Agency — Duties, Ratification, Termination & Third Parties — Contract II (Special Contracts) Notes

Rights and Duties of an Agent

An agent wields the principal’s legal power, so the law demands loyalty in return: follow instructions, use skill, make no secret profit. In 2023 an exam problem asked about an agent who lost a debt through his own carelessness and still wanted his fee — the answer lies squarely in the agent’s duty of skill and the forfeiture of remuneration.

What are an agent’s duties and rights?

Because the agent handles the principal’s affairs, his duties are strict and his rights are the return for faithful service. Two lists.

Duties of the agent.

• To follow the principal’s directions (s.211). Conduct the business according to the principal’s directions, or in their absence according to the custom of the trade; loss from disobedience is the agent’s.
• To act with skill and diligence (s.212). Use as much skill as is generally possessed by persons in the business, and act diligently; he is liable for loss from want of skill or negligence.
• To render accounts (s.213). Keep and render proper accounts to the principal on demand.
• To communicate (s.214). In difficulty, use all reasonable diligence to communicate with the principal and seek instructions.
• Not to make a secret profit (ss.215–216). Not to deal on his own account without the principal’s consent; if he does, the principal may repudiate the transaction (s.215) and claim any secret profit made (s.216).
• Not to delegate (s.190) — delegatus non potest delegare (a delegate cannot delegate), except as allowed (Topic 6).
• To pay over sums received for the principal, and on termination to protect the principal’s interest.

Rights of the agent.

• Right to remuneration (ss.219–220). To receive the agreed remuneration when the act is complete; but an agent guilty of misconduct in the business is not entitled to remuneration for the transaction he misconducted (s.220).
• Right of retainer (s.217) — to retain, out of sums received, his remuneration and expenses.
• Right of lien (s.221) — to retain the principal’s goods/papers until his dues are paid (Topic 10).
• Right of indemnity (ss.222–223) — to be indemnified against consequences of lawful acts and of acts done in good faith.
• Right to compensation (s.225) for injury caused by the principal’s neglect or want of skill.

🧩 WORKED EXAMPLE — negligent agent claiming his fee

Facts. P employs A to recover a debt from D. Through A’s negligence (he lets the limitation period expire), the debt becomes irrecoverable. A nevertheless claims his commission.

Rule. Under s.212 an agent must act with reasonable skill and diligence; under s.220 an agent guilty of misconduct/negligence in the business is not entitled to remuneration for that transaction, and under s.212 is liable for the resulting loss.

Apply. A’s negligence caused the loss of the debt; the transaction was misconducted.

Conclusion. A cannot claim remuneration for it, and is liable to P for the lost debt.

Section 220, Indian Contract Act 1872: “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 which he has misconducted.”

In Simple Terms: An agent must obey instructions, work with skill, keep accounts, communicate, and never pocket a secret profit. In return he gets remuneration, retainer, lien, indemnity and compensation — but misconduct forfeits his fee for that job and makes him pay for the loss.

flowchart TD
    A["Agent"]
    A --> B["Duties"]
    B --> B1["Follow directions s.211"]
    B --> B2["Skill & diligence s.212"]
    B --> B3["Render accounts s.213"]
    B --> B4["Communicate s.214"]
    B --> B5["No secret profit ss.215-216"]
    A --> C["Rights"]
    C --> C1["Remuneration ss.219-220"]
    C --> C2["Retainer s.217"]
    C --> C3["Lien s.221"]
    C --> C4["Indemnity ss.222-223"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,B1,B2,B3,B4,B5,C1,C2,C3,C4 box;

Case Laws

• Pannalal v. Padmavati (1960) — an agent who makes a secret profit must account for it to the principal.
• De Bussche v. Alt (1878) — an agent who buys the principal’s goods for himself, or sells his own to the principal, without disclosure, breaches the no-secret-profit/self-dealing rule.

Back to Top

Agency by Ratification

Someone acts in your name without your permission — buys goods “for you” from a dealer. You could disown it. But if the deal is good, you might adopt it. The moment you do, the law treats it as though you authorised it from the start. That backdating is the whole doctrine of ratification.

What is agency by ratification?

Ratification is the adoption, by a principal, of an unauthorised act done on his behalf. Once ratified, the act binds the principal as if it had been authorised originally (the doctrine relates back to the time of the act).

Section 196 states it: where acts are done by one person on behalf of another without his knowledge or authority, that other may elect to ratify or to disown them; if he ratifies, the same effects follow as if the acts had been done with his authority.

Essentials of a valid ratification — the examinable list:

• The act must be done on behalf of the principal. The agent must have professed to act for the principal, not for himself (Keighley Maxsted v. Durant).
• The principal must have been in existence and competent at the time of the act (so a company cannot ratify a pre-incorporation contract).
• The principal must have contractual capacity both at the time of the act and at ratification.
• Full knowledge of material facts (s.198). Ratification is not valid if the person ratifying had not full knowledge of the facts, unless he ratifies taking the risk.
• Ratification of the whole transaction (s.199). A person ratifying a part of an unauthorised act ratifies the whole — he cannot adopt the good bits and reject the rest.
• The act must be lawful — a void or illegal act cannot be ratified.
• Within a reasonable time, and before the third party withdraws; and it must not injure a third person (s.200).

🧩 WORKED EXAMPLE — adopting an unauthorised purchase

Facts. B, without authority, buys 500 bags of rice from D “on P’s behalf” at a good price. Prices rise. P learns the full facts and tells D he adopts the purchase.

Rule. Under ss.196–199, a principal may ratify an unauthorised act done on his behalf if he has full knowledge (s.198) and ratifies the whole (s.199); ratification relates back to the date of the act.

Apply. B professed to act for P; P was in existence and competent; P ratified with full knowledge and adopted the entire purchase.

Conclusion. The purchase binds P and D as if authorised from the start.

Section 197, Indian Contract Act 1872: “Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.”

In Simple Terms: If someone acts in your name without authority, you can adopt it. Once you do — with full knowledge, for the whole deal, while competent — it binds you as if you had authorised it from the beginning.

flowchart TD
    A["Unauthorised act on P's behalf"]
    A --> B["P elects s.196"]
    B --> C["Disown"]
    B --> D["Ratify"]
    D --> E["Essentials: on P's behalf,<br/>P in existence & competent,<br/>full knowledge s.198,<br/>whole transaction s.199,<br/>lawful, reasonable time s.200"]
    E --> F["Binds P as if authorised<br/>(relates back)"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,D,E,F box;

Case Laws

• [C-5] Keighley, Maxsted & Co. v. Durant (1901) — an undisclosed principal cannot ratify; the act must have been done professedly on the principal’s behalf.
• Bolton Partners v. Lambert (1889) — ratification relates back to the date of the original unauthorised act.

Back to Top

Termination of Agency

An agency, once created, does not last forever. It can be called off by the parties, or ended automatically by events like death or insanity. But there is a twist — some agencies cannot be revoked at all, because the agent has a stake of his own in the subject-matter.

How does agency terminate?

Termination happens in two families — by the act of the parties and by operation of law — with one important exception (irrevocable agency).

A. By act of the parties.

• Revocation by the principal (ss.203–207). The principal may revoke the agent’s authority before it has been exercised so as to bind him (s.203); reasonable notice must be given (s.206), else the party suffering may claim damages (s.207).
• Renunciation by the agent (s.206). The agent may renounce the agency, again on reasonable notice.

B. By operation of law.

• Completion of the business (s.201) — when the object of the agency is accomplished.
• Death or insanity of the principal or agent (s.201).
• Insolvency of the principal (s.201).
• Expiry of the period fixed, or of the time reasonable in the circumstances.
• Destruction of the subject-matter, or the business becoming unlawful.

C. Irrevocable agency — the exception.

• Agency coupled with an interest (s.202). Where the agent has himself an interest in the subject-matter of the agency (e.g. goods consigned to him against advances), the agency cannot, in the absence of an express contract, be terminated to the prejudice of that interest.
• Authority also becomes irrevocable once the agent has partly exercised it (s.204), or has incurred a personal liability (s.205).

When does termination take effect? Termination does not take effect as against the agent until it becomes known to him, and as against third parties until it becomes known to them (s.208). And the termination of the agent’s authority automatically terminates the authority of any sub-agent appointed by him (s.210) — the whole chain falls together.

🧩 WORKED EXAMPLE — agency coupled with an interest

Facts. P consigns goods to A to sell, and authorises A to recoup, from the sale proceeds, money A had advanced to P. Before the sale, P purports to revoke A’s authority.

Rule. Under s.202, where the agent has an interest in the subject-matter (here, repayment of his advance out of the goods), the agency cannot be revoked to his prejudice without an express contract.

Apply. A’s authority protects his own advance; revoking it would defeat that interest.

Conclusion. P cannot revoke; the agency is irrevocable to the extent of A’s interest.

Section 202, Indian Contract Act 1872: “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.”

In Simple Terms: Agency ends by revocation, renunciation, completion, death, insanity, insolvency, expiry or destruction of the subject-matter. But an agency coupled with an interest cannot be revoked to the agent’s prejudice, and termination binds the agent/third parties only once they know of it (s.208).

flowchart TD
    A["Termination of Agency"]
    A --> B["By act of parties"]
    B --> B1["Revocation ss.203-207"]
    B --> B2["Renunciation s.206"]
    A --> C["By operation of law s.201"]
    C --> C1["Completion"]
    C --> C2["Death / insanity / insolvency"]
    C --> C3["Expiry / destruction of subject"]
    A --> D["Irrevocable"]
    D --> D1["Coupled with interest s.202"]
    D --> D2["Partly exercised s.204 / liability s.205"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,D,B1,B2,C1,C2,C3,D1,D2 box;

Case Laws

• Smart v. Sandars (1848) — an agency coupled with an interest is not revocable so as to defeat that interest.
• Read v. Anderson (1884) — where the agent has incurred personal liability, the principal cannot revoke to leave him exposed.

Back to Top

Delegation and Sub-agent

You trust your lawyer to argue your case — not to hand it to a stranger. That trust is why the law’s default is: an agent must do the job himself. Delegatus non potest delegare — a delegate cannot delegate. But real business needs exceptions, and the sub-agent vs substituted-agent distinction is where the marks hide.

Can an agent delegate his work?

The general rule (s.190) reflects the personal trust in agency: an agent cannot lawfully employ another to perform acts he has expressly or impliedly undertaken to perform personally — delegatus non potest delegare [a delegate cannot further delegate].

Exceptions (s.190) — where delegation is allowed:

• the ordinary custom of trade permits it;
• the nature of the agency requires it;
• the principal consents (express or implied);
• the act is purely ministerial (not requiring discretion);
• an unforeseen emergency makes it necessary.

Sub-agent (ss.191–193). A sub-agent is a person employed by, and acting under the control of, the original agent in the business of the agency (s.191).

• Properly appointed sub-agent (s.192): the principal is bound by and responsible for the sub-agent’s acts as if he were an agent originally appointed; the sub-agent is responsible to the agent, not (generally) directly to the principal, except for fraud or wilful wrong.
• Improperly appointed sub-agent (s.193): where the agent had no power to delegate, the principal is not bound; the agent is responsible for the sub-agent’s acts to both principal and third parties.

Substituted agent (ss.194–195). A substituted agent is different: where the agent, with authority, names another person to act for the principal in the business, that person becomes an agent of the principal directly (not a sub-agent). The original agent’s only duty is to take reasonable care in selecting him (s.195).

🧩 WORKED EXAMPLE — sub-agent vs substituted agent

Facts. P authorises A (in Delhi) to recover a debt in Chennai and, if needed, to appoint a Chennai lawyer for P. A appoints lawyer L. In a different case, A merely hands over his own clerk C to help him, without authority to delegate.

Rule. A person named to act for the principal is a substituted agent (direct privity, s.194–195); a person under the agent’s own control doing the agency work is a sub-agent (s.191).

Apply. L, named to act for P, is a substituted agent — A’s duty is only to pick him carefully. C, under A’s control without authority, would be an improperly appointed sub-agent — A remains responsible.

Conclusion. P deals directly with L; A answers for C.

Section 190, Indian Contract Act 1872: “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, or, from the nature of the agency, a sub-agent must, be employed.”

In Simple Terms: An agent must do the job himself unless custom, the nature of the work, the principal’s consent, a ministerial task, or an emergency allows delegation. A sub-agent works under the agent (no direct link to the principal); a substituted agent is named to act for the principal directly.

flowchart TD
    A["Delegation<br/>delegatus non potest delegare s.190"]
    A --> B["Exceptions: custom, nature,<br/>consent, ministerial, emergency"]
    A --> C["Sub-agent s.191<br/>under agent's control"]
    C --> C1["Proper s.192: principal bound"]
    C --> C2["Improper s.193: principal not bound"]
    A --> D["Substituted agent s.194<br/>direct agent of principal"]
    D --> D1["Agent liable only for care in selection s.195"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,D,C1,C2,D1 box;

Case Laws

• Calico Printers’ Association v. Barclays Bank (1931) — a sub-agent is generally not in privity with the principal; the agent remains responsible.
• De Bussche v. Alt (1878) — where a substituted agent is appointed with authority, direct privity arises with the principal.

Back to Top

Kinds of Agents

“Agent” is an umbrella word. A broker only brings buyer and seller together; a factor holds and sells your goods; a del credere agent even guarantees that the buyer will pay. Knowing the labels lets you answer a short note in crisp, definition-per-line form.

What are the kinds of agents?

Agents are classified two ways — by the extent of authority and by function.

By extent of authority:

• General agent — appointed to do all acts connected with a particular trade or business.
• Special agent — appointed for a single specific act or transaction; his authority ends with it.
• Universal agent — has unlimited authority to act for the principal in all matters (e.g. under a general power of attorney).

By function (mercantile agents):

• Factor — a mercantile agent entrusted with possession of goods to sell; he sells in his own name and has a general lien over the goods.
• Broker — a mercantile agent who brings buyer and seller together; he does not have possession of the goods and does not sell in his own name.
• Del credere agent — an agent who, for extra commission, guarantees the solvency of the buyer — i.e. undertakes that the buyer will pay; if the buyer defaults, the del credere agent indemnifies the principal.
• Auctioneer — an agent to sell goods by public auction; primarily the seller’s agent, and the buyer’s for limited purposes.
• Commission agent — buys or sells for a principal on commission, in the market, in his own or the principal’s name.
• Banker — acts as an agent of the customer in collecting/paying on his behalf.

🧩 WORKED EXAMPLE — del credere agent

Facts. P appoints A to sell goods and, for extra commission, A agrees to guarantee that buyers will pay. A sells to B, who becomes insolvent and does not pay.

Rule. A del credere agent, for additional commission, guarantees the solvency of the buyer and indemnifies the principal against the buyer’s default.

Apply. A is a del credere agent; B’s default triggers A’s guarantee.

Conclusion. A must indemnify P for the unpaid price.

Section 182 (basis): all these are “agents” within s.182; the labels reflect the extent of authority (general/special/universal) or the mercantile function (factor, broker, del credere, auctioneer).

In Simple Terms: Agents come in types — general, special, universal (by authority); and factor (holds & sells with a lien), broker (introduces, no possession), del credere (guarantees the buyer pays), auctioneer and commission agent (by function).

flowchart TD
    A["Kinds of Agents"]
    A --> B["By authority"]
    B --> B1["General"]
    B --> B2["Special"]
    B --> B3["Universal"]
    A --> C["By function"]
    C --> C1["Factor (possession + general lien)"]
    C --> C2["Broker (introduces, no possession)"]
    C --> C3["Del credere (guarantees buyer)"]
    C --> C4["Auctioneer / commission agent"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,B1,B2,B3,C1,C2,C3,C4 box;

Case Laws

• Couturier v. Hastie (1856) — the sale in the case was made through a del credere agent, but the decision itself turned on the corn having already perished before the contract, so there was no contract to enforce. It is therefore not an authority on the del credere guarantee (its true home is the law of mistake / sale of non-existent goods); the del credere agent’s liability rests on his guarantee of the buyer’s solvency under the agency itself.

Back to Top

Principal and Third Parties; Undisclosed Principal

Sometimes an agent contracts without revealing that there is a principal behind him — the third party thinks he is dealing with the agent alone. When the hidden principal later steps forward, whom can the third party sue, and whom must he perform for? The doctrine of the undisclosed principal answers this.

How is the principal bound to third parties?

Where the agent acts within authority, the principal is bound to third parties.

• Acts binding the principal (s.226). Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner and have the same legal consequences as if the contracts had been entered into and the acts done by the principal in person.
• Notice to the agent = notice to the principal (s.229). Information obtained by the agent in the course of the business is treated as received by the principal.
• Liability for agent’s misrepresentation/fraud (s.238). Misrepresentations or frauds by the agent in the business bind the principal.

Undisclosed principal. Where an agent contracts without disclosing that he is an agent (the third party believes the agent is the real party):

• The third party may, on discovering the principal, sue either the agent or the principal (a right of election).
• The principal may intervene and require performance, but subject to the rights the third party has acquired against the agent, and the third party may set up against the principal any defence he had against the agent (s.231).
• The third party who dealt believing the agent was principal cannot be worse off; and if the third party would not have contracted with the principal had he known, the principal cannot compel him (s.231 proviso).
• Agent’s personal liability (s.230) — the agent who contracts for an undisclosed principal is personally liable and can sue and be sued on the contract.

🧩 WORKED EXAMPLE — the principal steps forward

Facts. A, without revealing he acts for P, buys goods from T on credit; T believes A is the buyer. P’s identity later surfaces. T wants to sue for the price.

Rule. On discovering an undisclosed principal, the third party may elect to hold either the agent or the principal liable (s.231); the principal may intervene subject to the third party’s rights and defences.

Apply. T may sue either A (with whom he dealt) or P (the real buyer); P may claim the goods but subject to T’s defences against A.

Conclusion. T has an election against A or P; the contract binds P as principal.

Section 231, Indian Contract Act 1872: “If an agent makes a contract with a person who neither knows, nor has reason to suspect, that he is an agent, his principal may require the performance of the contract; but the other contracting party has, as against the principal, the same rights as he would have had as against the agent if the agent had been the principal.”

In Simple Terms: An authorised agent’s acts bind the principal (s.226). Where the principal was undisclosed, the third party — on discovering him — can choose to sue the agent or the principal, and the principal can only enforce the contract subject to any defences the third party had against the agent.

flowchart TD
    A["Agent contracts with third party"]
    A --> B["Disclosed principal:<br/>principal bound s.226"]
    A --> C["Undisclosed principal"]
    C --> D["Third party's right of election s.231:<br/>sue agent OR principal"]
    C --> E["Principal may intervene,<br/>subject to third party's defences"]
    C --> F["Agent personally liable s.230"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,D,E,F box;

Case Laws

• [C-6] Watteau v. Fenwick (1893) — an undisclosed principal is bound by acts within the usual authority of such an agent, even if he privately restricted it.
• Keighley, Maxsted & Co. v. Durant (1901) — an undisclosed principal cannot ratify a contract not made on his behalf.

Back to Top

Personal Liability of an Agent

The whole point of agency is that the agent drops out and the principal is bound. But there are situations where the agent cannot hide behind the principal — where he is personally on the hook. Knowing that short list is the answer.

When is an agent personally liable?

The general rule (s.230) is that an agent cannot personally enforce, nor be bound by, contracts made on behalf of the principal — he is a conduit. But s.230 itself presumes a contract to the contrary in certain cases, and case law adds others. An agent is personally liable where:

• the contract expressly provides for his personal liability;
• he acts for a foreign (merchant resident abroad) principal (s.230(1) presumption);
• he acts for an undisclosed principal (s.230(2));
• the principal cannot be sued — e.g. he is not in existence, or is incompetent (s.230(3));
• he signs the contract in his own name without qualifying it as agent;
• he acts for a principal not named, and the trade custom makes him liable;
• he exceeds his authority (breach of warranty of authority) or acts for a non-existent principal;
• he receives money by mistake or fraud, or is liable for his own tort.

🧩 WORKED EXAMPLE — agent signing in his own name

Facts. A, acting for P, signs a purchase contract with T simply as “A”, without any indication that he acts as agent. T later sues A for the price.

Rule. Under s.230, an agent who does not exclude personal liability — e.g. by signing in his own name without qualification — may be held personally liable.

Apply. A gave no sign that he acted for a principal; T dealt with A as the contracting party.

Conclusion. A is personally liable to T on the contract.

Section 230, Indian Contract Act 1872: “In the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them.”

In Simple Terms: Normally the agent is not personally liable. He becomes liable where the contract says so, where he acts for a foreign or undisclosed or non-existent/incompetent principal, where he signs in his own name, or where he exceeds his authority.

flowchart TD
    A["Rule: agent not personally liable s.230"]
    A --> B["Exceptions - agent IS liable"]
    B --> C["Contract provides so"]
    B --> D["Foreign principal"]
    B --> E["Undisclosed principal"]
    B --> F["Principal not suable / non-existent"]
    B --> G["Signs in own name"]
    B --> H["Exceeds authority"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,D,E,F,G,H box;

Case Laws

• Collen v. Wright (1857) — an agent who acts without authority is personally liable for breach of warranty of authority.

Back to Top

Right of Lien of an Agent

An agent who has spent his own money and effort on the principal’s business should not have to hand everything back and merely hope to be paid. The law lets him keep the principal’s goods and papers until his dues are met — his right of lien.

What is the agent’s right of lien?

Section 221 gives the agent a lien: in the absence of a contract to the contrary, the agent is entitled to retain goods, papers and other property, whether movable or immovable, of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for.

Key features:

• It is, in general, a particular lien — over the specific property, for dues relating to it — unless a general lien is agreed or arises by custom.
• It attaches only to property lawfully received by the agent in his capacity as agent.
• It is lost if the agent parts with possession, or if there is a contract to the contrary.
• It secures the agent’s remuneration, advances and expenses (linking to ss.217–223).

🧩 WORKED EXAMPLE — agent retaining papers

Facts. A, an agent, holds P’s title deeds received in the agency and is owed ₹20,000 in commission and expenses. P demands the deeds without paying.

Rule. Under s.221 an agent may retain the principal’s goods and papers received by him until his dues for services in respect of them are paid.

Apply. A lawfully received the deeds in the agency and is owed for his services; no contrary contract is shown.

Conclusion. A may retain the deeds until his ₹20,000 is paid.

Section 221, Indian Contract Act 1872: “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 him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him.”

In Simple Terms: An agent can hold on to the principal’s goods and papers he lawfully received until he is paid his commission and expenses. It is normally a particular lien and is lost if he gives up possession.

flowchart TD
    A["Agent's lien s.221"]
    A --> B["Retain goods/papers of principal"]
    A --> C["Until dues (commission, expenses) paid"]
    A --> D["Particular lien (unless general agreed)"]
    A --> E["Lost on parting with possession"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C,D,E box;

Case Laws

• Kishan Lal v. Bhanwar Lal (1954) — an agent’s lien under s.221 attaches to property lawfully received in the agency and secures his dues.

Back to Top

Distinction between Agent and Servant

A shop’s cashier and a company’s selling agent both work “for” a business — but only one can make contracts that bind it. The line between an agent and a servant is drawn by control and by the power to bind.

How does an agent differ from a servant?

Although both act for another, they are legally distinct. An agent is engaged to bring the principal into contractual relations with third parties and generally exercises his own discretion in how he does the work. A servant works under the direct control of the master as to how the work is done, and ordinarily has no power to make contracts binding the master.

The dividing test is the control test (how much control over the manner of work) coupled with the power to bind.

🧩 WORKED EXAMPLE — agent or servant?

Facts. A firm engages S as a travelling salesman on salary, told exactly which towns to visit and what prices to quote, with no power to conclude sales. It separately engages B, a broker, paid by commission, to find buyers and close deals in the firm’s name.

Rule. A servant works under control as to the manner of work and cannot bind the employer; an agent has discretion and can bind the principal.

Apply. S is controlled in detail and cannot conclude contracts — a servant. B exercises discretion and binds the firm to buyers — an agent.

Conclusion. S is a servant; B is an agent.

Section 182 (basis): the defining feature of an agent is the power to represent and bind the principal in dealings with third persons — the feature a servant lacks.

In Simple Terms: An agent can make contracts binding the principal and is not controlled in how he works; a servant works under the master’s control and cannot ordinarily bind him. Control and the power to bind are the two dividing lines.

flowchart LR
    A["Working for another"]
    A --> B["Agent<br/>discretion + power to bind"]
    A --> C["Servant<br/>under control, no power to bind"]
    classDef box fill:#e8f0fe,stroke:#333,color:#111;
    class A,B,C box;

Case Laws

• Lakshminarayan Ram Gopal v. Govt. of Hyderabad (1954) — the distinction between an agent and a servant turns on the degree of control and the power to create contractual relations.

Back to Top

📄 Full notes + Question Bank (₹199) — every topic in depth, model answers to all past KSLU questions, in one printable PDF. Get the bundle · 10 Solved Problems · All Contract II (Special Contracts) topics