Agency under the Indian Contract Act, 1872: Creation and Capacity, the Extent of the Agent's Authority, Delegation and Sub-Agency, Termination, and the Duties and Rights of the Agent

Agency is the relationship by which one person is enabled to bring another into legal relations with third parties. Chapter X is the longest in the Act, fifty-seven sections, and it divides naturally into four parts: how an agency is created and who may be a party to it; how far the agent's authority extends and whether he may delegate it; how the agency comes to an end; and the duties and rights as between principal and agent. The fifth part, dealings with third parties, and the doctrine of ratification, are developed in their own topics, and the map at the end shows where each question is answered.

1. Definition, Capacity and Consideration

Sections 182 to 185, Indian Contract Act, 1872

182. Agent and principal defined. 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.

183. Who may employ agent. 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.

184. Who may be an agent. 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.

185. Consideration not necessary. No consideration is necessary to create an agency.

⚠ A minor may be an agent but incurs no liability to his principal

Sections 183 and 184 do different things and the difference is easily missed. Section 183 requires the principal to be of the age of majority and of sound mind, because he is the person who will be bound. Section 184 permits any person to be an agent as between the principal and third persons, so a minor can bind his principal and the third party is perfectly safe. What the minor cannot do is become responsible to his principal for negligence or breach of duty, since that would be to impose contractual liability on a person incapable of contracting. A principal who employs a minor therefore takes the risk of his agent's defaults with no recourse.

2. Creation of Agency

Mode	How it arises	Provision
Express agreement	By words, spoken or written; no particular form is required	Section 186
Implied agreement	From the conduct of the parties, or from the circumstances of the case, including the relationship between them	Sections 186 and 187
Agency by estoppel or holding out	The principal's words or conduct induce a third person to believe the acts were within the agent's authority	Section 237
Agency of necessity	A person in possession of another's goods acts to preserve them in an emergency, being unable to communicate with the owner	Section 189, and the general law
Ratification	An unauthorised act done on another's behalf is adopted afterwards	Sections 196 to 200
Presumed agency between spouses	A wife living with her husband is presumed to have authority to pledge his credit for necessaries suitable to their condition, rebuttable by the husband	General law, applying Section 187

3. The Extent of the Agent's Authority

Sections 186 to 189, Indian Contract Act, 1872, in substance

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

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; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.

188. Extent of agent's authority. An agent having authority to do an act has authority to do every lawful thing which is necessary in order to do such act. An agent having 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.

189. Agent's authority in an emergency. An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.

3.1 The kinds of authority

Express authority, conferred in words, which is the starting point and the measure against which everything else is judged.
Implied authority, inferred from the circumstances, the course of dealing or the relationship, under Section 187.
Incidental authority, under the first limb of Section 188: the authority to do everything lawful and necessary to accomplish the act expressly authorised.
Usual or customary authority, under the second limb of Section 188: the authority to do everything usually done in the conduct of a business the agent is authorised to carry on.
Emergency authority, under Section 189, which permits an agent to act beyond his authority to protect the principal from loss where the situation is genuinely urgent and instructions cannot be obtained.
Apparent or ostensible authority, which is not authority at all but an estoppel, considered below.

3.2 Actual and apparent authority

📖 Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd., [1964] 2 QB 480 (CA)

Facts: A director of a property company, though never formally appointed managing director, acted as such with the board's knowledge and acquiescence. He engaged a firm of architects on the company's behalf. The company refused to pay their fees, contending that he had no authority to engage them.

Held: The company was bound. Diplock LJ set out the four conditions for apparent authority. There must be a representation that the agent had authority to enter into the contract; the representation must be made by a person or persons who had actual authority to manage the business, either generally or in respect of the matter; the contractor must have been induced by the representation to enter into the contract, that is he must have relied on it; and the company must have had the capacity to enter into the contract and to delegate authority for it. The board having permitted the director to act as managing director, the company had represented that he had the authority usual for that office.

Ratio: Apparent authority rests on a representation by the principal, made by someone with actual authority, relied on by the third party. It binds the principal even where the agent had no actual authority at all.

📖 Panorama Developments (Guildford) Ltd. v. Fidelis Furnishing Fabrics Ltd., [1971] 2 QB 711 (CA)

Facts: A company secretary hired cars from a hire company, ostensibly for the company's business, and used them for his own purposes. The company refused to pay, contending that a secretary has no authority to make such contracts.

Held: The company was liable. A company secretary is no longer a mere clerk; he is an officer with extensive duties and responsibilities, and he has ostensible authority to make contracts in connection with the administrative side of the company's affairs, such as hiring cars and engaging staff. The company was bound by contracts of that kind even though the secretary was in fact acting fraudulently for his own purposes.

Ratio: The ostensible authority of an officer is determined by what is usual for a person holding that position. A principal is bound by acts within that usual authority even where the agent acted fraudulently for his own benefit.

	Actual authority	Apparent or ostensible authority
Source	The agreement between principal and agent, express or implied	A representation by the principal to the third party
To whom it is addressed	The agent	The third party
Does the agent have real power?	Yes	No; the principal is merely precluded from denying it
Effect of a private limitation	It binds the agent and limits his actual authority	It does not affect the third party unless he knew of it
Statutory basis	Sections 186 to 189	Section 237
Remedy of the principal	Against the agent for exceeding his authority	Against the agent, the principal being bound to the third party

Three sources of authority, and what each gives the agent

4. Delegation and Sub-Agency

The starting point is the maxim delegatus non potest delegare: an agent, having been selected for his personal skill and trusted by his principal, cannot pass that trust to another. Section 190 states the rule and its exceptions: 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 be employed, or the nature of the agency so requires.

The ordinary custom of trade, as where a banker or a broker customarily employs correspondents.
The nature of the agency, where the work cannot be done by one person alone.
The principal's express or implied consent, which is the clearest case.
Ministerial acts, which involve no discretion or personal skill and may always be delegated.
Emergency, where delegation becomes necessary to protect the principal from loss.

	Sub-agent, Sections 191 to 193	Substituted agent, Sections 194 and 195
Who appoints	The agent, acting under his own control	The agent, but acting under an express or implied authority from the principal to name a person
Under whose control	The original agent's	The principal's
Privity with the principal	None, except in cases of fraud or wilful wrong	Direct privity; he is the principal's agent
Who is responsible to the principal for his acts	The agent, who is responsible for the sub-agent's acts to the principal, where the sub-agent was properly appointed	The substituted agent himself
Effect of a proper appointment	Section 192: the principal is bound by and responsible for the sub-agent's acts as if he were an agent originally appointed by the principal	Section 194: the substituted agent is the principal's agent for that part of the business
Effect of an improper appointment	Section 193: the agent stands towards the sub-agent in the relation of principal, is responsible to the principal and to third persons for his acts, and the principal is not represented by or responsible for him	Not applicable
The agent's duty in selecting	He remains responsible for the sub-agent's acts	Section 195: he must exercise the same amount of discretion as a man of ordinary prudence, and is not responsible for the substituted agent's acts or negligence if he does

5. Duties of the Agent

To follow the principal's directions, and in their absence the custom of the business. Section 211 makes the agent liable to make good any loss caused by departing from them, and requires him to account for any profit that results.
To act with skill and diligence. Section 212 requires the agent to conduct the business with as much skill as is generally possessed by persons engaged in similar business, unless the principal knew of his want of skill, and to compensate the principal for the direct consequences of his own neglect, want of skill or misconduct.
To render proper accounts on demand, under Section 213.
To communicate with the principal. Section 214 requires the agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal and in seeking to obtain his instructions.
Not to deal on his own account. Section 215 makes the transaction voidable at the principal's option where the agent deals on his own account without the principal's consent and without acquainting him with all material circumstances. Section 216 entitles the principal to claim from the agent any benefit which may have resulted to him from such a transaction.
Not to make a secret profit, which follows from Sections 215 and 216 and from the fiduciary character of the relationship. The principal may recover the profit, dismiss the agent and refuse remuneration.
To pay over sums received, under Section 218, subject to the agent's right of deduction under Section 217.
Not to delegate, save as Section 190 permits.

6. Rights of the Agent

Right	Content	Provision
Retainer	To retain, out of sums received on the principal's account, his remuneration and the advances and expenses properly incurred	Section 217
Remuneration	To be paid as agreed; in the absence of a special contract, remuneration becomes due when the act is completed	Sections 219 and 220
No remuneration for misconduct	An agent guilty of misconduct is not entitled to remuneration in respect of that part of the business which he has misconducted	Section 220
Lien	To retain the goods, papers and other property, movable or immovable, of the principal until the amount due to him for commission, disbursements and services has been paid, in the absence of a contract to the contrary	Section 221
Indemnity for lawful acts	The employer of an agent is bound to indemnify him against the consequences of all lawful acts done in the exercise of the authority conferred	Section 222
Indemnity for acts in good faith	Where the agent acts in good faith, the employer is liable to indemnify him against the consequences of that act, though it causes an injury to the rights of third persons	Section 223
No indemnity for criminal acts	The employer is not liable for acts which are criminal, and such an agreement to indemnify is not enforceable, whether express or implied	Section 224
Compensation for the principal's neglect	The principal must make compensation to his agent for injury caused by the principal's own want of skill or neglect	Section 225

7. Termination of Agency

Sections 201 to 203, Indian Contract Act, 1872, in substance

201. Termination of agency. 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.

202. Termination of agency where agent has an interest in the subject matter. 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.

203. When principal may revoke agent's authority. 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.

Section 204 prevents revocation as regards acts and obligations already arising from acts already done in the agency.
Section 205 entitles the agent, where the agency is for a fixed period, to compensation for any previous revocation or renunciation without sufficient cause, and the principal is entitled to the same on a renunciation by the agent.
Section 206 requires reasonable notice of revocation or renunciation, failing which the party is liable for the resulting damage.
Section 207 permits revocation or renunciation to be express or implied from conduct.
Section 208 provides that the termination takes effect as regards the agent when it becomes known to him, and as regards third persons when it becomes known to them.
Section 209 requires the agent, on the principal's death or unsoundness of mind, to take reasonable steps to protect the interests entrusted to him, on behalf of the representatives of the late principal.
Section 210 provides that the termination of the agent's authority terminates the authority of the sub-agent appointed by him.

⚠ Agency coupled with an interest is irrevocable, but the interest must be real

Section 202 protects an agent who has an interest in the property forming the subject matter of the agency, and such an agency cannot be terminated to the prejudice of that interest. Two limits apply. The interest must be in the subject matter itself, and an interest merely in the remuneration the agency will generate is not enough; every agent has that. And the interest must have existed when the authority was given, as part of the arrangement, and not have been acquired afterwards. Where the section applies, the agency survives even the principal's death, and Section 203 expressly yields to it.

8. A Map of Chapter X

Question	Provisions	Where it is developed
What is agency, who may be a party, and is consideration needed?	Sections 182 to 185	This topic
How is an agency created?	Sections 186, 187 and 237	This topic
How far does the agent's authority extend?	Sections 188 and 189	This topic
May the agent delegate?	Sections 190 to 195	This topic
Can an unauthorised act be adopted afterwards?	Sections 196 to 200	Ratification
How does the agency end?	Sections 201 to 210	This topic
What does the agent owe the principal?	Sections 211 to 218	This topic
What can the agent claim?	Sections 217 to 225	This topic
When is the principal bound to third parties?	Sections 226 to 238	Principal and Third Parties

9. The Position Stated Shortly

Section 182 defines an agent as a person employed to do any act for another or to represent him in dealings with third persons.
Section 183 requires the principal to be of the age of majority and of sound mind; Section 184 permits any person to be an agent as between principal and third parties.
A minor may bind his principal but incurs no liability to him.
Section 185 dispenses with consideration for the creation of an agency.
Section 188 gives incidental authority to do what is necessary, and usual authority to do what is ordinarily done in conducting the business.
Section 189 confers emergency authority to protect the principal from loss, judged by the standard of a person of ordinary prudence.
Freeman & Lockyer states the four conditions of apparent authority: representation, by someone with actual authority, relied on, within the principal's capacity.
Panorama Developments: an officer's ostensible authority is what is usual for that position, and binds the principal even where the agent acted fraudulently.
Section 190 states delegatus non potest delegare, subject to custom, the nature of the agency, consent, ministerial acts and emergency.
A sub-agent is under the agent's control with no privity with the principal; a substituted agent is the principal's own agent, and Section 195 confines the agent's duty to exercising ordinary prudence in the selection.
Sections 211 to 218 set out the agent's duties, including the fiduciary duties in Sections 215 and 216.
Sections 217 to 225 set out his rights, including the lien in Section 221 and the indemnities in Sections 222 and 223, but not for criminal acts under Section 224.
Sections 201 to 210 govern termination, and Section 202 makes an agency coupled with an interest in the subject matter irrevocable to the prejudice of that interest.

10. Related Topics and Provisions

Topic or provision	Connection
Ratification under Sections 196 to 200	Adoption of unauthorised acts
Principal and Third Parties under Sections 226 to 238	When the principal is bound, and the undisclosed principal
Bailment Distinguished from Sale, Licence, Pledge and Agency	Agent and bailee compared
Pledge under Sections 172 to 179	Pledge by a mercantile agent under Section 178
Sections 182 to 195, Indian Contract Act	Creation, authority and delegation
Sections 201 to 210, Indian Contract Act	Termination
Sections 211 to 225, Indian Contract Act	Duties and rights of the agent
Section 237, Indian Contract Act	Agency by estoppel and holding out