Agency — Creation, Authority, Sub-Agents, Substituted Agents

Chapter X of the Indian Contract Act, 1872 — Sections 182 to 238 — is the law's answer to a simple commercial reality: one person cannot do everything herself. The principal needs hands and feet in the marketplace; the agent provides them. Sections 182 to 200 lay the foundation: who is an agent, how the relation is created, what authority the agent carries, and how that authority is delegated through sub-agents and substituted agents. Read them as the entry-gate to every later question about rights, duties, personal liability and termination.

The architectural starting point is Section 182. 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 the act is done is the principal. Two limbs — doing an act or representing — and one consequence: the agent's act binds the principal as if the principal had done it himself. That consequence is the doctrine of representation, captured in the maxim qui facit per alium facit per se. Indian agency law is, at heart, a statutory codification of that maxim, refined by English common-law authority and tempered to Indian commercial conditions.

Statutory anchor — what the chapter covers

Sections 182 to 200 carve agency into four operations: creation (Sections 182–187), authority (Sections 186–189), delegation through sub-agents and substituted agents (Sections 190–195), and ratification (Sections 196–200). The later sections — 201 to 210 — deal with termination and are taken up in the dedicated chapter on termination of agency. Sections 211 to 234 deal with the mutual rights and duties of the parties, and are the subject of the companion chapter on the duties owed by agent and principal.

This chapter sits inside the wider scheme of the Indian Contract Act. Agency is not a free-standing relation; it presupposes a contract — express or implied — and remains subject to the rules on free consent, capacity to contract, and lawful object. Where the agent contracts in the principal's name, every doctrine on offer, acceptance and consideration applies — only the actor changes, not the architecture.

Who can be a principal — Section 183

Section 183 is permissive: 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. The corollary is strict — a minor cannot, in his own right, appoint an agent, because a minor cannot make a contract under Section 11. The question is intimately connected with the rule in Mohori Bibee v. Dharmodas Ghose (1903) 30 IA 114, which holds a minor's agreement to be void ab initio. A purported appointment of an agent by a minor confers no authority, and any act done in that supposed authority does not bind the minor.

Who can be an agent — Section 184

Section 184 takes the opposite view from Section 183. As between the principal and third persons, any person may become an agent — even a minor, even a person of unsound mind. The agent need not have contractual capacity to bind the principal. The reason is that the agent does not contract for himself; the contract is between the principal and the third party. The agent is merely the instrument. The second sentence of Section 184 makes the position complete: the agent who is a minor is not personally responsible to his principal for any breach of duty. The principal who chooses an incompetent agent must bear the loss.

Consideration — Section 185

Section 185 dispenses with consideration as between principal and agent. No consideration is necessary to create an agency. The provision is an explicit exception to the general consideration rule in Section 25. Why? Because the agent's remedy lies elsewhere — in the right of remuneration under Section 219, the right of indemnity under Sections 222 to 224, and the agent's lien under Section 221. The relation is supported, not by consideration in the orthodox sense, but by these statutory commercial rights.

It is worth noting that some learned authors regard the absence of consideration in Section 185 as superficial only — the agent's prospective remuneration is itself the consideration, even if it does not crystallise as a contractual demand at the moment of appointment. Whichever view one takes, the practical effect is the same: at the inception of the agency, no act, abstinence or promise need pass between principal and agent for the relation to bind.

Modes of creation

An agency may be created in one of five ways recognised by Indian law: by express appointment, by implication of conduct or relation (Section 187), by necessity, by estoppel or holding-out (the foundation of apparent authority, Section 237), and by ratification (Sections 196 to 200). The express form requires no special formality unless the agent has to execute a deed, in which case a power-of-attorney under the Powers-of-Attorney Act, 1882 is needed. An implied appointment is inferred from circumstances — for example, a wife living with her husband is presumed to have authority to pledge his credit for necessaries suitable to their station in life, a doctrine traceable to Debenham v. Mellon (1880) 6 App Cas 24 and consistently applied by Indian courts.

Agency by necessity arises where a person is entrusted with another's property, an emergency arises, the agent cannot communicate with the principal, and the act done is in the principal's interest. The classic illustration is the master of a ship selling perishable cargo at an intermediate port. The doctrine is narrow — it does not extend to merely convenient action. Indian courts apply it cautiously.

Express and implied authority — Sections 186 and 187

Section 186 says the authority of an agent may be express or implied. Section 187 defines both. Express authority is given by words, spoken or written. Implied authority is inferred from the circumstances of the case — including the ordinary course of dealing and the position the principal has placed the agent in. Section 188 widens the implied authority to include every lawful thing necessary to do the act for which the agent was appointed, and every lawful thing usually done in the course of conducting the business — provided always that the act is within the scope of the appointment. Section 189 carves out the special agency of necessity in emergencies.

Apparent (ostensible) authority

The doctrine of apparent authority — sometimes called ostensible authority — is the most exam-relevant strand. It operates not as an extension of actual authority but as an estoppel. The principal, by his words or conduct, holds out X as authorised; the third party deals with X on that footing; the principal cannot then disclaim the act. The leading authority is Pole v Leask (1863) 33 LJ Ch 155, where Lord Cranworth drew the distinction in classical form: real authority is what the principal has actually conferred; apparent authority is what he has allowed the world to suppose he has conferred. Watteau v Fenwick (1893) 1 QB 346 took the doctrine a step further — an undisclosed principal was held bound by his manager's act of ordering cigars, even though the principal had expressly forbidden it, because the act was within the usual authority of a manager of such a business. The Indian Supreme Court applied the principle in Loon Karan Sethiya v. Ivan E. John AIR 1969 SC 73, holding that apparent authority binds the principal as against a third party who has dealt in good faith and on the strength of the holding-out.

For the third party to invoke apparent authority three conditions must be satisfied: (i) a representation by the principal — by words, conduct or course of dealing — that the agent has authority; (ii) reliance on that representation; and (iii) absence of knowledge in the third party that the agent's actual authority is limited. Where the third party knew of the limit, the estoppel collapses.

Classes of agent

The Act does not classify agents, but the working classification — derived from commercial usage and accepted by Indian courts — runs along five axes. First, on the basis of authority: general agents, who carry authority to act in all matters of a particular kind, and special agents, appointed for one particular act. The distinction matters because a third party dealing with a general agent is entitled to assume that the agent has the usual authority of agents of his class; a third party dealing with a special agent assumes the risk of any limit on the special authority. Second, on the basis of remuneration: gratuitous and paid. A gratuitous agent owes the same fiduciary obligations as a paid one — only the standard of skill is reduced to that which he in fact possesses. Third, on the basis of disclosure: agents of disclosed and undisclosed principals; the difference governs who can sue and be sued under Sections 226 to 234.

Fourth, on the basis of trade: factors, brokers, auctioneers, commission agents, and del credere agents. A factor is entrusted with possession of the principal's goods for sale and has implied authority to sell in his own name; a broker negotiates contracts in the principal's name without taking possession; an auctioneer sells by public competition and is the seller's agent until the fall of the hammer, the buyer's thereafter for the limited purpose of signing a memorandum. The del credere agent is a peculiar species — for an extra commission he guarantees the solvency of the third party with whom he deals on his principal's behalf, and steps into a surety-like position if the third party defaults; his guarantee, however, is limited to the third party's solvency, not to performance generally. The fifth axis is the mercantile agent — defined under Section 2(9) of the Sale of Goods Act, 1930 as one having authority either to sell goods, to consign for the purpose of sale, to buy, or to raise money on the security of goods. Where the doctrine of consent intersects with the mercantile-agent rule under Section 27 of the Sale of Goods Act, a buyer in good faith from a mercantile agent in possession may acquire a good title even against the true owner.

Sub-agent — Sections 190 to 193

Section 190 enacts the cardinal rule: delegatus non potest delegare. An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally — unless the ordinary custom of trade permits delegation, or the nature of the agency requires it. Section 191 defines a sub-agent as a person employed by, and acting under the control of, the original agent in the business of the agency. The sub-agent's relationship is with the agent, not the principal. The principal-sub-agent line is broken — there is no privity.

Section 192 then makes a careful exception. Where a sub-agent is properly appointed (i.e., delegation was permitted), the principal is, as regards third persons, represented by the sub-agent and is bound by his acts as if he were an agent originally appointed by the principal. The agent is responsible to the principal for the sub-agent's acts. The sub-agent is responsible only to the agent — except in cases of fraud or wilful wrong, where the sub-agent is also liable to the principal. Section 193 governs improper appointment: where a sub-agent is appointed without authority, the principal is not bound, the agent is responsible both to the principal and to the third party for the sub-agent's acts, and the sub-agent has no relation with the principal at all.

Substituted agent — Sections 194 and 195

The substituted agent must not be confused with the sub-agent — an error the examiner reliably exploits. Section 194 deals with the case where the agent has, expressly or impliedly, authority to name another person to act for the principal in the business of the agency. The person so named is not a sub-agent: he is an agent of the principal himself for the part of the business so entrusted. He stands in direct privity with the principal. Section 195 imposes on the agent the duty to take reasonable care in selecting such a substituted agent. The agent is not responsible for the substituted agent's acts of negligence — only for negligence in his own choice.

Two consequences flow. First, the principal can sue and be sued by the substituted agent directly; the substituted agent answers to the principal for his work. Second, where the agent has merely delegated execution to a person under his own control, the relationship is sub-agency under Section 191; the principal has no direct claim except for fraud or wilful wrong under Section 192.

Ratification — Sections 196 to 200

Where acts are done by one person on behalf of another but without his knowledge or authority, the principal may, under Section 196, elect to ratify or to disown such acts. Ratification has the effect that the act is treated as if originally authorised. The doctrine is narrow. Section 197 requires ratification to be express or implied in the conduct of the person on whose behalf the act was done. Section 198 conditions valid ratification on knowledge of all material facts. Section 199 makes ratification of a part operate as ratification of the whole transaction. Section 200 is the limit — an act done by one person on behalf of another 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.

Three pre-conditions for valid ratification, drawn together from these sections: (i) the act must be done on behalf of the principal — not in the actor's own name; (ii) the principal must be in existence and competent at the time of the act and at the time of ratification; and (iii) the principal must have full knowledge of material facts. The classic illustration is Keighley, Maxsted & Co. v Durant (1901) AC 240 — an undisclosed principal cannot ratify an act done by an agent who, at the time of contracting, did not disclose he was acting for him. The act must wear the principal's name on its face, even if the name is concealed; if it does not, the principal cannot adopt it later.

Sub-agent versus substituted agent — the distinction in one table

The cleanest way to fix the difference is by privity. Sub-agent (Section 191): no privity with the principal except for fraud (Section 192). Substituted agent (Section 194): full privity with the principal. Sub-agent is appointed by the agent to work under the agent's control. Substituted agent is named by the agent — under authority — to act for the principal in part of the business. The agent's responsibility for the sub-agent is full (Section 192); for the substituted agent, only for due care in selection (Section 195). Mark this distinction in red — it surfaces in nearly every judicial-services paper that touches agency.

Where this chapter sits

Once the agency is created and authority defined, the next questions are about performance and breach: the agent's duties of obedience, skill, account and avoidance of conflict; the principal's duties of remuneration and indemnity; and the personal liability of the agent under Sections 230 to 234. The relationship comes to an end through the modes set out in Sections 201 to 210, including the doctrine of agency coupled with interest as an exception to revocability. Cognate concepts — indemnity, guarantee, bailment and pledge — appear earlier in Chapters VIII and IX of the Act and inform the agency relationship at many points (an agent in possession of the principal's goods is, simultaneously, a bailee, and the rules of quasi-contract may step in where the agent has been unjustly enriched at the principal's expense).

The pattern of suit and defence in agency disputes turns crucially on the act of contracting. If the agent named the principal, the principal sues and is sued. If the agent contracted in his own name without disclosing the principal, the third party may sue the agent on the contract; once the principal is discovered, the third party may sue either, but recovery is in the alternative. If the principal was undisclosed and the third party knew nothing of him, the principal may sue on the contract, but the third party retains every defence (set-off, payment, equities) he had against the agent. These positions, governed by Sections 226 to 232 and explored in detail in the companion chapter on rights and duties under Sections 211 to 234, follow logically from the architecture established here.

Exam angle

Five propositions are reliably tested. One: a minor cannot appoint an agent (Section 183) but a minor may be an agent (Section 184). Two: consideration is not required to create agency (Section 185). Three: apparent authority binds the principal as against a third party who relied without notice — Loon Karan Sethiya. Four: sub-agent (Section 191) lacks privity with the principal except for fraud; substituted agent (Section 194) has full privity. Five: ratification under Section 196 requires acts done in the principal's name, on his behalf, with the principal in existence and competent, and with full knowledge of material facts; an undisclosed principal cannot ratify. Anchor each proposition to its section number — the examiner rewards the citation, not the paraphrase.

A sixth, increasingly tested, proposition is the line between the agent and the independent contractor. The agent represents the principal in dealings with third persons; the independent contractor merely produces a result for the employer. The control test, the right-to-bind test, and the fiduciary test together separate the two. A solicitor instructed to file a suit is an agent; a builder engaged to construct a house is not. The classification matters because the doctrines of vicarious liability, ratification and apparent authority operate only inside the agency relation. Where the parties have used the language of agency but the substance is that of independent contracting, courts pierce the label. Conversely, the absence of the word agent in a written instrument does not preclude an agency relation if the substance — control, representation, fiduciary obligation — is present.

The seventh testable corner is the position of partners under Section 18 of the Indian Partnership Act, 1932 — every partner is the agent of the firm for the purpose of the business of the firm. Reading that provision back into Sections 186 to 188 helps explain why a partner's act in the usual course binds the firm even where the other partners have not consented. The same logic — usual authority of the position — explains why a director's signature on a negotiable instrument issued in the company's name binds the company, why a manager's order for stock binds his employer, and why the doctrine of indoor management protects the outsider who deals with a person held out as authorised. The Indian agency framework is thin in length but wide in reach: every commercial relation that involves one person acting for another finds its grammar somewhere in Sections 182 to 200.

Frequently asked questions

What is the difference between a sub-agent and a substituted agent under the Indian Contract Act?

The distinction is one of privity. A sub-agent under Section 191 is employed by, and acts under the control of, the original agent; he has no privity with the principal except in cases of fraud or wilful wrong, where Section 192 makes him directly liable to the principal. A substituted agent under Section 194 is named by the agent — under express or implied authority — to act for the principal in part of the business of the agency. He stands in direct privity with the principal, who can sue and be sued by him. The agent's duty in respect of a substituted agent is limited to taking reasonable care in selection (Section 195); for a sub-agent, the agent is fully responsible to the principal under Section 192.

Can a minor appoint an agent under the Indian Contract Act, 1872?

No. Section 183 requires the principal to be of the age of majority and of sound mind. A minor's agreement is void ab initio under the rule in Mohori Bibee v. Dharmodas Ghose (1903) 30 IA 114, and a purported appointment of an agent by a minor confers no authority. Curiously, the law is permissive in the other direction. Section 184 allows a minor to be an agent — because the agent does not contract for himself but merely as the conduit for the principal. The minor-agent is not personally responsible to his principal for breach of duty, and the principal who chooses an incompetent agent must bear the loss.

What is apparent or ostensible authority and when does it bind the principal?

Apparent authority operates as an estoppel. Where the principal, by his words or conduct, has held out a person as authorised to act on his behalf, and a third party has dealt with that person on the strength of the holding-out, the principal is bound — even though the agent had no actual authority. Three conditions must be satisfied: a representation by the principal of authority; reliance by the third party; and absence of knowledge in the third party of any limit on the actual authority. The doctrine was formulated in Pole v Leask (1863), extended in Watteau v Fenwick (1893), and applied by the Supreme Court in Loon Karan Sethiya v. Ivan E. John AIR 1969 SC 73.

Is consideration necessary to create a contract of agency?

No. Section 185 of the Indian Contract Act provides expressly that no consideration is necessary to create an agency. This is a statutory exception to the general consideration rule in Section 25. The reason is that the agent's commercial interests are protected through other statutory rights — the right of remuneration under Section 219, the right of indemnity under Sections 222 to 224, and the agent's lien on the principal's goods under Section 221. These rights, combined with the agent's claim against the principal for any sums actually advanced, supply the commercial framework in which the agency relation operates without the need for traditional consideration.

Can an undisclosed principal ratify an unauthorised act done by his agent?

No. The act must be done in the principal's name, or at least on his behalf, on the face of the transaction. The classical statement is in Keighley, Maxsted & Co. v Durant (1901) AC 240, where the House of Lords held that an undisclosed principal cannot ratify a contract made by an agent who, at the time of contracting, did not disclose that he was acting for the principal. The principle is reflected in Sections 196 to 200 of the Indian Contract Act. Ratification under Section 196 requires the principal to be a person on whose behalf the act was avowedly done; ratification under Section 198 requires full knowledge of material facts; and Section 200 forbids ratification of an act that would prejudice a third person's right or subject him to damages.