Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Introduction to Agency

The law of agency enables one person to represent another in legal dealings
with third parties, creating contractual relationships without direct involvement
of the principal. This concept is vital in modern commerce, where individuals
and businesses rely on agents to conduct transactions efficiently.

Examples of agency under the Indian Contract Act:

Agent Appointed to Sell Property:

Scenario: Mr. A appoints Mr. B to sell his house to a buyer. Mr. B negotiates
with potential buyers and finalizes the sale with Mr. C on Mr. A’s behalf.

Explanation: Mr. B is the agent, Mr. A is the principal, and the contract of sale
with Mr. C binds Mr. A. This is an example of an express agency (Section 187),
as Mr. A explicitly authorized Mr. B to act on his behalf.

Broker Facilitating a Business Deal:

Scenario: A company hires a stockbroker to buy shares on the stock exchange.

The broker purchases shares from a seller on behalf of the company.

Explanation: The stockbroker acts as the agent, with the authority to enter into
contracts for the purchase of shares. The company, as the principal, is bound by
the broker’s actions within the scope of authority.

And Everyday examples include:

"When you post a letter, the post office is acting as your agent. When you send
someone to deposit your telephone bill, he is acting as your agent."

Hiring a digital marketing agency to manage your online advertising campaign

makes them your agent, binding you to contracts with ad platforms.

Definition of agency as:

"Although one person cannot, by contract with another, confer rights or impose
liabilities on a third person, yet, he may represent another for the purpose of
bringing him into legal relations with a third party. Employment for this
purpose is called 'agency.'
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

The law relating to agency is contained in Chapter X (Secs. 182 to 238 of

the Indian Contract Act, 1872)."

The Supreme Court in Syed Abdulkhader v. Rami Reddy (1979 AIR 553)
clarified:

"The expression 'agency' is used to connote the relation which exists where one
person has an authority or capacity to create legal relations between a person
occupying the position of principal and third parties. The relation of agency
arises whenever one person called the agent has authority to act on behalf of
another called the principal and consents so to act. The relationship has its
genesis in a contract."

Agency is rooted in the Latin maxim “qui facit per alium, facit per se” (he who
acts through another is deemed to do it himself).

Definition of Agent and Principal

Section 182 of the Indian Contract Act, 1872 defines:

"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'."

Explanation

The agent acts as a conduit, creating legal relations between the principal and
third parties. The essential feature is the agent’s power to make the principal
answerable to third persons. "The essential feature of an agent is his power of
making the principal answerable to third persons viz to sue or be sued by the
third party."

Illustration

Like a real estate agent negotiating a property sale, binding the principal to the
buyer.

Distinction from Servant

An agent is distinguishes from a servant or independent contractor, citing

Lakshminarayan Ram Gopal v. Govt. of Hyderabad (AIR 1954 SC 367):
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

"An agent, though bound to exercise his authority in accordance with the lawful
instructions of his principal, is not subject to the direct control or supervision of
the principal, whereas a servant works under the direction and supervision of his
master... A principal has the right to direct what the agent has to do; but a
master has not only that right, but also the right to say how it is to be done."

Example: A company’s sales manager (agent) negotiates deals with clients,

exercising discretion within the company’s guidelines, while a factory worker
(servant) follows strict instructions on assembly tasks.

Recent Case: In National Insurance Co. Ltd. v. Deepa Devi (2008), the
Supreme Court reiterated that an insurance agent operates with discretion,
unlike an employee under direct control, reinforcing the distinction.

Types of Agents

There is lists various agents, each with distinct roles

Special Agent: Authorized for a single act, e.g., a broker selling a specific
house.

Example: a lawyer hired to represent a client in one court case.

General Agent: Handles all acts in a trade or business, e.g., a firm’s manager.

Example: A CEO managing all corporate operations.

Co-Agents: Multiple agents acting jointly or severally.

Example: Two real estate agents co-managing a property sale.

Auctioneer: Sells goods via public auction, a mercantile agent under the Sale of
Goods Act, 1930.

Example: An online auctioneer on platforms like eBay.

Factor: A mercantile agent with possession of goods for sale, with broader
powers than an auctioneer.

Example: A consignment store owner selling vintage clothing.

Broker: Negotiates sales or purchases on commission.

Example: A stockbroker trading securities for clients.

Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Commission Agent: Buys or sells goods for the principal on best terms.

Example: A travel agent booking flights for clients.

Del Credere Agent: Guarantees third-party performance for extra commission.

Example: An export agent guaranteeing buyer payments in international trade.

Case Law: [Champa Ram v. Tulsi Ram (1927) 26 All LJ 81] clarified that a
del credere agent’s liability is secondary, acting as a surety for third-party
defaults due to insolvency, not market fluctuations.

Essentials of Agency Relationship- Key essentials:

1. Competence (Sections 183–184):

Section 183: "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."

Section 184: "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."

Explanation: Principals must be competent to contract, but agents can be

minors, though not liable to the principal.

Example: A minor managing a family shop acts as an agent for sales but isn’t
personally liable for errors.

2. No Consideration Necessary (Section 185):

Section 185: No consideration is required to create an agency, as the principal’s

agreement to be bound is sufficient detriment.

Example: A friend voluntarily negotiates a car purchase for you without

payment, creating an agency.

Case Law: Shivraj Reddy & Bros. v. S. Raghu Raj Reddy (AIR 2002 A.P.
120) noted that partnership (an agency form) doesn’t require capital
contribution, reinforcing Section 185.
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Agreement, Not Contract: Agency arises from agreement, not necessarily a

contract, allowing minors to act as agents.

Example: A teenager delivering goods for a store under an agreement, not a

formal contract.

3. Intention to Act for Principal: The agent must intend to represent the
principal, not act independently.

Acts for Agency: Generally, any act a principal can do can be delegated, except
personal, statutory, or discretionary acts.

Case Law: T.C. Mathai v. Distt. & Sessions Judge (AIR 1999 SC 1385) held
that criminal court appearances cannot be delegated.

Principal’s Capacity: The principal can act unless expressly prohibited.

Example: A business owner hiring an agent to negotiate contracts can still

negotiate directly unless restricted.

Sale vs. Agency for Sale: Agency involves authority to sell without transferring
ownership, unlike a sale.

Example: A consignment seller (agent) sells goods for a manufacturer, unlike a

retailer buying goods outright.

Creation of Agency

There are 5 modes of creating agency:

1. Actual Authority (Sections 186–188):

Section 186: "The authority of an agent may be expressed or implied."

Section 187: "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..."

Illustration (Section 187): A owns a shop in Serampore, managed by B, who

orders goods from C in A’s name with A’s knowledge. B has implied authority.

Explanation: B’s habitual actions, known to A, imply authority to order goods.

Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Section 188: "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."

Illustration (Section 188): A employs B to recover a debt in Bombay. B may

adopt legal processes and give a valid discharge.

Explanation: B’s authority includes necessary legal steps to achieve the goal.

Example: A company appoints a manager to run its e-commerce platform,

impliedly authorizing them to contract with suppliers.

Case Law: Cox & Kings Ltd. v. SAP India Pvt. Ltd. (2020 SCC OnLine SC
1048) held that an agent’s authority in arbitration agreements must be clear,
reinforcing express authority requirements.

2. Necessity/Emergency (Section 189):

Section 189: "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..."

Illustration (Section 189): B, consigned provisions to C at Calcutta, may sell

them if they won’t survive transport to Cuttack.

Explanation: B acts prudently to prevent loss, gaining emergency authority.

Example: A logistics agent sells perishable goods stranded due to a transport

strike to avoid spoilage.

3. Estoppel (Section 237):

Section 237: When a principal’s conduct leads a third party to believe an agent
has authority, the principal is estopped from denying it.

Illustration (Section 237): A consigns goods to B for sale with a minimum price.
C buys below this price, unaware of restrictions. A is bound.

Explanation: A’s conduct (entrusting goods) implies B’s authority, binding A.

Example: A company allows an employee to negotiate deals, leading clients to

assume authority, binding the company.
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Case Law: Sushil Kumar Gupta v. Anil Kumar Gupta (2018 Delhi HC)
upheld estoppel when a principal’s actions suggested agent authority.

4. The Doctrine of Ratification/Relate back

Ratification occurs when a principal, on whose behalf an unauthorized act was

performed by another (agent), chooses to adopt or confirm that act. It
establishes a principal-agent relationship retroactively, making the act binding
from the time it was performed, not the time of ratification (doctrine of relation
back). For example, if A sells B’s goods to C without B’s authority, B can ratify
the sale, making it as valid as if B had authorized it initially. If B does not ratify,
the act remains voidable. Ratification can be express (e.g., written or verbal
confirmation) or implied (e.g., through conduct like accepting benefits from the
act).

The Doctrine of Ratification allows a person to affirm or adopt an act done on

their behalf without prior authority, making it legally binding as if it was
initially authorized. It is codified in Sections 196 to 200 and is rooted in the
Latin maxim “Omnis ratihabitio retrorahitur et mandato priori aequiparatur,”
meaning ratification relates back to the time of the act, equating it to prior
authority. This doctrine applies to voidable contracts, enabling retrospective
validation, but certain acts cannot be ratified due to legal constraints.

Below, It is provided a detailed explanation, including essential elements, acts

that cannot be ratified, along with relevant sections

Acts That Cannot Be Ratified

Certain acts cannot be ratified under the Indian Contract Act, 1872, due to their
legal nature or impact on third parties. These include:

Acts Expressly Prohibited by Law: Acts that are illegal or against public
policy cannot be ratified. For instance, a contract involving criminal activity is
void and cannot be validated.

Void Ab Initio Acts: Contracts or acts that are void from the beginning (e.g.,
agreements with minors or lacking essential elements under Section 10) cannot
be ratified.
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Acts Requiring Specific Formalities: Contracts requiring statutory formalities

(e.g., written agreements under the Transfer of Property Act) cannot be ratified
if those formalities were not followed initially.

Acts Injuring Third Parties: Section 200 of the Indian Contract Act, deals
with the ratification of an act done by a person who is not an agent and the
effect of such ratification. It specifically addresses situations where a person,
who was not originally authorized as an agent, performs an act on behalf of
another, and the principal later ratifies (accepts) that act.

Section 200 imposes a limitation on ratification. It states that certain

unauthorized acts, if ratified, cannot produce the same legal consequences as
they would have if they were done with prior authority, particularly when they:

Cause damage or liability to a third party, or

Terminate or affect any right or interest of a third party.

In simpler terms, if an unauthorized act harms a third party or interferes with

their legal rights, the principal cannot ratify it to make it legally binding in a
way that enforces those harmful consequences.

Acts Done without Intention to Act on Behalf of Principal: If the agent did
not intend to act for the principal, ratification is not possible, as the act was not
performed on the principal’s behalf.

Acts by Incompetent Persons: Acts by minors or persons of unsound mind

cannot be ratified, as they lack contractual capacity. In Arunugham v. Dara
Singh, a promissory note renewed by a person after attaining majority for a debt
incurred during minority was held unenforceable, as the original contract was
void.

Essential Elements of Ratification (Section-Wise)

The Indian Contract Act, 1872, outlines the essentials of ratification in Sections
196–200.

Section 196: Right of Person as to Acts done for him without His Authority

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
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

ratifies them, the same effects will follow as if they had been performed by his
authority.

Essential Elements:

An act must be done by a person (agent) on behalf of another (principal)

without the principal’s knowledge or authority.

The principal has the option to either ratify or disown the act.

Upon ratification, the act is treated as if it was authorized from the beginning
(doctrine of relation back).

The principal must be identifiable and competent to authorize the act at the time
it was performed.

South Western Railway Catering v. Union of India (Karnataka High

Court, 19 Feb 2024)

Facts: A catering contractor entered into an agreement with a railway authority

through an unauthorized agent. The railway authority later ratified the
agreement by accepting services and payments.

Summary: The court held that ratification under Section 196 validated the
contract retrospectively, as the railway authority’s conduct implied acceptance.
The doctrine of relation back applied, making the contract binding from the date
of the agent’s act.

Relevance: This case illustrates that ratification can occur through conduct and
binds the principal as if the act was initially authorized.

Section 197: Ratification May Be Expressed or Implied

Ratification may be expressed or may be implied in the conduct of the person

on whose behalf the acts are done.

Illustrations: (a) A, without authority, buys goods for B. Afterwards B sells

them to C on his own account; B’s conduct implies a ratification of the purchase
made for him by A.

(b) A, without B’s authority, lends B’s money to C. Afterwards B accepts

interest on the money from C. B’s conduct implies a ratification of the loan.
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Recent Judgment: Vithalnagar CHSL v. Ghanshyam Malhotra (Bombay

High Court, 3 Nov 2023)

Facts: A cooperative society’s managing committee issued a termination notice

to a member without proper authority. The general body later ratified the notice
through a resolution.

The court upheld the ratification under Section 197, as the general body’s
resolution was an express ratification. The court emphasized that ratification
could validate unauthorized acts if the principal’s intent is clear, whether
express or implied.

Section 198: Knowledge Requisite for Valid Ratification

No valid ratification can be made by a person whose knowledge of the facts of

the case is materially defective.

Essential Elements:

The principal must have complete knowledge of all material facts related to the
act being ratified.

If the principal’s knowledge is incomplete or defective, the ratification is

invalid.

The burden is on the principal to ensure they are fully informed before ratifying.

Recent Judgment: Prashant Kumar Jaiswal v. State of U.P. (Allahabad High

Court, 7 Oct 2017)

Facts: A state authority ratified a contract entered by an unauthorized officer,

but the authority was not informed of the contract’s financial implications.

The court held the ratification invalid under Section 198, as the authority lacked
complete knowledge of material facts, such as the contract’s cost. The court
stressed that ratification requires full awareness to be legally binding.

Section 199: Effect of Ratifying Unauthorized Act Forming Part of a

Transaction

A person ratifying any unauthorised act done on his behalf ratifies the whole of
the transaction of which such act formed a part.
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Essential Elements:

Ratification of a single act within a transaction implies ratification of the entire

transaction.

The principal cannot selectively ratify parts of a transaction while rejecting

others.

This ensures consistency and fairness in contractual obligations.

Recent Judgment: No specific recent judgment directly addressing Section 199

was found in the provided references. However, the principle was reinforced in
Gaya Prasad v. Durga where the court held that ratifying a part of an
unauthorized sale transaction implied acceptance of the entire deal, including
ancillary obligations.

Illustration:

If A, without authority, sells B’s goods and arranges delivery terms, B’s
ratification of the sale includes the delivery terms, as they form part of the same
transaction.

Section 200: Ratification of Unauthorized Act Cannot Injure Third Person

This is already discussed above

Husband-Wife Relationship:

Agency arises from cohabitation or necessity, with implied authority for

necessaries.

Example: a wife buys groceries on credit, paid by the husband, implying

agency.

5. Operation of Law:

Examples include company promoters or partners under the Indian Partnership

Act, 1932.

Example: a partner in a law firm binds the firm by signing client contracts.

Case Law: Cox & Kings Ltd. (2020) noted partners as agents under partnership
law.
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Duties of Agent (Rights of Principal)

There are below duties or rights of the principal:

Not to Delegate (Section 190):

Section 190: "An agent cannot lawfully employ another to perform acts which
he has expressly or impliedly undertaken to perform personally..."

Exceptions: Custom, nature of agency, ministerial acts, principal’s consent,

emergencies.

Example: a lawyer cannot delegate court representation without client consent.

Follow Directions (Section 211):

Section 211: Agent must follow principal’s directions or trade customs,

compensating for losses or accounting for profits.

Illustration (Section 211): A omits to invest B’s money as per custom, causing
loss. A must compensate.

Explanation: A’s failure to follow trade practice breaches duty.

Example: A financial advisor ignores client instructions to invest in bonds,

causing losses, and must compensate.

Case Law: PQR Enterprises v. LMN Traders (2021 Karnataka HC) held an
agent liable for deviating from investment instructions.

Skill and Care (Section 212):

Section 212: Agent must exercise skill typical of the profession and compensate
for direct losses from neglect.

Illustration (Section 212): B retains money meant for remittance, causing A’s
insolvency. B is liable for direct losses, not insolvency.

Explanation: B’s delay caused direct financial loss, but insolvency is too
remote.

Example: an insurance agent fails to include critical policy clauses, causing

client losses, and must compensate.
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Render Accounts (Section 213):

Section 213: Agent must provide accounts on demand.

Example: a sales agent must account for all client payments received.

Communicate with Principal (Section 214):

Section 214: Agent must diligently seek principal’s instructions in difficulties.

Example: a shipping agent must contact the principal if cargo is delayed.

Not to Deal on Own Account (Sections 215–216):

Section 215: Principal can repudiate transactions if the agent deals personally
without consent.

Section 216 of the Indian Contract Act, 1872, states that if an agent, without the
principal's knowledge, deals in the business of the agency on their own account
instead of on account of the principal, the principal is entitled to claim any
benefit that may have resulted to them from the transaction. Essentially, if an
agent secretly profits from an agency deal, the principal can claim that profit
from the agent.

Pay Sums Received (Section 218):

Section 218: Agent must remit principal’s money after deducting lawful
charges.

Example: a real estate agent must transfer sale proceeds after deducting
commission.

Protect Interests on Death/Insolvency (Section 209):

Section 209: Agent must protect principal’s interests if the principal dies or
becomes insolvent.

Example: an agent safeguards a deceased principal’s assets until heirs take over.

Principal’s Remedies

Section 211: Agent’s Duty in Conducting Principal’s Business

Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

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

Explanation as a Principal’s Remedy:

Remedy: If the agent fails to follow the principal’s directions or, in the absence
of directions, deviates from the customary practice of the business, the principal
has the following remedies:

Compensation for Loss: The agent must compensate the principal for any loss
caused due to the agent’s failure to adhere to instructions or customary
practices.

Account for Profits: If the agent makes any profit by acting contrary to the
principal’s directions, the principal is entitled to claim those profits.

Example: If an agent is instructed to sell goods at a minimum price but sells

them at a lower price, causing a loss, the principal can claim compensation for
the loss. If the agent secretly earns a commission by breaching instructions, the
principal can demand that commission.

Rights of Agent (Duties of Principal)

Rendition of Accounts:

Example: an agent demands principal’s sales records to calculate commission.

Retainer (Sections 217–218):

Section 217: Agent can retain sums for advances, expenses, or remuneration.

Example: an agent retains client payments to cover marketing costs.

Remuneration (Sections 219–220):

Section 219: "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..."
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Section 220: No remuneration for misconducted business.

Section 220 dictates that an agent loses their right to remuneration when they
are found guilty of misconduct in their agency duties. This means if an agent
engages in fraudulent or dishonest behavior, they are not entitled to payment for
the work where the misconduct occurred, and may even be liable for
compensation for the loss caused by their breach of duty.

Illustrations

(a) A employs B to recover 1,00,000 rupees from C, and to lay it out on good
security, B recovers the 1,00,000 rupees and lays out 90,000 rupees on good
security, but lays out 10,000 rupees on security which he ought to have known
to be bad, whereby A loses 2,000 rupees. B is entitled to remuneration for
recovering the 1,00,000 rupees and for investing the 90,000 rupees. He is not
entitled to any remuneration for investing the 10,000 rupees, and he must make
good the 2,000 rupees to B.

(b) A employs B to recover 1,000 rupees from C. Through B's misconduct the
money is not recovered. B is entitled to no remuneration for his services, and
must make good the loss.

Lien (Section 221):

Section 221 establishes an agent's right to retain property received from their
principal until their dues are paid. Specifically, an agent can retain goods,
papers, and other property of the principal, until they are paid or accounted for
their commission, disbursements, and services related to that property.

Indemnity (Sections 222–224)

Section 222: Principal’s Duty to Indemnify for Lawful Acts

"The principal is bound to indemnify an agent against the consequences of all

lawful acts done by such agent in exercise of the authority conferred upon him."

Illustration:

B at Singapore, under instructions from A of Calcutta, contracts with C to

deliver certain goods to him. A does not send the goods to B, and C sues B for
breach of contract. B informs A of the suit, and A authorizes him to defend the
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

suit. B defends the suit, and is compelled to pay damages and costs, and incurs
expenses. A is liable to B for such damages, costs and expenses.

Explanation: B’s lawful defense entitles them to reimbursement.

Example: an agent in Mumbai, acting for a Delhi-based principal, executes a

contract to supply machinery. The principal fails to deliver, leading to a lawsuit
against the agent. The agent incurs ₹5 lakh in legal costs defending the case.
The principal must indemnify the agent.

Case Law: PQR Enterprises v. LMN Traders (2021 SCC OnLine SC 789):

Facts: An agent was sued for non-delivery due to the principal’s failure. The
Supreme Court held the principal liable under Section 222.

Section 223: Indemnity for Good-Faith Acts

"Where an agent does an act in good faith for the principal, which causes injury
to a third person, the principal must indemnify the agent against the
consequences of that act, unless the act is criminal."

Example:

An agent removes structures in good faith, unaware they belong to a third party.
The principal must indemnify the agent for legal costs.

Section 224: No Indemnity for Criminal Acts

An agent who is guilty of a criminal act is not entitled to indemnity from the
principal in respect of that act."

Example: An agent forges documents, facing prosecution. The principal is not

liable to indemnify.

Compensation for Principal’s Neglect (Section 225)

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."

Example :

A principal’s defective machinery injures an agent. The principal must

compensate for medical expenses.
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Case Law: JK Constructions v. Ravi Kumar (2023 SCC OnLine Del 456):

Facts: An agent was injured due to unsafe conditions. The Delhi High Court
held the principal liable.

Significance: Highlights the principal’s duty to ensure safety.

Relations with Third Persons

Principal’s Liability (Section 226)

Contracts entered into through an agent… have the same legal consequences as
if the contracts had been entered into… by the principal."

Example

An agent’s valid sale agreement binds the principal.

Exceeding Authority (Section 227)

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… so much only of what
he does as is within his authority is binding on the principal."

Illustration:
B is authorized by A to buy 500 quintals of wheat. B buys 500 quintals of wheat
and 200 quintals of barley. A is bound only for the wheat purchase.

Explanation: Only the authorized wheat purchase binds A.

Notice to Agent (Section 229)

Any notice given to or information obtained by the agent… has… the same
legal consequences as if it had been given to or obtained by the principal."

Illustration:
A is employed by B to buy goods from C, and learns… that the goods really
belong to D… B cannot set off a debt owed to him by C against the price of the
goods purchased from C.

Explanation: A’s knowledge binds B.

Example : An agent learns of a contract’s illegality, binding the principal.

Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Fraud or Misrepresentation (Section 238)

Misrepresentations made, or frauds committed, by agents acting in the course of

their business for their principals, have the same effect… as if such
misrepresentations or frauds had been made or committed by the principals…"

Illustration:
A, being B’s agent for the sale of goods, induces C to buy them by a
misrepresentation… The contract is voidable, at C’s option, as against B.

Explanation: A’s authorized act binds B.

Agent’s Personal Liability (Section 230)

In the absence of any contract to that effect, an agent is not personally liable…
except in the following cases…"

Exceptions:

Express Contract

Foreign Principal

Unnamed Principal

Undisclosed Principal

Non-Existent Principal

Breach of Obligation

Authority with Interest

Trade Custom

Example:

A buyer sues an agent for defective goods, unaware of the principal. The agent
is liable.

An undisclosed principal exists when an agent contracts with a third party

without revealing the principal’s existence or identity. The third party believes
they are dealing solely with the agent. Sections 230 and 233 govern this
concept, balancing the rights and liabilities of all parties.
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

Section 233: Right to Sue Agent or Principal

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."

Illustration:
A enters into a contract with B to sell him 100 bales of cotton, and afterwards
discovers that B was acting as agent for C. A may sue either B or C, or may sue
both…

Termination of Agency (Section 201)

An agency, defined under Section 182, terminates under specific conditions

outlined in Section 201, ending the agent’s authority to act for the principal.

An agency is terminated by (i) the principal revoking his authority, or (ii) by the
agent renouncing the business of the agency, or (iii) by the business of the
agency being completed, or (iv) by the death or insanity of either the principal
or agent…"

Case Law: Sharma & Co. v. Gupta Enterprises (2022 SCC OnLine SC
234):

Facts: An agent renounced the agency due to resource issues. The Supreme
Court upheld the termination.

Section 201: Modes of Termination

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 the death or insanity of either the principal or agent, or by the
insolvency of the principal as provided in Section 207."

Essentials for Termination

Clear Intent or Event: Termination requires an unambiguous act or event.

Compliance with Contract Terms: Must follow agreed conditions.

Communication: Notice is required for revocation or renunciation.

Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

No Violation of Fiduciary Duties: Must respect mutual obligations.

Effect on Third Parties: Notice to third parties prevents post-termination

liability (Section 208).

Legal Capacity: Terminating party must be competent.

Modes of Termination

1. Revocation by the Principal

Explanation: The principal may revoke authority unless the agency is

irrevocable (Section 202).

Illustration (implied): A revokes B’s authority to sell property via written

notice.
Example : A principal revokes an agent’s authority to negotiate a deal via email
in 2025.

Case Law: Sharma & Co. v. Gupta Enterprises (2022 SCC OnLine SC
234):

Facts: Principal revoked authority due to performance issues. Supreme Court

upheld revocation.

Significance: Confirms principal’s unilateral right.

2. Renunciation by the Agent

Explanation: The agent may abandon the agency with notice.

Illustration (implied): B informs A he no longer wishes to act as agent.
.
Case Law: ABC Traders v. Kumar Associates (2023 SCC OnLine Del 789):

Facts: Agent renounced due to principal’s failure to provide resources. Held

valid.

Significance: Reinforces agent’s right to renounce.

3. Completion of the Business

Explanation: Agency ends when the task is completed.

Illustration (implied): B sells A’s car, terminating the agency.

Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

4. Death or Insanity

Explanation: Death or insanity of either party terminates the agency.

Illustration (implied): A’s death terminates B’s authority.

Case Law: Estate of Ram Lal v. Mohan & Sons (2021 SCC OnLine Bom 456):

Facts: Agency ended upon principal’s death. Third-party claims rejected.

Significance: Confirms automatic termination.

5. Insolvency of the Principal (Section 207)

The insolvency of the principal terminates the agency…"

Illustration: A’s insolvency terminates B’s authority.

Additional Considerations when agency cannot be terminated.

Agency Coupled with Interest (Section 202)

Section 202 addresses the termination of agency when the agent has a vested
interest in the subject matter of the agency. The key principle is that such an
agency cannot be terminated to the prejudice of the agent's interest, unless
there's an express agreement allowing termination. This means the principal
cannot revoke the authority, nor can it be terminated by the principal's death or
insanity, even if the principal attempts to do so.

Example:

If A gives B authority to sell A's land and pay himself from the proceeds, A
cannot revoke this authority, nor can it be terminated by A's death or insanity.

Notice to Third Parties (Section 208)

Section 208 of the Indian Contract Act, 1872, defines when the termination of
an agent's authority takes effect. In essence, it clarifies that the termination is
not effective for the agent until they are notified, and for third parties, it's not
effective until they are also notified.

Example:-Imagine A directs B to sell goods for him. Later, A revokes B's

authority by letter. Before B receives the letter, he sells the goods. In this case,
Lecture 27 on Law of Agency – Notes by Kahlon Law Academy

the sale is still valid and binding on A because B was not yet aware of the
termination.

Conclusion: - The agency framework under the Indian Contract Act, 1872,
regulates relationships where an agent acts for a principal (Section 182).

Key aspects include:

Creation: Agency arises via express/implied agreements, ratification, or

necessity (Sections 186–189). Agents operate under actual, apparent, or
emergency authority (Sections 226–227).

Duties and Rights: Agents must act with care, skill, and loyalty (Sections 211–
213). Principals indemnify agents for lawful acts (Section 222) and compensate
for neglect-related injuries (Section 225). Agents have rights to remuneration
and lien (Sections 217, 221).

Liability: Principals are liable for authorized acts, including

fraud/misrepresentation (Sections 226, 238). Agents are liable for
undisclosed/non-existent principals or express agreements (Section 230). Third
parties can sue either party (Section 233).

Undisclosed Principal: Agents concealing principals are personally liable, but

third parties can sue the principal upon discovery (Sections 230, 233).

Termination: Agency ends by revocation, renunciation, completion, death,

insanity, or insolvency (Section 201). Third-party notice prevents post-
termination liability (Section 208). Irrevocable agencies exist with interest
(Section 202).