Unit 2: Agency:

• 2.1 Definitions of Agent and Principal; General rules of Agency; Test of Agency; Difference between (i) Agent and Servant (ii) Agent and Independent Contractor

• 2.2 Who may employ Agent? Who may be an Agent? No consideration is necessary; Kinds of Agent; Creation of Agency; Extent of Agent’s Authority; Delegation of Authority;

• 2.3 Rights and Duties of Agent and Principal, Liability of Principal and Agent

• 2.4 Termination of Agency – By acts of parties; By operation of Law; when termination of Agency takes Effect; Irrevocable Agency

Unit 2: Law of Agency

1. The “Plain English” Intro

Agency is a legal relationship where one person (the Agent) is authorized to act on behalf of another (the Principal) to create legal relations with third parties. Whatever the Agent does within their authority, the law treats as if the Principal did it themselves.

2. Day-to-Day Analogy

Imagine you want to sell your house but are too busy to meet buyers. You hire a Real Estate Agent. When that agent signs a deal with a buyer on your behalf, you are bound to sell the house, even though you weren’t in the room. The agent isn’t buying the house; they are just the “legal bridge” between you and the buyer.

3. The Legal Backbone

Section (Indian Contract Act)	What it says in Simple Terms
Section 182	Definitions: An Agent is a person employed to do any act for another; the Principal is the person for whom such act is done.
Section 183	Who may employ: Any person who is of the age of majority (18+) and of sound mind.
Section 184	Who may be an Agent: Anyone can be an agent (even a minor), but a person without capacity cannot be responsible to their principal.
Section 185	Consideration: No consideration is necessary to create an agency.
Section 188	Extent of Authority: An agent has the authority to do every lawful thing necessary to carry out the job.
Section 190	Delegation: Delegatus non potest delegare—An agent cannot usually delegate their work to someone else unless allowed.
Section 201	Termination: Agency ends if the principal revokes it, the agent renounces it, or if either party dies or becomes insane.

4. The “Checklist” (Essentials)

The Test of Agency:

• Does the person have the capacity to bind the Principal to a third party?
• Is there an intention to act on behalf of the Principal?
• Does the Principal accept the legal consequences of the person’s acts?

Methods of Creating Agency:

• Express Agreement: Written or spoken words.
• Implied Agency: Arising from circumstances or conduct.
• Ratification: Confirming an act done by someone without prior authority.
• Necessity: Acting to save the Principal’s property in an emergency.

5. Landmark Case Laws (The Story Method)

Chairman, L.I.C. v. Rajiv Kumar Bhaskar (2005)

• The Conflict: An employer agreed to deduct insurance premiums from employees’ salaries and send them to LIC. The employer failed to pay, and the employee’s policy lapsed. LIC claimed the employer was not their “agent.”
• The Verdict: The Supreme Court held that an agency existed by conduct. The employer was acting as an agent for LIC for the collection of premiums, so LIC was liable for the employer’s negligence.

De Bussche v. Alt (1878)

• The Conflict: An agent was hired to sell a ship for a minimum price. He couldn’t find a buyer, so he appointed a “sub-agent” without permission. The sub-agent eventually bought the ship himself and sold it later for a higher profit.
• The Verdict: The court emphasized the rule against Delegation. An agent cannot delegate authority involving personal trust or skill unless there is an express or implied agreement to do so.

6. Comparison Table: Agent vs. Servant

Feature	Agent	Servant
Control	Guided by the Principal’s instructions but has discretion.	Under the direct control and supervision of the Master.
Legal Relation	Can create legal relations between the Principal and 3rd parties.	Cannot usually create legal relations for the Master.
Scope	Authorized to represent the Principal in business.	Employed to perform physical or technical tasks.

7. Visual Flowchart Description

1. Creation: Principal appoints Agent (no money needed to start).
2. Execution: Agent performs an act within their Authority.
3. Result: A Binding Contract is formed directly between the Principal and the Third Party.
4. Termination: Relationship ends by Act of Parties (revocation) or Operation of Law (death/insanity).

8. Exam “Golden Key”

Latin Maxim: Qui facit per alium facit per se (He who acts through another, acts himself). This is the bedrock of agency law. Use this to explain that the Principal is liable for the Agent’s acts because, in the eyes of the law, the Principal is the one performing the act.

Master Tip: Remember Irrevocable Agency. If an Agent has a personal financial interest in the subject matter (e.g., the Principal owes the Agent money and gives him authority to sell a car to recover that debt), the Principal cannot terminate the agency to the Agent’s prejudice!