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AGENCY
(Ss 182 to 238)
QUESTION BANK
Q.1. Define the term Agency, Principal, Agent and give essential features for formation of contract of Agency. Apr. 2002.
Q.2. Describe the rules relating to ratification of Agency. Apr. 2002.
Q.3. Explain the term “Agency by estoppel” and Sate the essentials of agency by estoppel. Oct. 01.
Q.4. Enumerate and illustrate the different kinds of agent. Apr. 01.
Q.5. To what extent is the principal liable for an act done by the agent in excess of his authority? When is the agent personally liable? Apr. 01.
Q.6. When is an agent personally liable? Explain undisclosed principal and his rights and liabilities. Oct. 2000.
Q.7. Define “Agency” State various modes of creating an agency. Oct. 2000. Nov. 03.
Q.8. Explain the different modes of termination of agency. When is the agency irrevocable. Apr. 2000. Apr. 04.
Q.9. State briefly the duties of an agent to the principal. What are his against principal? Apr. 2000, Nov. 09.
Q.10. State briefly the rights and duties of an agent towards his principal. Apr. 04. Nov. 03. Nov.06.
Q.11 Define “Agency” State various modes of terminating an agency. Apr.06.
Q.12 What is ratification? What are the essential requisites of ratification? Apr.06
Q.13 What are the different kinds of agents? Nov.05.
SHORT NOTES.
1. Deal- creder Agent. Apr. 2000, Oct. 2000.
2. Sub- agent. Apr.2000, Oct.2001, Apr. 2002.
3. Agency by estoppel. Apr. 2001.
4. Delegation. Apr. 04.
- Different kinds of agents. Apr. 04. Nov. 03.
- Duties of an agent. Apr.06.
- Ratification. Nov. 09.
SYNOPSIS
I. Definition of "Agent" and "Principal"
1. Section 182 Statutory Definition: ."
2. The Bowstead Common Law Definition: > "
II. Essentials of a Valid Agency
1. Capacity of the Principal (Section 183)
2. Capacity of the Agent (Section 184)
3. Consideration is Not Required (Section 185)
III. Kinds of Agents
1. Factor
2. Broker
3. Del Credere Agent
4. Special Agent
5. General Agent
6. Auctioneer
7. Pakka Adatia
IV. Modes of Creating an Agency
1. Express Authority (Section 186)
2. Implied Authority (Section 187)
Extent of Implied Authority (Section 188)
3. Agency by Estoppel / Holding Out (Section 237)
Essentials of Estoppel:
4. Agency by Necessity (Section 189)
5. Agency by Ratification (Sections 196 to 200)
a. Nature of Ratification (Section 197):
When Ratification is Statutorily Disallowed / Invalid:
b. Defective Knowledge (Section 198):
1. Injury to Third Parties (Section 200):
2. No Partial Ratification (Section 199): .
3. Non-Existent Principal:
V. Duties of an Agent to the Principal (Sections 211 to 216)
1. Duty to Adhere to Principal's Directions or Trade Custom (Section 211)
2. Duty to Act with Reasonable Care, Skill, and Diligence (Section 212)
3. Duty to Render Proper Accounts (Section 213)
4. Duty to Communicate and Seek Instructions (Section 214)
5. Duty Not to Deal on Their Own Account (Sections 215 and 216)
a. Section 215:
b. Section 216:
6. Duty to Pay Over All Sums Received (Section 218)
7. Duty Not to Delegate (Section 190)
VI. Rights of an Agent Against the Principal
1. Right of Retainer (Section 217)
2. Right to Remuneration (Sections 219 and 220)
a. The Misconduct Bar (Section 220):
3. Right of Lien (Section 221)
4. Right to Indemnification (Sections 222, 223, and 224)
a. For Lawful Acts (Section 222):
b. For Civil Wrongs Done in Good Faith (Section 223):
c. The Criminal Act Bar (Section 224):
5. Right to Compensation for Injury (Section 225)
VII. Effects of Agency on Contracts with Third Persons
A. How Far the Principal is Bound
1. Acts Within Scope of Authority (Section 226)
2. When an Agent Exceeds Authority (Sections 227 and 228)
a. Separable Acts (Section 227):
b. Inseparable Acts (Section 228):
3. Effect of Notice on the Agent (Section 229)
4. Liability for Agent's Fraud or Misrepresentation (Section 238)
B. Personal Liability of the Agent (Section 230)
1. Foreign Principal
2. Undisclosed Principal
Rights and Rules of the Undisclosed Principal Framework (Sections 231 & 232):
a. Right to Performance (Section 231):
b. Third Party's Right to Repudiate:
3. Incompetent Principal
4. Liability of a Pretended Agent (Section 235)
VIII. Termination of an Agency (Section 201)
1. By Revocation:
2. By Renunciation:
3. By Completion of Business:
4. By Expiry of Time:
5. By Death or Insanity:
6. By Insolvency:
IX. Law Relating to Sub-Agents and Substituted Agents (Sections 190-195)
A. Explanation of the Maxim
B. Exceptions to the Rule
1. Nature of the Work:
2. Trade Custom:
3. Express or Implied Consent:
C. Comparative Analysis: Sub-Agent vs. Substituted Agent
D. Statutory Liability Context
1. Proper Delegation to a Sub-Agent (Section 192)
2. Improper Delegation to a Sub-Agent (Section 193)
3. Duty of the Agent in Naming a Substituted Agent (Section 195)
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I. Definition of "Agent" and "Principal"
The Indian Contract Act, 1872 does not explicitly define the abstract term "Agency," but it establishes its operational framework by defining the dynamic relationship between the Agent and the Principal.
1. Section 182 Statutory Definition: 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 for whom such representation is made, is called the "principal."
2. The Bowstead Common Law Definition: > "Agency is the relationship which exists between two persons, one of whom expressly or impliedly consents that the other should represent him or act on his behalf, and the other of whom similarly consents thereto."
The essential legal criterion of an agency relationship is the agent's unique power to change the principal’s legal position by creating binding contractual relations between that principal and third parties.
II. Essentials of a Valid Agency
To establish a legally enforceable contract of agency under Chapter X of the Indian Contract Act, specific statutory requirements must be satisfied:
1. Capacity of the Principal (Section 183)
According to Section 183, any person who is of the age of majority according to the law to which they are subject, and who is of sound mind, may employ an agent. Since the agent acts as a mere pipeline to bind the principal directly to third parties, a contract executed by an agent is legally deemed the contract of the principal. Consequently, a minor or a person of unsound mind cannot act as a principal; any such appointment is void ab initio.
2. Capacity of the Agent (Section 184)
Section 184 explicitly provides that as between the principal and third persons, any person may become an agent. An agent does not require full contractual capacity to bind a principal to an outsider, because the agent does not incur personal liability under the contract.
Crucial Caveat: While a minor or an incompetent person can validly act as an agent to bind the principal to a third party, they cannot be held responsible or liable to the principal for negligence, misconduct, or breach of duty under Section 184.
3. Consideration is Not Required (Section 185)
Section 185 states that no consideration is necessary to create an agency. A gratuitous agency is fully recognized and legally binding. While professional agents are routinely compensated via commissions or salary, the promise to act on behalf of the principal provides sufficient legal footing to establish the relationship. However, a purely gratuitous promise to act as an agent cannot be specifically enforced to compel performance before the agent actually begins the task.
III. Kinds of Agents
In commercial and mercantile transactions, agents are classified based on the extent of their authority and the custom of their respective trades:
1. Factor
A factor is a mercantile agent who is entrusted with the actual physical possession of goods by the principal for the purpose of sale.
a. A factor is authorized to sell the goods in their own name as an apparent owner.
b. They enjoy broad discretionary power to sell at such times and prices as they deem fit, may sell on reasonable credit, and can validly receive payments from buyers.
c. A factor possesses a general lien over the goods for any balance due to them.
2. Broker
A broker is a commercial agent employed solely to negotiate and bring about contractual relations between the principal and third parties.
a. Unlike a factor, a broker is never entrusted with the physical possession of the goods.
b. A broker cannot contract or sue in their own name; they merely act as an intermediary link to bring the buyers and sellers together.
3. Del Credere Agent
A del credere agent is a specialized mercantile agent who, in consideration of an extra fee called a del credere commission, guarantees to their principal that the third parties with whom they contract will fully perform their financial obligations. If the third-party buyer becomes insolvent or defaults on payment, the del credere agent becomes personally liable to make good the financial deficit to the principal.
4. Special Agent
A special agent is appointed to perform a single, specific, isolated transaction or a particular act (e.g., an agent appointed exclusively to sell a specific parcel of land, or an advocate engaged for a particular lawsuit). Once that specific purpose is accomplished, the agency automatically terminates.
5. General Agent
A general agent is authorized to perform all acts connected with a particular trade, business, or line of employment on a continuous basis. For example, a branch manager of a retail business serves as a general agent with the implied authority to perform all routine operations necessary to keep that business running.
6. Auctioneer
An auctioneer is a mercantile agent authorized to sell goods or property at a public competitive sale.
a. Initially, they act strictly as the agent of the seller (the principal). However, once the hammer falls, they also become the agent of the highest bidder to bind both parties in writing.
b. They have possession of the goods and hold a particular lien on them for their costs and commission.
7. Pakka Adatia
A Pakka Adatia is a unique category of mercantile agent operating under indigenous trade customs, primarily in the Mumbai markets.
a. Unlike standard agents, a Pakka Adatia can treat themselves as the principal vis-Ă -vis their constituent. They can execute the order by matching it internally or finding an outside buyer.
b. They guarantee execution and are personally responsible to both their constituent and the third party without necessarily disclosing the identity of either side.
IV. Modes of Creating an Agency
An agency relationship can be established through several distinct statutory mechanisms under the Indian Contract Act:
1. Express Authority (Section 186)
Under Section 186, the authority of an agent may be explicitly conferred. An authority is said to be express when it is given by words spoken or written.
Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana (AIR 2012 SC 206)
The Supreme Court comprehensively explained the scope of a POA, ruling that it is strictly an instrument of agency and does not transfer title or interest in immovable property.
2. Implied Authority (Section 187)
Section 187 defines implied authority as that which is inferred from the circumstances of the case, things spoken or written, or the ordinary course of business dealings.
Statutory Illustration: owns a shop in Serampur, but lives in Calcutta, visiting occasionally. The shop is managed daily by , who routinely orders goods from in 's name for the shop, paying for them out of 's funds with 's passive knowledge. possesses implied authority from to order goods from .
Smith v. Moss [1940] 1 KB 424
Facts: A mother allowed her son to navigate her motor car on her behalf, while she continuous covered the operational and upkeep costs of the vehicle. Due to the son's negligent driving, the car met with an accident, causing injury to the plaintiff.
Held: The court held that the son was acting as an implied agent of his mother at the time of the accident. Consequently, the mother was held vicariously liable for the tortious negligence of her agent.
Extent of Implied Authority (Section 188)
An agent having authority to do an act or to carry on a business has authority to do every lawful thing which is necessary in order to do such act or conduct such business.
Example (a): is employed by to recover a debt at Bombay. may adopt any legal process necessary to recover the debt and give a valid discharge.
Example (b): constitutes as his agent to carry on business as a shipbuilder. has implied authority to purchase timber, hire workmen, and order components for the trade.
3. Agency by Estoppel / Holding Out (Section 237)
Section 237 provides that when an agent has, without authority, done acts or incurred obligations to third persons on behalf of their principal, the principal is bound by such acts if they have by their words or conduct induced such third persons to believe that such acts were within the scope of the agent's authority.
Essentials of Estoppel:
a. A clear representation made by the principal (by words or passive conduct) to a third party indicating that the actor has authority.
b. Honest reliance and alter-action by the third party based on that representation.
Illustration (a): informs in the presence of that is ’s authorized agent. stands by silently and does not contradict the statement. subsequently contracts with on the faith of this statement. is bound by the contract and is estopped from denying ’s agency.
Illustration (b): consigns goods to for sale with private instructions not to sell below a reserve price. , completely ignorant of these private restrictions, buys the goods from at a lower price. is bound by the sale because had apparent authority.
4. Agency by Necessity (Section 189)
An agency by necessity arises in an emergency when a person is compelled to act to protect another's property or interests without obtaining the prior explicit consent of the owner. Section 189 empowers an agent to perform all such acts for the purpose of protecting their principal from imminent loss as would be done by a person of ordinary prudence in their own case.
Illustration: consigns perishable provisions to at Calcutta to be sent immediately to at Cuttack. If the railway lines are blocked and the provisions will spoil before reaching Cuttack, has the necessity-based authority to sell them immediately at Calcutta to preserve their value.
Great Northern Railway Co. v. Swaffield (1874) LR 9 Ex 132
Facts: A horse was sent via the railway company to a destination, but upon arrival, no one was present to receive it. The railway company had no facilities to stable animals and sent the horse to a commercial stable yard. Later, the company sought to recover the stabling charges from the owner.
Held: The court held that the railway company had acted out of a reasonable commercial necessity as an agent of necessity to preserve the animal. Thus, the company was entitled to be reimbursed for the stabling expenses.
5. Agency by Ratification (Sections 196 to 200)
Section 196 provides that where acts are done by one person on behalf of another, but without their prior knowledge or authority, the person on whose behalf the acts are performed may elect to ratify or to disown such acts. If they ratify them, the same effects will follow as if they had been performed by their prior authority.
a. Nature of Ratification (Section 197): Ratification may be express or it may be implied from the conduct of the person on whose behalf the acts are done.
Illustration: , without authority, buys goods for . Afterwards, sells them to on his own account. ’s conduct implies a valid ratification of the original purchase made by .
When Ratification is Statutorily Disallowed / Invalid:
b. Defective Knowledge (Section 198): No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.
Damodar v. Sheoram (1907) 29 All 144
Facts: An agent secretly sold his own property to the principal at an inflated price and bought the principal's asset cheaply. The principal signed a general approval without knowing these facts.
Held: The ratification was legally invalid due to the concealment of material facts by the agent.
1. Injury to Third Parties (Section 200): An act 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 be ratified to the prejudice of that third person.
Illustration: holds a lease from , terminable on three months' notice. , an unauthorized outsider, gives a notice of termination to . cannot subsequently ratify this notice to make it binding on .
2. No Partial Ratification (Section 199): Ratification of an unauthorized act done on behalf of another ratifies the whole transaction. A principal cannot cherry-pick beneficial parts while repudiating the liabilities.
3. Non-Existent Principal: The principal must be in actual legal existence and possess contractual capacity at the time the contract is executed by the agent. Promoters cannot validly ratify pre-incorporation contracts entered into before a company is legally registered.
V. Duties of an Agent to the Principal (Sections 211 to 216)
An agent owes a high degree of fiduciary responsibility and statutory duties to their principal:
1. Duty to Adhere to Principal's Directions or Trade Custom (Section 211)
An agent is bound to conduct the business of their principal according to the explicit directions given by the principal. In the absence of any directions, the agent must conform strictly to the prevailing custom of the trade at the place where the business is transacted. If the agent deviates and a loss occurs, they must make it good to the principal; if a profit is made, they must hand it over.
Illustration: , a broker, sells goods on credit to in a market where trade custom explicitly forbids selling on credit. Before paying, becomes insolvent. must make good the loss to his principal.
2. Duty to Act with Reasonable Care, Skill, and Diligence (Section 212)
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, and to act with reasonable diligence. The agent must compensate the principal for the direct consequences of their neglect, want of skill, or misconduct.
Illustration: An insurance broker () is employed by to effect insurance on a cargo ship but omits to insert standard, protective clauses in the policy. The ship is lost, and the underwriters successfully deny the claim due to the missing clauses. must make good the full loss to .
3. Duty to Render Proper Accounts (Section 213)
An agent is bound to render proper, transparent, and accurate accounts to their principal upon reasonable demand.
4. Duty to Communicate and Seek Instructions (Section 214)
It is the duty of an agent, in case of difficulty, to use all reasonable diligence in communicating with their principal and seeking to obtain their clear instructions before taking action.
5. Duty Not to Deal on Their Own Account (Sections 215 and 216)
An agent must not allow their personal interest to conflict with their duty to the principal. If an agent deals on their own account in the business of the agency without the principal's explicit prior consent and full disclosure, the principal has two statutory remedies:
a. Section 215: The principal may repudiate the transaction if the agent has concealed material facts or if the deal proves disadvantageous to the principal.
b. Section 216: The principal may claim from the agent any secret profits or benefits derived from the transaction.
Illustration: directs to buy a certain house. secretly buys the house for himself and tells it is unavailable. Upon discovery, can compel to sell the house to at the exact price originally paid for it.
6. Duty to Pay Over All Sums Received (Section 218)
Subject to any lawful deductions (such as their commission or expenses), an agent is bound to pay to their principal all sums received on the principal's account.
7. Duty Not to Delegate (Section 190)
An agent cannot lawfully employ another to perform acts which they have expressly or impliedly undertaken to perform personally. This is governed by the constitutional maxim:
"Delegatus non potest delegare" (A delegate cannot further delegate).
VI. Rights of an Agent Against the Principal
To balance their heavy statutory obligations, the Act equips the agent with specific rights to secure their financial remuneration and costs:
1. Right of Retainer (Section 217)
An agent has the right to retain, out of any sums received on account of the principal in the business of the agency, all moneys due to themselves in respect of advances made, expenses properly incurred, or remuneration due for conducting that business.
2. Right to Remuneration (Sections 219 and 220)
In the absence of a special contract, an agent's right to remuneration arises as soon as they have fully completed the task entrusted to them.
a. The Misconduct Bar (Section 220): An agent who is guilty of misconduct in the business of the agency loses their right to receive any remuneration for that specific part of the business in which they misconducted, and must make good any damage caused.
Illustration: retains to recover â‚ą1,00,000 and invest it. recovers the money, safely invests â‚ą90,000, but negligently puts â‚ą10,000 into a notoriously bad security, losing â‚ą2,000. is entitled to commission for recovering the total sum and for investing the â‚ą90,000, but receives no commission for the bad investment of â‚ą10,000 and must pay the â‚ą2,000 loss.
3. Right of Lien (Section 221)
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 them until the amount due to them for commission, disbursements, and services has been paid or accounted for. This constitutes a particular possessory lien and is lost immediately if the agent voluntarily surrenders physical possession of the items.
4. Right to Indemnification (Sections 222, 223, and 224)
a. For Lawful Acts (Section 222): The principal is bound to indemnify the agent against the consequences of all lawful acts done by the agent in exercise of the authority conferred upon them.
b. For Civil Wrongs Done in Good Faith (Section 223): Where an agent does an act at the request of the principal in good faith, without knowing it to be a civil wrong, the principal must indemnify the agent against the consequences and losses arising from that act.
Illustration: requests an auctioneer () to sell certain goods. sells them in good faith, unaware that they actually belong to . successfully sues for conversion. must fully indemnify for the damages and costs paid to .
c. The Criminal Act Bar (Section 224): Where a person employs another to do an act which is criminal, the employer is not liable to indemnify the agent against the consequences of that act, notwithstanding any express promise to the contrary.
Illustration: employs to assault and promises to pay all damages. beats and is fined by a court. is not legally liable to indemnify .
5. Right to Compensation for Injury (Section 225)
The principal must make compensation to their agent in respect of any personal injury caused to such agent by the principal’s neglect or want of skill.
Illustration: employs as a bricklayer to build a house and erects the structural scaffolding himself. Due to ’s negligent construction, the scaffolding collapses and is hurt. is legally liable to compensate .
VII. Effects of Agency on Contracts with Third Persons
Chapter X defines how actions performed via an agent flow upward to bind the principal, and when they remain anchored to the individual agent.
A. How Far the Principal is Bound
1. Acts Within Scope of Authority (Section 226)
Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner and will have the same legal consequences as if the contracts had been entered into and the acts done by the principal in person.
2. When an Agent Exceeds Authority (Sections 227 and 228)
a. Separable Acts (Section 227): When an agent does more than they are authorized to do, and the part which is within authority can be separated from the part beyond authority, only the authorized part binds the principal.
Illustration: authorizes to insure a ship for â‚ą4,000. procures a policy for â‚ą4,000 on the ship and an unauthorized second policy for â‚ą4,000 on the cargo. is bound to pay the premium only for the ship's policy.
b. Inseparable Acts (Section 228): When an agent performs acts beyond authority that cannot be separated from those within authority, the principal is not bound to recognize the transaction at all and can repudiate it entirely.
Illustration: authorizes to buy 500 sheep. buys 500 sheep and 200 lambs as a single package for â‚ą6,000. can validly reject the entire transaction.
3. Effect of Notice on the Agent (Section 229)
Any notice given to, or information obtained by, an agent in the course of the business transacted by them on behalf of the principal has the same legal consequences as if it had been given to or obtained by the principal directly.
4. Liability for Agent's Fraud or Misrepresentation (Section 238)
Misrepresentations made or frauds committed by agents acting in the course of the business for their principals have the same effect on agreements as if such misrepresentations or frauds had been made or committed by the principals. However, misrepresentations or frauds committed by agents in matters which do not fall within their authority do not affect their principals.
B. Personal Liability of the Agent (Section 230)
As an established general rule under Section 230, an agent cannot personally enforce contracts entered into by them on behalf of their principal, nor are they personally liable upon them, in the absence of a contract to that effect.
However, a contract to the contrary is statutorily presumed to exist, making the agent personally liable, in the following three specific scenarios:
1. Foreign Principal
Where the contract is made by an agent for the sale or purchase of goods for a merchant residing abroad, the law presumes the third party gave credit exclusively to the local agent, rendering the agent personally liable.
2. Undisclosed Principal
Where the agent does not disclose the name of their principal, they act as the apparent primary party to the contract.
Rights and Rules of the Undisclosed Principal Framework (Sections 231 & 232):
a. Right to Performance (Section 231): If an undisclosed principal subsequently steps forward, they can require the performance of the contract from the third party. However, the third party retains all rights and equities against the principal that they would have held against the agent.
Illustration: , who owes â‚ą500 to , sells â‚ą1,000 worth of rice to , acting secretly as an agent for . cannot compel to pay for the rice without allowing to set off the â‚ą500 debt owed by .
b. Third Party's Right to Repudiate: If the principal discloses themselves before the contract is fully completed, the third party may refuse to fulfill the contract if they can prove that they would never have entered into the deal had they known who the real principal was.
3. Incompetent Principal
Where the principal, though fully disclosed, cannot be sued. For example, if an agent signs a contract explicitly on behalf of a minor, the minor cannot be sued; hence, the law shifts absolute personal liability onto the agent to prevent the contract from becoming an illusory nullity.
4. Liability of a Pretended Agent (Section 235)
A person untruthfully pretending to act as the authorized agent of another, induces a third party to enter into a contract. If the alleged principal refuses to ratify that act, the pretended agent is bound to compensate the third party for any loss or damage suffered as a result of relying on the false representation.
VIII. Termination of an Agency (Section 201)
An agency relationship is dissolved and terminated under Section 201 through the following statutory events:
1. By Revocation: The principal revokes the agent's authority. This revocation can be express or implied by conduct (e.g., employs to sell his house, but sells it himself; this serves as an implied revocation of ’s authority).
2. By Renunciation: The agent explicitly renounces the business of the agency by giving reasonable notice to the principal.
3. By Completion of Business: The specific business venture or transaction for which the agency was formed is completely finalized (e.g., an agent hired to sell a ship ceases to be an agent once the sale deed is completed).
4. By Expiry of Time: If the agency was established for a fixed, designated duration, it expires automatically at the end of that period, regardless of whether the business is finished.
5. By Death or Insanity: The death or mental insanity of either the principal or the agent instantly dissolves the agency by operation of law.
6. By Insolvency: The principal is judicially adjudicated insolvent under the prevailing insolvency laws.
IX. Law Relating to Sub-Agents and Substituted Agents (Sections 190-195)
Q. "Delegatus non potest delegare" — Explain the Maxim. What are the Exceptions?
A. Explanation of the Maxim
The legal maxim "Delegatus non potest delegare" dictates that an individual to whom authority has been delegated cannot further delegate that power to another. An agency contract is essentially a fiduciary relationship based on personal confidence, trust, and the unique skills or integrity of the chosen agent. Section 190 incorporates this principle by stating that an agent cannot lawfully employ another to perform acts which they have undertaken to perform personally.
B. Exceptions to the Rule
An agent may validly delegate authority and appoint another person to assist them in the following circumstances:
1. Nature of the Work: When the tasks are purely ministerial or where the nature of the business inherently requires sub-delegation (e.g., an agent authorized to file a legal suit must retain a qualified advocate; a property agent must use an auctioneer).
2. Trade Custom: Where a well-established, ordinary custom or usage of that specific trade permits the appointment of a secondary assistant or sub-agent.
3. Express or Implied Consent: When the principal explicitly permits delegation within the partnership deed or contract, or where consent can be clearly inferred from the conduct of both parties.
C. Comparative Analysis: Sub-Agent vs. Substituted Agent
Feature | Sub-Agent (Section 191) | Substituted Agent (Section 194) |
Definition | A person appointed by, and acting under the control of, the original agent in the business of the agency. | A person named/appointed by the agent, under express or implied authority, to act directly for the principal. |
Privity of Contract | No privity of contract exists between the principal and the sub-agent. | Direct privity of contract is established between the principal and the substituted agent. |
Accountability | Responsible strictly to the original agent; cannot be sued directly by the principal (except in cases of fraud). | Responsible directly to the principal as an independent agent; the original agent drops out of the chain. |
Effect of Proper Appointment | The principal is represented by the sub-agent and is bound by their acts. The original agent remains liable to the principal for the sub-agent's conduct. | The agent is not responsible for the acts or negligence of the substituted agent, provided they exercised due prudence in selecting them. |
D. Statutory Liability Context
1. Proper Delegation to a Sub-Agent (Section 192)
Where a sub-agent is properly and legally appointed:
a. 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.
b. The agent is responsible to the principal for the acts of the sub-agent.
c. The sub-agent is responsible for his acts to the agent, but not to the principal, except in cases of fraud or willful wrong.
2. Improper Delegation to a Sub-Agent (Section 193)
Where an agent, without having authority to do so, appoints a person to act as a sub-agent:
a. The appointment is invalid. The principal is not represented by or bound by the acts of such a sub-agent.
b. The original agent stands fully and personally responsible for all acts of that sub-agent to both the principal and third parties.
3. Duty of the Agent in Naming a Substituted Agent (Section 195)
Under Section 194, when an agent has the authority to name a person to act for the principal, that person is a Substituted Agent (an independent agent of the principal).
Section 195 mandates that in selecting a substituted agent, the original agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case. If the agent acts with this standard of care, they bear no liability to the principal for any future negligence or default committed by that substituted agent.
Illustration: instructs , a merchant, to buy a seaworthy commercial ship for him. employs a marine surveyor of high professional reputation to inspect and select a ship. The surveyor conducts the inspection negligently, selecting an unseaworthy ship which is subsequently lost at sea. Under Section 195, is not liable to , as he used ordinary prudence in selection; the surveyor remains directly responsible to .