoke authority) at any moment.
The Catch: The firing is only effective for things the agent hasn’t done yet. You cannot retroactively cancel a deal that the agent already made while they were your agent.
Real-World Example:
10:00 AM: You (Principal) text your agent, “Go and sell my motorcycle for ₹50,000.”
11:00 AM: Your agent (Agent) finds a buyer and signs a sales agreement, thus “binding” you to the deal.
11:05 AM: You call your agent and say, “I’ve changed my mind! Revoke your authority! Don’t sell it!”
Result: It’s too late. The principal (you) is bound by the 11:00 AM sale. The revocation only prevents the agent from making new deals in the future.
Section 204: Revocation where authority has been partly exercised
Legal Text: “The principal cannot revoke the authority given to his agent after the authority has been partly exercised, so far as regards such acts and obligations as arise from acts already done in the agency.”
Simple English: You can’t fire an agent in a way that leaves them personally liable for something they already did as part of the job. You can only cancel the rest of the job.
Real-World Example (From the Act’s Illustration):
You (Principal) authorize your agent (B) in another city to buy 1,000 bales of cotton for you and pay for it using your money.
B buys the 1,000 bales in his own name (making him personally liable to the seller) but hasn’t paid yet.
You call and say, “I revoke your authority to buy cotton! And I revoke your authority to pay!”
Result: You can revoke his authority to buy more cotton, but you cannot revoke his authority to pay for the 1,000 bales he already bought. The law protects the agent from being stuck with a ₹10,00,000 bill he incurred on your behalf.
Section 205: Compensation for revocation by principal, or renunciation by agent
Legal Text: “Where there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal… for any previous revocation or renunciation… without sufficient cause.”
Simple English: This applies if you have a fixed-term contract (e.g., “a 2-year management contract”).
If the principal fires the agent without a good reason (“without sufficient cause”) before the 2 years are up, the principal must pay the agent compensation (e.g., lost salary).
If the agent quits without a good reason before the 2 years are up, the agent must pay the principal compensation (e.g., the cost of finding a replacement).
Real-World Example: A cricket player (Agent) signs a 3-year contract with a sports management agency (Principal).
If the agency drops him after 1 year just because they “found someone better” (not a sufficient cause), they must compensate him for his losses.
If the player (Agent) breaches the contract and quits after 1 year to join a rival (not a sufficient cause), he is liable to the agency for their losses.
Section 206: Notice of revocation or renunciation
Legal Text: “Reasonable notice must be given of such revocation or renunciation, otherwise the damage thereby resulting… must be made good to the one by the other.”
Simple English: This applies to all agency agreements (even ones without a fixed term). You must give “reasonable notice” before firing or quitting. If you don’t, and your sudden exit causes a financial loss, you must pay for that specific damage.
Real-World Example: You (Principal) use an agent (A) to file your company’s monthly tax returns. The deadline is tomorrow. You fire agent (A) today without any notice. He can’t hand over the files in time, you miss the deadline, and you have to pay a ₹20,000 late fee.
Result: Even if you had the right to fire him, you are liable for the ₹20,000 “damage” because you didn’t give “reasonable notice” (e.g., a week) to allow for a smooth handover. The same rule applies if the agent quits on you the day before the deadline.
Section 207: Revocation and renunciation may be expressed or implied
Legal Text: “Revocation and renunciation may be expressed or may be implied in the conduct of the principal or agent respectively.”
Simple English: You can fire someone (revoke) or quit (renounce) in two ways:
Expressed: Using clear words. (e.g., “You’re fired,” or “I quit.”)
Implied: By doing an act that makes it obvious the agency is over.
Real-World Example (Implied Revocation):
You (Principal) hire an agent (B) to sell your car.
A week later, your agent (B) sees you driving around town in the car with a “SOLD” sign, having sold it yourself.
Your conduct (selling the car yourself) has impliedly revoked B’s authority to sell it. He doesn’t need a letter from you to know he’s fired from that job.
Section 208: When termination of agent’s authority takes effect as to agent, and as to third persons
Legal Text: “The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes known to him, or, so far as regards third persons, before it becomes known to them.”
Simple English: This is a critically important rule. Firing an agent (termination) only “counts” when people know about it.
Rule 1 (For the Agent): The agent is not fired until they receive the news.
Example (From Act): You (Principal) mail a letter on Monday firing your agent. On Tuesday, before the letter arrives, the agent signs a big contract. The contract is valid. The agent’s authority wasn’t terminated until he read the letter on Wednesday.
Rule 2 (For Third Parties): The agent’s authority to make deals with third parties (like suppliers) continues until the third parties are told he is fired.
Example: You (Principal) fire your store manager (Agent) who has a habit of ordering supplies from Supplier C on your account.
You fire the manager, but you forget to tell Supplier C.
The fired manager then calls Supplier C (out of spite) and orders 100 boxes of supplies in your name.
Result: You (the Principal) still have to pay Supplier C. The termination was not effective for C until C was notified.
Section 209: Agent’s duty on termination of agency by principal’s death or insanity
Legal Text: “When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him.”
Simple English: When the principal dies, the agency ends (S.201). This creates a new, temporary duty for the agent. The agent must now act like a responsible caretaker (“on behalf of the representatives” or family) and take all “reasonable steps” to protect the principal’s assets until the family or a lawyer can take over.
Real-World Example:
An agent (A) manages a large, valuable art collection for his client (Principal). The principal suddenly dies.
The agent’s authority to sell art is now terminated.
But, a typhoon is forecast. The agent is bound to take reasonable steps to move the paintings from the beach house to a secure, inland storage unit to protect them. He can’t just walk away and let the art be destroyed.
Section 210: Termination of sub-agent’s authority
Legal Text: “The termination of the authority of an agent causes the termination (subject to the rules herein contained regarding the termination of an agent’s authority) of the authority of all sub-agents appointed by him.”
Simple English: This is a simple cascade effect: If you fire the manager, the manager’s assistant is also out. When an agent’s authority is terminated, the authority of any sub-agent they hired is also automatically terminated.
Real-World Example: A property owner (Principal) fires the General Contractor (Agent) from a construction site. This act automatically terminates the authority of the plumber, the electrician, and the painter (all Sub-agents) who were hired by and reported to that General Contractor.
Agent’s duty to principal
Section 211: Agent’s duty in conducting principal’s business
Legal Text: “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… When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and if any profit accrues, he must account for it.”
Simple English: This section lays out the agent’s most fundamental duty: Follow Instructions.
Rule 1: Follow Directions: The agent must obey the principal’s specific, lawful instructions.
Rule 2: Follow Custom: If the principal doesn’t give specific instructions, the agent must follow the normal, accepted “custom” or standard practice for that particular business or location.
The Consequences (If the agent “acts otherwise”):
If there’s a loss: The agent has to pay the principal back for it (“make it good”).
If there’s a profit: The agent must give that extra profit to the principal (“account for it”).
Real-World Example (Rule 1 – Following Directions):
You (Principal) hire an agent to sell your goods. You give a clear direction: “Do not sell to anyone on credit. Cash sales only.”
The agent (Agent) thinks he can get a better price by selling on credit to a seemingly trustworthy buyer. The buyer takes the goods and then goes bankrupt without paying.
Result: The agent acted otherwise than your directions. He is now personally liable and must pay you (the Principal) the full amount of the lost sale.
Real-World Example (Rule 2 – Following Custom):
You (Principal) hire a stockbroker (Agent) to manage your investments. You don’t give specific instructions on how to invest.
It is the “custom” of that business for brokers to invest money, not just let it sit as cash. The broker lets your money sit in a non-interest-bearing account for a year.
Result: The broker “acted otherwise” than the prevailing custom. He is liable to you for the loss (the interest you would have earned).
Section 212: Skill and diligence required from agent
Legal Text: “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… The agent is always bound to act with reasonable diligence… 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 damage which are indirectly or remotely caused…”
Simple English: This section sets the standard of quality for an agent’s work.
Standard of Skill: An agent must have the average skill of a professional in their field (e.g., a lawyer must act like a reasonably competent lawyer).
The Exception: If you knowingly hire someone who is unqualified (e.g., you hire your 1st-year law student nephew for a complex case), you can’t then sue him for not having the skill of a 20-year veteran.
Reasonable Diligence: The agent must be careful, pay attention, and not be negligent.
The Consequence (Direct vs. Indirect Loss): If the agent’s negligence causes a loss, they are only liable for the direct results of their mistake, not for remote, indirect, or unforeseeable chain reactions.
Real-World Example (Skill & Diligence):
You (Principal) hire an insurance broker (Agent) to get insurance for your factory.
The broker forgets to include the standard, customary “fire clause” in the policy (a breach of skill). He also mails the forms late (a breach of diligence).
A fire breaks out. The insurance company denies the claim because of the missing clause.
Result: The broker is liable to you for the entire value of the factory’s damage. This is a direct consequence of his negligence.
Real-World Example (Direct vs. Indirect Loss):
You (Principal) give your agent (B) in London a sum of money with orders to send it to you in India.
B negligently retains the money for a long time.
In the meantime, you (the Principal) become insolvent (bankrupt) because you didn’t get that money when you needed it.
Result: B is liable for the money plus interest (the direct loss). B is not liable for your entire bankruptcy. Your bankruptcy is an indirect or remote consequence of the agent’s failure.
Section 213: Agent’s accounts
Legal Text: “An agent is bound to render proper accounts to his principal on demand.”
Simple English: An agent must keep a clear and accurate record of all money and transactions. The principal has the legal right, at any time, to “demand” to see these accounts. The agent cannot refuse.
Real-World Example: You hire a property manager (Agent) to handle your rental building. You can call him at any time and say, “Please send me a detailed breakdown of all rents collected and all repairs paid for this quarter.” He is legally bound to provide it.
Section 214: Agent’s duty to communicate with principal
Legal Text: “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 instructions.”
Simple English: When the agent faces an unexpected problem, a crisis, or a “case of difficulty,” they can’t just guess what to do. Their duty is to make a reasonable effort to contact the principal and ask for instructions. (This is related to Section 189, the “emergency” authority, which applies when communication is not possible).
Real-World Example: An agent is shipping goods for a principal. The ship arrives at a port that is unexpectedly closed due to a political protest. The agent can’t just sell the goods or dump them. He must use “reasonable diligence” (make phone calls, send emails) to contact the principal and ask, “What are your instructions? Should I wait, re-route, or sell here?”
Section 215: Right of principal when agent deals, on his own account, in business of agency without principal’s consent
Legal Text: “If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal… the principal may repudiate the transaction, if the case shows, either that any material fact has been dishonestly concealed… or that the dealings… have been disadvantageous to him.”
Simple English: This is the first rule against “self-dealing.” An agent cannot secretly be the other party in the deal, unless the principal knows everything and consents.
The Principal’s Right: If the agent does self-deal, the principal can “repudiate” (cancel) the whole transaction, if they can show EITHER:
The agent “dishonestly concealed” a key fact; OR
The deal was “disadvantageous” (bad) for the principal.
Real-World Example (From the Act’s Illustration):
You (Principal) hire an agent (B) to sell your estate.
B looks at the estate and sees a valuable mine on it that you don’t know about.
B comes to you and says, “I’d like to buy the estate for myself,” but he conceals the discovery of the mine.
You agree, and B buys it.
Result: When you find out about the mine (the “material fact”), you can repudiate the sale. The agent’s concealment gives you the right to cancel.
Section 216: Principal’s right to benefit gained by agent dealing on his own account in business of agency
Legal Text: “If an agent, without the knowledge of his principal, deals in the business of the agency on his own account… the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.”
Simple English: This is the second rule against “self-dealing.” If the agent secretly self-deals (or uses the agency for their own profit), the principal can not only cancel (S.215) but can also demand any profit the agent made from the sneaky deal.
Real-World Example (From the Act’s Illustration):
You (Principal) hire an agent (B) to buy a specific house for you.
B finds the house, but tells you, “The owner won’t sell it.”
B then secretly buys the house for himself for ₹50 lakhs.
You find out. You can now compel B to sell that house to you at the ₹50 lakhs price he paid. The “benefit” or “profit” B gained (owning the house) must be turned over to you.
Section 217: Agent’s right of retainer out of sums received on principal’s account
Legal Text: “An agent may retain, out of any sums received on account of the principal… all moneys due to himself in respect of advances made or expenses properly incurred… and also such remuneration as may be payable to him…”
Simple English: This is a right for the agent, not a duty. It says the agent can “pay himself” from the money he collects for the principal. He can keep (or “retain”) money to cover:
Advances: Money the agent paid out of his own pocket earlier.
Expenses: Any costs “properly incurred” while doing the job.
Remuneration: His commission or salary.
Real-World Example: You (Principal) hire a real estate agent (Agent) to sell your house for ₹1 crore, agreeing on a 2% commission (₹2 lakhs). The agent also spends ₹50,000 of his own money on advertising (a “properly incurred” expense).
When the buyer pays the ₹1 crore deposit to the agent, the agent doesn’t have to hand you the full amount. He can retain his ₹2 lakh commission + his ₹50,000 expense, and then give you the remaining ₹97.5 lakhs.
Section 218: Agent’s duty to pay sums received for principal
Legal Text: “Subject to such deductions, the agent is bound to pay to his principal all sums received on his account.”
Simple English: This is the simple follow-up to Section 217. After the agent has deducted his rightful pay and expenses, he must pay all remaining money to the principal. He cannot hold onto it.
Real-World Example: In the previous example, after the agent retained his ₹2.5 lakhs (commission + expenses), he is bound to immediately pay the remaining ₹97.5 lakhs to the principal. He can’t hold it in his own bank account to earn interest.
Section 219: When agent’s remuneration becomes due
Legal Text: “In the absence of any special contract, payment for the performance of any act is not due to the agent until the completion of such act…”
Simple English: This is the default rule for when an agent gets paid. Unless the contract says otherwise (e.g., “pay 50% upfront”), the agent is not entitled to any pay until the job is 100% complete.
The Exception: The second part says that if an agent is selling goods, he can deduct his pay (“detain moneys”) from the first batch of goods he sells. He doesn’t have to wait until the entire consignment is sold.
Real-World Example:
(Default Rule): You hire an agent to find a buyer for your company. He finds a potential buyer, but the deal fails. He cannot demand payment, because his “act” (completing the sale) was not completed.
(Exception): You give your agent 500 T-shirts to sell. He sells 100 T-shirts. He can take his commission from the money for those 100 right away. He doesn’t have to wait until all 500 are sold.
Section 220: Agent not entitled to remuneration for business misconducted
Legal Text: “An agent who is guilty of misconduct in the business of the agency, is not entitled to any remuneration in respect of that part of the business which he has misconducted.”
Simple English: If an agent acts with “misconduct” (e.g., negligence, dishonesty, breach of duty), they lose their right to be paid for the part of the job they messed up.
This can be partial or total:
Real-World Example (Partial – from Act): You (Principal) hire an agent (B) to recover ₹1,00,000. He successfully recovers it. You then tell him to invest it. He invests ₹90,000 properly, but invests ₹10,000 negligently (misconduct).
Result: He is entitled to pay for recovering the ₹1,00,000 and investing the ₹90,000. He is not entitled to any commission for investing the ₹10,000 and must pay you back any loss on it.
Real-World Example (Total – from Act): You hire an agent to recover ₹1,000. Through his total misconduct (e.g., he never files the case), the money is never recovered.
Result: He is entitled to no remuneration and must make good the loss.
Section 221: Agent’s lien on principal’s property
Legal Text: “In the absence of any contract to the contrary, an agent is entitled to retain goods, papers and other property, whether movable or immovable of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him.”
Simple English: This section gives the agent a powerful right called a “lien.”
A “lien” is the legal right to keep (or “retain”) someone else’s property as security until a debt is paid.
This rule says an agent can hold onto any of the principal’s property (goods, files, documents, even land titles) that comes into their possession until the principal has paid the agent everything they are owed.
This includes money owed for:
Commission: The agent’s salary or fee.
Disbursements: Money the agent paid out of their own pocket for the job.
Services: Any other fees for work done.
The Exception: The agent loses this right if they signed a “contract to the contrary” (e.g., an agreement that they would never hold property and would always be paid 30 days later).
Real-World Example:
A lawyer (Agent) does a lot of work for a client (Principal) and has the client’s original property deeds and case files. The client refuses to pay the lawyer’s final bill of ₹2,00,000.
Because of this section, the lawyer has a “lien” and is legally entitled to retain the client’s files and deeds. The lawyer can (and must) refuse to hand them over until the ₹2,00,000 bill is paid.
Principal’s duty to agent
Section 222: Agent to be indemnified against consequences of lawful acts
Legal Text: “The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him.”
Simple English: The principal (employer) must protect the agent from any losses or liability the agent suffers as a result of doing their job lawfully.
“To indemnify” means “to cover the loss” or “to pay back.”
If the agent, while following the principal’s (lawful) instructions, gets sued, has to pay damages, or incurs costs, the principal must pay the agent back for all of it.
Real-World Example (From the Act’s Illustration):
A principal (A) in Calcutta hires an agent (B) in Singapore to make a contract with a supplier (C).
B makes the contract. A (the principal) then fails to send the goods, so C (the supplier) sues B (the agent) in Singapore for breach of contract.
B has to defend the lawsuit and is forced to pay damages and legal fees.
Result: The principal (A) must indemnify B. He has to pay B back for the damages, the legal fees, and any other expenses B incurred, because B was just doing the lawful act A told him to do.
Section 223: Agent to be indemnified against consequences of acts done in good faith
Legal Text: “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 cause an injury to the rights of third persons.”
Simple English: This is similar to S.222 but covers a special case. What if the principal tells the agent to do something that seems fine, but is actually illegal or infringes on someone else’s rights (and the agent doesn’t know this)?
The Rule: If the agent acts in “good faith” (honestly believing the act is lawful), the principal still has to indemnify them, even if the act was technically wrong.
Real-World Example (From the Act’s Illustration):
A principal (A) tells his agent (B), “Go to that warehouse and take those 50 bags of rice. They are mine.”
B, acting in good faith, goes and takes the rice.
It turns out the rice actually belonged to a third party (C). C sues B (the agent) for trespass and theft. B is forced to pay C the value of the rice.
Result: A (the principal) must indemnify B (the agent) for the full amount he had to pay C. Even though the act was unlawful (it was theft), the agent did it in good faith, believing he was following a lawful order.
Section 224: Non-liability of employer of agent to do a criminal act
Legal Text: “Where one person employs another to do an act which is criminal, the employer is not liable to the agent… to indemnify him against the consequences of that Act.”
Simple English: This is the hard-and-fast exception to the previous two rules.
If the agent knows the act is “criminal,” they are on their own. The principal has no duty to protect the agent. The law will not help one criminal get “indemnified” by another.
Real-World Example (From the Act’s Illustration):
A principal (A) employs an agent (B) to “beat up my rival (C).” A promises B, “If C’s family sues you, I’ll cover all your legal bills and any damages.”
B beats up C. C’s family sues B, and B has to pay ₹5,00,000 in damages.
Result: B cannot force A to pay him the ₹5,00,000. The agreement to indemnify was for a criminal act and is void. The law will not enforce this “honour among thieves.”
Section 225: Compensation to agent for injury caused by principal’s neglect
Legal Text: “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.”
Simple English: This moves beyond financial loss and covers physical (or other) injury to the agent. The principal has a duty of care. If the principal’s own negligence (or “want of skill”) creates an unsafe environment, and the agent gets hurt as a result, the principal must pay compensation.
Real-World Example (From the Act’s Illustration):
A homeowner (Principal) is building a house and hires a bricklayer (Agent). The homeowner personally builds the scaffolding for the agent to stand on.
The scaffolding was built negligently (“unskillfully”) by the principal.
The agent steps on it, it collapses, and the agent breaks his leg.
Result: The principal must pay compensation to the agent for his medical bills, lost wages, and other damages, because the injury was caused by the principal’s own “neglect or want of skill.”
Effect of agency on contracts with third persons
Section 226: Enforcement and consequences of agent’s contracts
Legal Text: “Contracts entered into through an agent… may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person.”
Simple English: This is the core rule of agency. When an agent (acting within their authority) makes a contract with a third person, the law ignores the agent.
The contract is treated exactly as if the principal had personally flown there and signed the paper themself.
The principal is bound. The third person is bound. The agent is just the middle-man who is not part of the final contract.
Real-World Example:
A company’s (Principal’s) purchasing manager (Agent) signs a contract to buy 100 computers from a supplier (Third Person).
The company (Principal) is now legally bound to pay the supplier.
The supplier (Third Person) is now legally bound to deliver the computers.
The manager (Agent) is not part of the deal. The supplier cannot sue the manager for payment.
Section 227: Principal how far bound, when agent exceeds authority
Legal Text: “When an agent does more than he is authorized to do, and when the part… 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…”
Simple English: What if the agent “goes rogue” and does more than they were told?
The Rule: If the deal can be split up, the principal is bound by the part they authorized, and not bound by the part they didn’t.
Real-World Example (From the Act’s Illustration):
A principal (A) owns a ship and its cargo. He gives his agent (B) authority to “get insurance for ₹4,00,000 on the ship.”
The agent (B) goes to an insurer and buys two policies: one for ₹4,00,000 on the ship (authorized) and a second one for ₹4,00,000 on the cargo (unauthorized).
Result: The two parts are separable. The principal (A) is bound to pay the premium for the ship insurance. He is not bound to pay for the cargo insurance.
Section 228: Principal not bound when excess of agent’s authority is not separable
Legal Text: “Where an agent does more than he is authorized to do, and what he does beyond the scope of his authority cannot be separated… the principal is not bound to recognize the transaction.”
Simple English: This is the opposite of S.227. If the agent’s “excess” act is so mixed up with the authorized act that the two cannot be separated, the principal is not bound by any of it. The principal can cancel the entire deal.
Real-World Example (From the Act’s Illustration):
A principal (A) authorizes his agent (B) to “buy 500 sheep for me.”
The agent (B) goes to a farmer and makes a single contract to buy “500 sheep and 200 lambs for a total, single price of ₹6,00,000.”
Result: The deal is not separable. There isn’t one price for the sheep and another for the lambs. Because the authorized part (500 sheep) is mixed with the unauthorized part (200 lambs), the principal (A) can repudiate the whole transaction. He is not bound to take the sheep or the lambs.
Section 229: Consequences of notice given to agent
Legal Text: “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.”
Simple English: This is a vital and strict rule: “Notice to the agent is notice to the principal.”
If a third party tells your agent an important fact, the law presumes that you (the principal) also know that fact. You cannot later claim, “My agent never told me!”
The Condition: This only applies if the agent learned the information while doing their job for you (“in the course of the business”).
Real-World Example:
You (Principal) are buying a house. Your real estate agent (Agent) is representing you.
The seller (Third Person) tells your agent, “Just to let you know, the basement floods every winter.”
Your agent forgets to tell you this. You buy the house.
Result: The law says that you (the Principal) are deemed to have known about the flooding, because your agent was told. You cannot sue the seller for non-disclosure, because your agent was notified. Your only option is to sue your own agent for negligence (under S.212).
Section 230: Agent cannot personally enforce, nor be bound by, contracts on behalf of principal
Legal Text: “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.”
Simple English: This is the default rule (related to S.226). The agent is a “ghost” in the transaction. They cannot personally sue the third party, and the third party cannot personally sue the agent. The legal fight is purely between the principal and the third party.
BUT… The “Presumption of contract to contrary”
The section then lists three crucial exceptions where this rule is reversed, and the agent is presumed to be personally liable.
“…where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;”
Simple English: If the principal is in another country, it’s unfair to make the local third party chase them down. The law presumes the local agent is the one on the hook.
Example: An agent in Mumbai makes a deal to buy textiles from a supplier in Surat. The agent says he’s buying for “a client in London” (a merchant abroad). If the bill isn’t paid, the Surat supplier can sue the Mumbai agent directly for the money.
“…where the agent does not disclose the name of his principal;”
Simple English: If the agent acts secretly and doesn’t tell the third party who they are working for (an “undisclosed principal”).
Example: An agent signs a lease for an office. He just signs his own name and doesn’t mention he’s getting it for a new company. The landlord (Third Party) can sue the agent personally for the rent, because as far as the landlord knew, the agent was the renter.
“…where the principal, though disclosed, cannot be sued.”
Simple English: If the principal is someone who has legal immunity (like the government, a foreign ambassador, or sometimes a minor).
Example: An agent makes a contract on behalf of the Government of India (Principal), which often has special rules protecting it from being sued. The law presumes the third party’s contract is personally with the agent who signed it.
Section 231: Rights of parties to a contract made by agent not disclosed
This section has two parts and deals with an “undisclosed principal” (where the agent pretends the deal is for himself).
Part 1: Principal’s Right to Enforce
Legal Text: “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.”
Simple English: If an agent acts like a normal customer and makes a deal (without revealing he’s an agent), the hidden principal can step in later and demand the contract be fulfilled.
The Catch: When the principal reveals themself, the third party gets to keep all the same rights they would have had against the agent. This includes the “right of set-off.”
Real-World Example:
An agent (A) owes you (B) ₹10,000 from a personal loan.
Later, A (acting as an agent for his rich boss, C) comes to you and buys your antique watch for ₹25,000. You (B) have no idea about C; you just think you’re dealing with A.
The hidden principal (C) can step in and demand the watch.
However, you (B) can use your “right of set-off.” You can say, “Fine, I will give you the watch, but you only get ₹15,000. I am ‘setting off’ the ₹10,000 that A owes me.” The principal (C) is forced to accept this.
Part 2: Third Party’s Right to Refuse
Legal Text: “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… or if he had known that the agent was not a principal, he would not have entered into the contract.”
Simple English: If the principal reveals themself before the deal is final, the third party can back out if they can prove one of two things:
They would never have dealt with that specific principal (e.g., they are a rival).
They only made the deal because they trusted the agent personally.
Real-World Example: You (B) are a famous painter. Your friend (A) comes to buy a painting. You give him a special 50% “friends discount.” Before the deal is done, A says, “Great, my boss (C), a millionaire art investor, will pay you.” You (B) can “refuse to fulfil” (cancel) the deal. You can show that you only would have entered that specific contract (with the 50% discount) for A, and you “would not have entered into the contract” for a random investor.
Section 232: Performance of contract with agent supposed to be principal
Legal Text: “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 rights and obligations subsisting between the agent and the other party to the contract.”
Simple English: This section reinforces S.231. It says if the principal wants to enforce a “secret” contract made by their agent, they get all the benefits, but they also have to accept all the drawbacks, including any “set-offs” the third party has against the agent.
Real-World Example (The Act’s Illustration):
A (Agent) owes B (Third Party) ₹500.
A (as an agent for C, the Principal) then sells ₹1,000 worth of rice to B.
B (the Third Party) does not know A is an agent; he thinks A is the one selling the rice.
C (the Principal) steps in and demands the ₹1,000 from B.
Result: C cannot get the full ₹1,000. He must allow B to “set-off” the ₹500 debt A owed him. C will only receive the remaining ₹500.
Section 233: Right of person dealing with agent personally liable
Legal Text: “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.”
Simple English: When you (a third party) make a deal with an agent who is “personally liable” (like an agent for an undisclosed principal), you have a powerful choice. Once you discover the principal, you can decide who to sue for the money. This is called the “Doctrine of Election.”
Real-World Example (The Act’s Illustration):
You (A, a Third Party) sell 100 bales of cotton to B (Agent).
B fails to pay. You are about to sue B.
You then discover that B was secretly acting as an agent for C, a large textile company.
Result: You (A) now have a choice. You can sue:
The agent (B) you originally dealt with; OR
The principal (C) you just discovered; OR
You can name both of them in the lawsuit to figure out who to hold liable.
Section 234: Consequence of inducing agent or principal to act on belief that principal or agent will be held exclusively liable
Legal Text: “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.”
Simple English: This is the consequence of “making your choice” from S.233. Once you’ve made your choice and acted on it in a way that “induces” (convinces) the other parties, you are stuck with that choice. You can’t sue the agent, get a judgment, fail to collect, and then try to sue the principal.
Real-World Example:
You (Third Party) discover the principal (C) and the agent (B). You have the choice to sue either.
You decide to only go after the principal (C). You send all your invoices to C, have meetings with C, and then file a lawsuit only against C.
Your actions have “induced” the agent (B) to believe that he is no longer liable.
Result: If you lose the case against C or C goes bankrupt, you cannot then turn around and try to sue B (the agent). You “elected” to go after the principal, and you lost your right to go after the agent.
Section 235: Liability of pretended agent
Legal Text: “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.”
Simple English: This covers a “pretend agent.” If a person falsely claims to be an agent for someone else (and that person doesn’t later ratify the deal), the pretend agent is personally liable to the third party for all losses caused by the lie. This is also called “breach of warranty of authority.”
Real-World Example:
A man (A, the Pretend Agent) walks into your shop (B, the Third Party).
He says, “I am the head of purchasing for Tata Motors (C). I want to order 1,000 custom-made uniforms.”
You are thrilled. You spend ₹5 lakhs manufacturing the uniforms.
You send the bill to Tata Motors (C), who have no idea who A is and do not ratify (approve) the deal.
Result: You (B) are now stuck with ₹5 lakhs of useless uniforms. You can sue A personally for the full ₹5 lakhs “in respect of the loss or damage” you incurred from his lie.
Section 236: Person falsely contracting as agent not entitled to performance
Legal Text: “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.”
Simple English: This is the reverse of S.235. What if a person pretends to be an agent, but is secretly acting for himself?
The Rule: That person cannot then force the third party to go through with the deal.
Real-World Example:
You (B) own an antique store. You hate a local collector (A) and have sworn never to sell to him.
A knows this. He comes to your store and falsely claims, “I am an agent (A) buying this antique desk on behalf of the City Museum (C).”
You love the museum, so you agree to the sale (in the “character of agent”).
At the last minute, A reveals, “Ha! I was lying! I am buying it for myself (on my own account)!”
Result: You (B) are “not entitled to require performance.” You can legally cancel the sale because the entire contract was based on the false premise that he was an agent.
Section 237: Liability of principal inducing belief that agent’s unauthorized acts were authorized
Legal Text: “When an agent has, without authority, done acts… on behalf of his principal, the principal is bound by such acts… if he has by his words or conduct induced such third persons to believe that such acts… were within the scope of the agent’s authority.”
Simple English: This is the powerful rule of “Apparent Authority” or “Agency by Estoppel.”
The Rule: If a principal’s own words or conduct make it look to the world like an agent has authority, the principal is bound by the agent’s acts, even if he privately told the agent not to do it. The principal is “estopped” (stopped) from denying the authority he “induced” others to believe in.
Real-World Example (The Act’s Illustration):
You (A, the Principal) give your agent (B) your goods to sell. You give him private instructions “Do not sell for less than ₹1,000.”
A customer (C, the Third Party) comes in. C has no idea about this private instruction. To C, B just looks like a regular salesperson (whose authority is induced by A’s conduct of putting B in the shop).
B sells the goods to C for ₹900 (violating his private orders).
Result: You (A, the Principal) are bound by this sale. You cannot get the goods back from C. Your only option is to sue your agent (B) for disobeying you (under S.211).
Section 238: Effect, on agreement, of misrepresentation or fraud by agent
Legal Text: “Misrepresentation made, or frauds committed, by agents acting in the course of their business… have the same effect… as if such… had been made… by the principals; but misrepresentations… by agents, in matters which do not fall within their authority, do not affect their principals.”
Simple English: This section has two rules about an agent’s fraud:
If the fraud is within the “course of business” (the job): It’s treated as if the principal committed the fraud. The principal is liable.
If the fraud is outside the “course of business”: The agent is on his own. The principal is not liable.
Real-World Example (Rule 1: Principal is Liable):
A real estate agent (Agent), in the course of his business of selling a flat for his company (Principal), lies to a buyer (Third Party) “The building is earthquake-proof” (a misrepresentation).
The buyer (Third Party) relies on this and buys the flat.
Result: The fraud has the same effect as if the company itself lied. The buyer (Third Party) can rescind the contract with the company (Principal).
Real-World Example (Rule 2: Principal is NOT Liable – from Act):
A ship’s captain (Agent) for a shipping company (Principal) signs “bills of lading” (a receipt for goods) for 1,000 bales of cotton that were never loaded onto the ship. He does this as a personal favor (fraud) for a consignor.
This act (signing for non-existent goods) is not part of his real authority.Result: The shipping company (Principal) is not bound by this. The bills of lading are void.