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On the successful completion of this project, I would like to thank our respected mentor,
Prof. Sangeeta Taak who helped me all through in the accomplishment of this project.
She helped me to learn the art of understanding and analysing the project topic by
providing us the sub topics on which we are supposed to focus. Had it not been her
support I wouldn’t be able to grasp the cognizance of something as enthralling as this. I
thank her profusely for providing me guidelines in my rough draft.

I would like to convey our gratitude towards my friends who have rendered their valuable
time and without their help this project would not have been in its present shape and

No work is complete with solo endeavour, neither is mine. I thank each and every non-
teaching staff of RGNUL for their unconditional support and infinitum.

1.2. CHAPTER 1









Qui facit per alium facit per se: Latin: He who acts for another, acts for himself

An agency relationship is established when one party (agent) is authorized by another

party (principal) to act on his/ her behalf. Such relationships are initiated when one party
desires to extend his/her activities beyond his/her present limits or capacity. In modern
life, it would be virtually impossible for a business to function efficiently without agents;
for example, corporations must hire agents to work for them since a corporation is an
artificial person. Agency relationships occur frequently in the course of business and
include hiring employees or retaining the services of other parties such as an attorney or a
design professional. An agent has the potential to form contracts on behalf of the
principal and in doing so, will bind the principal. As a result, the agency relationship is
one of trust and confidence and an agent must perform his/her activities in a capable and
conscientious manner.

The Formation of the Agency Relationship

An agency relationship is formed by the mutual, manifested agreement (often by a

contract1) between two parties that establishes that one party shall perform one or more
acts on behalf of the other. The term "manifested" is used because an objective test is
employed to determine the existence of an agency relationship. That is, if the behavior of
the parties and the specific circumstances indicate that the parties have agreed that one of
them will act for the other, then an agency relationship will be found by the court.
Accordingly, it is immaterial whether the parties have expressly formed such a
relationship, know that is exists, or even desire that it exists. Further, the parties even
may have stated expressly that such a relationship does NOT exist. However, once the
court has established the existence of an agency relationship, agency law is introduced to
determine the rights and obligations of the parties.
Some agency relationships arise as a result of other agreements, such as an employment
contract and a partnership agreement. Marriage, by itself, generally does not create an
agency relationship, although husband or wife can act as the agent for the other. Not all
duties, obligations, or actions can be delegated through an agency; for example, an agent
cannot substitute for a principal when voting in a public election, signing a will, or
making a statement under oath. As noted in Chapter 13 (Contracts), a personal services
contract cannot be delegated when the performance by the original (contracting) promisor
is crucial to the actual performance of the duty
An agent is one who is:

 Employed by another (the principal);

 To do any act for that principal; or

 To represent him in dealing with third persons

An agent is a person employed to do any act for another or to represent another in

dealings with third persons.1The person for whom such act is done, or who is so
represented, is called the ‘principal’

The Indian Contract Act of 1872 does not make any distinction between different classes
of agents.2 On one hand an agent may be appointed by the principal, it also includes an
employment by any authority authorised by law to make the employment.3

Agents are distinguished in respect of authority as general or special agents. The former
expression includes brokers, factors, partners, and all persons employed in a business of
filling a position of a generally recognised character, the extent of authority being
apparent from the nature of employment or position; the latter denotes an agent appointed
for a particular occasion or purpose, limited by the employment.4A special agent has only
authority to do some particular act for some special occasion or purpose which is not
within the ordinary course of his business or profession.5 This distinction is made to
determine the authority of that agent. It has been stated:6

Section 182 of the Indian Contract Act, 1872.
Kalyanji Kuwarji v. Tirkaram Sheolal AIR 1938 Nag 254.
Sukumari Gupta v. Dhirendra Nath Roy Chowdhury AIR 1941 Cal 643.
Leake, Page 323, 6th Edition
Amrit Lal C Shah v. Ram Kumar AIR 1962 Punj 325.
Jacob v. Morris [1902] 1 Ch 816.
“A general agent has the full apparent authority due to his employment or position and
the principal will be bound by his acts within that authority though he may have imposed
special restrictive limits which are not known to the other contracting party. A special
agent has no apparent authority beyond the limits of his appointment and the principal is
not bound by his acts in excess of those limits whether the other contracting party knows
of them or not.”


Under the Indian Law, the Agent has certain duties. An agent is bound to conduct the
business of his principal according to the directions given by the principal, or, in absence
of any such directions, according to the custom which prevails. 7 It is the duty of every
agent to carry out the mandate of his principal.8 An agent is bound to conduct the
business of the agency with as much skill as is reasonable.9 An agent is bound to render
proper accounts to his principal on demand.10 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. If an agent deals on his own account in the business of
the agency, the principal may repudiate the transaction.

The important rights of an agent can be seen as well. 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. 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 that he
has misconducted. An agent may retain all moneys due to himself in respect of advances
made or expenses properly incurred by him in conducting such business. The employer of
an agent is bound to indemnify him against the consequences of all lawful acts done
within the authority. 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. Where one person employs another to do an act which is
criminal, the employer is not liable to the agent. The principal must make compensation

Section 211 of the Indian Contract Act, 1872
Singh, Avtar Law of Contract and Specific Relief Page 745 (Tenth Edition)
Section 212 of the Indian Contract Act, 1872.
Section 213 of the Indian Contract Act, 1872.
to his agent in respect of injury caused to such agent by the principal’s neglect or want of

Since most agency relationships are established by contract, the agent’s duties/obligations
largely are defined by the terms of the contract but additional duties generally are
established by agency law, unless the contract specifically excludes or modifies them.
These duties arise from the trust and confidence that forms the foundation of an agency
relationship and are termed fiduciary duties. They are owed by the agent to his/her
principal. Fiduciary duties can arise even if the agent is not compensated (i.e. a gratuitous
agent). Under most circumstances, the gratuitous agent is not required to act for the
principal but is required to perform when he/she causes the principal to reasonably rely
on the agent and refrains from undertaking a particular act as a result of that reliance.

The following are duties of the agent:


A duty of loyalty occurs because the agency relationship exists for the benefit of the
principal and the agent must endeavor to use his/her best efforts to advance and support
the principal’s interests. Thus, the agent must avoid frustrating the principal’s interests
and undertaking activities that conflict with the interests of the principal. Generally, the
agent is forbidden to "deal with himself" when conducting the affairs of his/her principal.
For example, selling the principal’s property to himself/herself or undertaking
transactions (on behalf of the principal with his/her relatives or businesses in which
he/she has an interest) represent potential conflicts of interests and require the informed
consent of the principal after all relevant facts have been disclosed.

The agent also is forbidden to compete with the principal; for example by bidding against
the principal or by soliciting the customers of the principal for his/her own business
(while still employed). Further, the agent is forbidden to act on another’s behalf in a
transaction with the principal unless both of the principals consent to the agent’s dual
role. In some situations the agent is a middleman whose role is to form associations
between parties but is not required to advise the parties or negotiate for them.

Finally, the agent has a duty not to disclose or use confidential information (the
requirement of confidentiality) that is obtained during the agency relationship. Such
information might include business plans, detail of financial health, discoveries
pertaining to technology or natural resources, customer files, etc. Unless there is an
agreement to the contrary, upon the termination of the relationship an agent has the right
to compete with the principal and may use general knowledge and skill acquired during
the relationship.

Duty to Obey Instructions

Because the agent is required to act for the principal’s benefit and under his/her control,
the agent must obey all reasonable instructions. However, an instruction which requires
an illegal or unethical act (such as misrepresenting the quality of the principal’s property)
does not need to be obeyed, An agent is obligated to seek clarification when the
principal’s instructions are ambiguous, unclear, or otherwise misleading. While it is the
agent’s duty to seek clarification about the instructions, if there is any doubt the agent can
use his or her judgement if the principal cannot be reached. Under some conditions, the
reasonable judgement of the agent also can be used to justify the agent following a course
of action that contradicts the principal’s instructions particularly when following the
instructions would cause greater injury to the principal.

Duty to Act with Skill and Care

An agent is required to perform his/her duties with the same level of skill and care as a
similarly situated (geographically) person performing the same (or similar) activities.
Generally a gratuitous agent will be held to a lower standard than a paid agent. This may
not be true for a professional services contract/agency relationship, where the same
standard is usually required. A higher standard also is required if the agent has
represented to the principal that he/she possesses a higher standard of skill and that this
was a factor in the formation of the relationship. The standard or degree of care can be
increased or decreased by contractual agreement and the agent may even warrant
(expressly or impliedly) that his/her performance will be satisfactory to the principal. If a
warranty (either express or implied) is not provided, then the principal assumes the risk
of failure.

Duty to Notify

One of the responsibilities of the agent is to promptly notify the principal of important
matters that pertain to or reasonably might be associated with the subject matter of the
principal’s business; a responsibility that is exacerbated by the fact that the agent’s
knowledge can be imputed to the principal. There is no duty to notify when the
information is either privileged or confidential with respect to another party.

Duty to Account

As the agent of the principal and unless otherwise agreed, the agent must conduct all
moneys, property, or incidental benefits received during the course of the agency
relationship, to the principal’s account. Incidental benefits include profits or bribes that
arise from the agent’s breach of loyalty to the principal, gifts from third parties etc., tips,
entertainment and so on. In addition, the agent is required to keep accurate records of the
principal’s business transactions and to make them available to the principal. The
principal’s funds/assets must be kept separate (not commingled) from the agent’s

1. Right to remuneration

a. Under common law, an agent is only entitled to remuneration for his services as
an agent if the terms of the agency agreement so provide.

b. Where the agency agreement does not expressly provide for payment of
remuneration to the agent, and there is a dispute between the principal and agent as to the
right to claim any remuneration and the amount and terms of payment of such
remuneration, the court may have to determine if, on the facts of the case, there are any
implied terms in respect of the same in the agency agreement.

c. In deciding whether there are any implied terms in respect of any matters in an
agency agreement, the court will have regard to all the circumstances of the case, such as
the nature and length of the services provided by the agent, the express terms of the
agency agreement, the customs and practices of the profession or trade of the agent, any
previous course of dealings between the principal and the agent, etc.

d. In the business world, if services are rendered by the agent and accepted by the
principal, there is often an implied term that the agent may be entitled to reasonable
remuneration for such services rendered, even if there is no express agreement for the
payment of remuneration.

e. Where it is expressly provided that remuneration is payable upon the happening

of an event (for example, on successful completion of a transaction), the agent is not
entitled to claim the remuneration until that event has actually occurred. And if the event
specified does not occur, the agent will not be entitled to claim any remuneration even if
he has spent time and effort in trying to bring about the event.
f. Subject to any special terms in the agency agreement, where the remuneration of
an agent is a commission on a transaction to be brought about by the agent, the agent is
not entitled to such commission unless his services are the effective cause of the
transaction being brought about. The real question is whether the agent's action and
services actually and directly bring about the contractual relation between the principal
and the third party. The agent's action and services must not have been merely incidental.

2. Right to reimbursement and indemnity

a. Generally, an agent has a right to be reimbursed by his principal for all expenses
and to be indemnified against all losses and liabilities incurred by him in the performance
of his duties to the principal.

b. When an agent carries out his duties according to the principal's instructions and
in the course of which he incurs expenses, he is normally entitled to reimbursement by
the principal of such expenses, as long as they are reasonable. Expenses may include
items such as travelling expenses, photocopying charges, fees for registration of
documents payable to government departments, etc.

c. An agent may not have a right to reimbursement or indemnity in the following


i. If the act of the agent is unauthorised and the same is not subsequently ratified by
the principal;

ii. If the agent is negligent or otherwise in breach of his duties under the agency
agreement; or

iii. If the act carried out by the agent is unlawful.

3. Right of lien

a. Subject to any statutory provisions to the contrary, an agent who is in lawful

possession of goods or chattels belonging to his principal has a right to retain possession
of them until payment by the principal of the agreed remuneration or reimbursement of
the agent's reasonable expenses. This is generally known as a right of lien.

b. The right of lien exists only if the goods or chattels have been lawfully obtained
by the agent in the course of the agency and that such goods or chattels have not been
delivered to the agent with express directions, or for a special purpose, inconsistent with
the right of lien. So, for example, if a piece of equipment is delivered to the agent by the
principal with the express instruction to the agent to deliver the same to a third party, the
agent is not entitled to claim a lien on the equipment.

c. The right of lien is normally restricted to a right of possession of the goods or

chattels. It confers no right on the agent to sell, charge or otherwise dispose of the same.

d. The right of lien may also be exercised by an agent in respect of products

produced or documents prepared by the agent on the instruction of the principal
Over the years, it has been seen that an agent plays several roles in a contract. He has to
step into the shoes of the principal, yet is excluded from liability for his actions in
general. Hence, the limits of his authority have been a question of debate and pondering
for several decades since the emergence of the Agent-Principal relationship idea. Several
judges over a span of time, in various cases that have been covered in the research paper
have expressed varying opinions and views regarding the authority of an agent. In lieu of
simplifying the task of deciding this authority, several classes of agents were also
identified. The responsibilities and underlying powers of these agents differ, depending
on the work they carry out.

An agent is often seen as a person who steps into the shoes of his principal and carries out
all tasks like the principal would do in similar circumstances, with his utmost diligence
and vigilance. A general rule that has been evolved to check an agent’s liability is his
presence or lack of reasonable care and attention to the work at hand. His authority, if
exceeded, can be challenged by the principal in a court of law; however, the third party
which has entered into the contract in question shall have a binding right on it. Overall,
after this extensive study of the elaborate and complex nature of the Agent’s contract we
can see that courts, especially in judicial interpretation do not seek to indemnify the agent
against the losses caused due to his mistakes, but rather seek to indemnify the third party
from the same. At the same time, the principal maintains the right to sue the agent and
demand compensation in case the agent has exceeded his authority without a very
reasonable and essential reason for the same.