Section 68 – 72 of Indian contracts Act, 1872, deals with certain relations resembling those created by contract. It incorporates those obligations which are known as quasi contracts under English Law. The basis of the obligations is that no one should have unjust benefit at the cost of the other. In an action for unjust enrichment, the following essentials have to be proved:

1. The defendant has been enriched by the receipt of a benefit
2. The enrichment is at the expense of the plaintiff.
3. The retention of the enrichment is unjust.

The Indian Contract Act deals with the following quasi-contractual obligations:

1.     Claim  for  necessaries    supplied to a  person  incompetent to contract (Section 68):

Where one person supplies necessaries suited for the condition in the life of a person, who is incompetent to contract (For example, minor or lunatic) or to anyone whom such incompetent person is legally bound to support (For example, to a lunatic’s wife or children), the person furnishing such supplies is entitled to a reimbursement from the property of such incompetent person.

Illustration: A supplies B, a lunatic, with necessaries suited to his condition in life. A is entitled to be reimbursed from B’s property.

2.     Reimbursement of money paid , due by another (Section 69):

Reimbursement of a person paying money due by another in payment of which he is interested. A person, who is interested in payment of the money, which another is bound by law, to pay and who therefore pays it, is entitled to be reimbursed by the other.

Two essentials:                                  

1. One person is interested in payment of the money and therefore he pays it; while,
2. Another person is bound by law to pay the same, but he fails to pay.

3.     Obligation of person enjoying benefit of non-gratuitous Act

(Section 70):  for   applications  of   this   section,  the   following conditions are to be satisfied.

1. A person lawfully do something for another person or should deliver something to him;
   1. The person making the payment or delivering the thing must not do so gratuitously, that is, he should expect payment for the same; and
   1. The other person should enjoy the benefit of this payment or delivery of the thing.

When all the above conditions are satisfied, the person receiving the benefit becomes bound to pay compensation to the person conferring.

• No intentions to do act gratuitously, when the person does not intend to do it gratuitously, but expects payment for the same on doing such act, he can ask for compensation under Section 70.
• Enjoyment of benefit by the defendant is necessary: the voluntary acceptance of the benefit of the work done or the thing delivered is the foundation of the claim under section 70.

• Unjust benefit to the defendant necessary: Sec 70 is found on the principle that one should not gain unjust enrichment at the cost of the other. If there is no unjust gain obtained in any transaction, Sec 70 has no application.

Application of Sec 70 against government:

Sec 70 prevents unjust enrichment and it applies as much to individuals as to corporations and government. If the services rendered or goods supplied to the government are under a purported contract, which does not materialize because of non-fulfillment of the formalities prescribed in Art. 299 of the Constitution, the government can still be made liable to compensate for the same under Sec 70 of the Contract Act, if it has enjoyed the benefit of what has been done under the purported contract.

Sec 70 cannot be invoked against a Minor:

A minor’s agreement being void ab initio, he cannot be made liable under Sec 64 and 65 of the Contract Act. But if necessaries are supplied to a minor, his estate can be made liable under the Sec 68. It has been held that no action can be brought against a minor to recover compensation from him under Sec 70. Sec 70 cannot be invoked against a minor. Firstly, the Section covers every “Person” whether he is competent to contract or not. Secondly, there is nothing in law which debars a minor from enjoying the benefit of the act done by another person.

4.     Responsibility of the finder of goods:

Sec 71 contemplates still another quasi contractual situation, i.e., when a person is a finder of goods belonging to another and takes the goods to his custody and is in the position of a bailee with all responsibility. Every bailee has a following duties:-

• Duty or reasonable care (Sec 151-152)
  • Duty not to make unauthorized use (Sec154)
  • Duty not to mix (Sec 155)
  • Duty to return (Sec 156)
  • Duty not to set jus tertli (right of third person) Sec 165-167

• Duty to return increase (Sec 163)

5.     Liability of a person getting benefit under mistake or coercion (Sec 72)

• Unjust benefit under mistake: Section 72 covers a situation where money has been paid, or anything delivered by one person to another either by mistake or under coercion.
• Money paid or anything delivered under mistake: According to Art.265 of the Constitution, no tax shall be levied or collected except by the authority of law. Law here means only valid law. Sec 72 and the same ought to be refunded by the government because the government cannot be allowed to unjustly enrich itself by retaining the tax so received.
• Money not recoverable where there is no enrichment of the defendant. If the receiver of the money has no longer the same with him, and has further paid it under a similar mistake, he cannot be required to repay the same.
• Unjust benefit under coercion: Sec 72 permits the money paid or anything delivered, either by mistake or under coercion, to be recovered back.
• Compulsion of law is not coercion.

Sec 226- for contracts relationship between the principal and the 3rd
persons become bound towards a third person as if he entered into
the contract himself.

• Principal’s liability when agent exceeds authority- principal is not liable.
• Position when the authorized and unauthorized acts are separable sec- 227
• Principal’s liability for notice to the agent – sec 299
• Principal’s liability for agent’s fraud, misrepresentation and torts (sec -238)- do not fall within their authority – it do not
  affect their principals.
• Personal Liability of an Agent
  General Rule – No personal liability [Sec.230], In the absence of contract to contrary, an Agent cannot – (a) personally enforce contracts entered into by him, on behalf of his Principal, (b) be held personally liable for them. This is because the Agent merely acts on behalf of his Principal. Thus, he enjoys immunity from being personally sued. Exceptions, i.e. Agent personally as well as Joint & Severally Liable

The Agent is personally liable in the following cases –
Foreign Principal [Sec.230] : Where the contract is made by an Agent for the sale or purchase of goods for a merchant resident abroad.

Undisclosed Principal [Sec.230]: Where the Agent does not disclose the name of his Principal. Right of undisclosed principal to require performance – sec 231 Right of third person against undisclosed principal – sec 232
Liability of pretended agent – sec 235 Principal cannot be sued [Sec.230]: Where the Principal, though disclosed, cannot be sued, e.g. Principal becoming of unsound mind, subsequent to appointment of agent.
Acting for a Principal not in existence: Where the Agent acts for a Principal who is not in existence at the time of making contracts, he shall be personally held liable e.g. contracts entered into by Promoters before incorporation of a Company are made in their personal capacity and hence personally liable.

Agency coupled with interest [Sec.202] : Where the Agent has an interest in the subject matter of agency.
Agent guilty of Fraud [Sec.238] : Where an Agent is guilty of fraud or misrepresentation in matters that are outside the scope of his authority, he is personally liable, and do not affect his Principal.

Agent exceeds authority & act not ratified: Where an Agent acts either without any authority or exceeds his authority, he shall be held personally liable when the principal does not ratify his acts.

Agent receives or pays money: Where an Agent receives or pays money by mistake or fraud to a third party, he shall be personally liable to such third party. Also ha can personally sue the third party if the fraud or mistake is accountable to such third party.

Express Agreement for personal liability: Where an Agent expressly agrees to be personally bound.
Execution of Contract in his own name: Where an Agent executes a contract in his own name, without disclosing that he is acting as Agent for a Principal, he shall be personally liable, e.g. An Agent signs a Negotiable Instrument without making it clear that he is signing it as an Agent only, he shall be held personally liable on the same. He would be personally liable as Maker of P/N, even though he may be described as Agent.

Trade custom or usage: Where trade usage or custom makes an Agent personally liable.
Agent with special interest: An Agent with special interest or with a beneficial interest, e.g. a Factor or Auctioneer, can sue and be sued personally.
Action against Agent or Principal [Sec 233] : Where the Agent is personally liable, a person dealing with him may hold – (a) either him or (b) his Principal or (c) both of them liable. The liability of Principal and Agent is “joint and several”.
Exclusive liability [Sec. 234]
Where a person has made a contract with an Agent and –Induces such Agent to act upon it in the belief that only his principal would be held liable, Induces the principal to act upon it in the belief that only his Agent would be
held liable. Such Third person cannot later on, shift the liability on to – The Agent, or The principal, respectively.

Liability for contracts:

Disclosed / Partially disclosed principals: liable to a third party for contract
made by the agent
Undisclosed principals: agent, not the principal, is liable as a party on the contract. However, if principal has a duty to perform & fails to do so, agent is entitled to indemnification by principal if third party seeks restitution from agent Liability for Agent’s Torts: Principal may be liable for agent’s torts if they result from the following:

Principal’s own tortious conduct
Principal’s authorization of tortious act Agent’s unauthorized but tortious misrepresentation (if representations were
made within scope of the agency)
Doctrine of Respondeat Superior: principal-employer is liable for any harm caused to a third party by an agent-employee in the scope of employment. This doctrine imposes vicarious liability on the employer. Scope of employment: is employee doing what is normally expected of him, is employee “on the job” from a time & location standpoint, does the employee’s act benefit the employer
Liability for employee’s negligence: act causing the injury must have occurred within the scope of employment, employee going to & from work or to & from meals is usually considered outside the scope of employment
Notice of dangerous conditions: employer has assumed knowledge of any dangerous conditions discovered by an employee & pertinent to employment situation
Liability for employee’s intentional torts: if torts committed within scope of employment
Liability for Independent Contractor’s Torts: General rule is that the employer is not liable.
Test: how much control the employer exerts over the contractor. Exceptionally hazardous activities (blasting) that are contracted are an exception in that there is no shield for the employer
Liability for Agent’s Crimes: General rule is that a principal or employer is not liable for agent’s or employee’s crime even if agent acted within scope of authority or employment. Parties agreed that the agent will act on behalf & instead of the principal in negotiating & transacting bus with 3rd persons. 3 types

Chapter X of the Indian Contract Act, 1872 deals with the laws relating to Agency. It is important to know the law relating to agency because nearly all business transactions worldwide are carried out through agency. All corporations, big or small, carry their work out through agency. Therefore, laws relating to the agency are an important area of Business Law. Relationships relating to principal and agent involve three main parties: The Principal, the Agent, and a Third Party.

An agent does not act on his own behalf but acts on behalf of his principal. He either represents his principal in transactions with third parties or performs an act for the principal. The question as to whether a particular person is an agent can be verified by finding out if his acts bind the principal or not.

DUTIES OF PRINCIPAL   

1. To indemnify the agent:
• against consequences of the lawful act (sec 222): the employer is bound to indemnify his great against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him. It must be noted that the principal is liable only for such damages as are direct and immediate and naturally follow the execution of the agency.
• Against consequences of the acts done in good faith (Sec 223): Where one person employs another to do an act and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act though it causes an injury to the third person.
2. To pay remuneration and dues (sec 217): It is the principal’s duty to pay his agent such remuneration as may be payable to him as an agent, and also all monies due to the agent in respect of advances made or expenses properly incurred by the agent in conducting principal’s business.
3. Compensate the agent for injury caused(Sec 225): the principal must make compensation to his agent in respect of injury caused to the agent by the principal’s neglect or want of skill.
4. Misrepresentations or fraud by agent (sec 238): Misrepresentations made, or frauds committed, by an agent acting in the courses of business for his principal, has the same effect on an agreement made by such agent as if such misrepresentations or fraud had been made or committed by the principal. In order that a principal shall be made liable for the misrepresentations and frauds committed by the agent, such misrepresentations or frauds must be committed by the agent —
1)in the course of the business of his principal; and
2) the act must be within the scope of the agent’s authority.

Duty to act according to directions or custom of trade – Sec. 211 He has to conduct the business of the Principal according to the directions of the Principal. Duty to follow customs, Where the principal has not given any instructions it is the duty of the agent to follow the customs prevailing in the same kind of business at the place where the agent conducts his business.

To act under the terms of the contract:- An agent is obliged to perform each and every term mentioned in the contract towards his principal.
Duty to act with reasonable care and skill/Duty to carry out the work with reasonable care, skill, and diligence:– Sec. 212 An agent is bound to conduct the business he is supposed to conduct with as much skill as a person on his position ordinarily holds. The agent is always bound to act with reasonable care, skill and diligence as he possesses and to make compensation to his principal in respect of direct consequences of his neglect or want of skill or misconduct.
Duty to render account – Sec. 213 An agent is supposed to show the relevant accounts to the Principal as and when the Principal demands. Duty to keep and render separate and correct accounts, An agent must keep the money and property of the principal separate. He must keep true, correct, and proper accounts of all transactions on behalf of his principal and be prepared at all times to produce them to his principal.
Duty not to deal on his own account (sec 215 & 216) Accounting must maintain separate accounts for the principal’s funds & for the agent’s funds, no intermingling is permitted Repudiation of contract by the principal when agent deals on his own
account -sec -215 Principal’s right to claim benefit when agent acting on his own account – sec 216.
Duty to communicate with Principal and to obtain Principal’s instructions – Sec. 214, An agent has the duty to communicate any difficulty whatsoever he may come across while doing the Principal’s business. He is supposed to perform due diligence in this regard. Duty to communicate in cases of difficulty, it will be also the agent’s duty to communicate with the principal and obtain his instructions while carrying the business agency.
Duty to follow instructions/ directions:-(Section 211) The first and foremost duty of an agent is to act strictly within the scope of the authority conferred upon him and to carry out the instructions of the principal. It is the duty of an agent in cases of difficulty, to use all reasonable diligence in communicating with his principal and seeking to obtain his instruction
Duties to disclose all material circumstances and to obtain the Principal’s consent in dealings – Sections 215 & 216
If any material fact has been concealed or the business is not carried out in the manner that the Principal directed, the Principal can repudiate the contract between them. An agent must not use confidential information entrusted to him by his principal for his own benefit or against the principal
Duty to pay sum received for Principal – Sections 217 & 218, If the agent carries out the business in the manner he wanted to perform it, rather than on the directions of the Principal, the Principal may claim from the agent any benefit he may have achieved through doing so. An agent is duty-bound to pay sums received to the principal on his account.
Duty not to make secret profit from agency:-An agent’s duty is to be loyal to his principal. If an agent makes a secret profit from its agency, the principal can demand all the profits from the agent. The agent must not make a secret profit from the extract agency. He must disclose any extra profit that he may make.
Duty to protect and preserve the interest entrusted to him – Section 219 An agent must not allow his interest to conflict with his duty. For example, he must not compete with his principal. Loyalty: actions must be strictly for the benefit of the principal, not in the interest of the agent or a third party
Duty to act with good faith:– An agent must act in good faith while representing the principal. An agent should not have any intention to cause harm to the principal. Obedience: must follow lawful & clearly stated instructions of the principal
Duty not to delegate his authority (Sec. 190), An agent must not delegate his authority to delegate authority agent must have the permission of the principal. As much as possible agent himself performs on behalf of a principal. An agent must not delegate his authority to a sub-agent. This rule is based on the principle ‘Delegatus non protest delegare’. Delegate
cannot further delegate (Section 190). But there are exceptions to this principle.
Not disclose confidential information- Though the agent may have authority from his principal to deal with his accounts, agents are not allowed to disclose or leak the confidential information of the principal. It is the duty of the agent to maintain the privacy and secrecy of such confidential information of the principal.
An agent should not set up an adverse title to the goods which he receives from the principal as an agent. Don’t exceed the authority which is given by the principal.

Principal’s duties to Agent

The Principal has duties towards the Agent:
 The Principal is bound to indemnify the agent against any lawful acts done by him in the exercise of his authority as an agent
 The Principal is bound to indemnify the agent against any act done by him in good faith, even if it ended up violating the rights of third parties.
 The Principal is not liable to the agent if the act that is delegated is criminal in nature. The agent will also in no circumstances be indemnified against criminal acts.
 The Principal must make compensation to his agent if he causes any injury to him because of his own competence or lack of skill.
 Liability of Principal for Agent’s Fraud or Misrepresentation. According to Section 238, The Principal is liable for any fraud or misrepresentation made by his agent during the course of his business, as if the fraud or misrepresentation was done by the Principal himself.
 Reimbursement & indemnification: must reimburse agent that disburses money at principal’s request. Must compensate (indemnify) agent for any costs incurred as a result of the principal’s failure to perform the contract
 Cooperation: must cooperate with & assist an agent in performing his duties Provide safe working conditions. Agent’s Rights & Remedies has a corresponding right for every duty of the principal.
 Liability of Principal to Third Parties For The Acts Of Agent (Sec. 226 to 228) Principal is liable for the acts of the agent, The principal is liable for all the acts of an agent which are lawful and within the scope of the agent’s authority. The contracts entered into by the agent on behalf of the principal have the same legal consequences as if these contracts were
made by the principal himself. When an agent exceeds his authority: Whether the acts done within the authority are separable from the acts done beyond authority. If yes – The principal is not bound for excess acts done by the agent. If no – The principal is not bound by the transaction and the principal can repudiate the whole transaction.

RIGHTS OF PRINCIPAL

1. To repudiate contract (Sec 215): If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed from him by the agent or that the dealings of the agent have been disadvantageous to him.

2. To claim benefit (Sec 216): if an agent without the knowledge of the principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.

3. To ratify or disown agent’s acts (Sec 196): where acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or disown such acts.

4. To revoke the agent’s authority (Sec 203): the principal may revoke the authority given to his agent by giving reasonable notice of revocation at any time before the authority has been exercised.

5. To claim loss or profit (Secs 211 & 212): the principal is entitled to compensation for any loss sustained by him or to any profits accrued 1) where the agent acts contrary to the directions given by the principal; or 2) where loss is caused due to agent’s neglect, want of skill, or misconduct.

6. To demand accounts (Sec 213): The principal is entitled to demand proper accounts from the agent.

7. To refuse remuneration when an agent is guilty of misconduct (Sec 220): The principal has a right to refuse remuneration to the agent who is guilty of misconduct in the business of the agency.

Rights of Agent

There is a number of rights that an agent has against his principal and third
parties. These are as follows-
Right to get remuneration, (sec – 219)

If it is provided in the contract of agent has the right to receive reasonable remuneration for his work for the principal.
An agent, when he has wholly carried out the business of the agency has the right to be remunerated for any expenses suffered by him while conducting the business. The agent has a right to retain any sums received on account of the
principal in the business of the agency, all money due to himself in respect of his remuneration, and advances made or expenses properly incurred by him in conducting such business.

Right of Lien-(sec – 221)-

If the agent is not paid lawful charges remunerations or expenses by his principal and of goods of the principal are under his control he can retain the goods until the lawful charges are paid by the principal. This right last till the lawful charges are fully satisfied. Right of Lien on Principal’s property means the agent has the right to hold (keep with himself) any movable or
immovable property of the Principal until his due remuneration is paid to him by the Principal. In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other property.

Right to get indemnity- (sec – 222- 224)

If the principal removes the agent without concrete reason agent has the right to claim compensation from his principal. Therefore, the agent has also the right to continue business performance until nothing is wrong done by an agent. The agent has the right to be indemnified against all the lawful acts done by him during the course of conducting the Principal’s business. Indemnified by a principal in respect of the contract and all losses/liabilities provided the agent acted within his authority.
o Indemnity for civil wrong- (sec 223)
o No indemnity in case of criminal offenses (sec 224)

Right of retainer–(sec – 217 &218)

An agent has the right to retain any remuneration or expenses incurred by him while conducting the Principal’s business.

Right to Compensation– (sec 225)

The Agent has the right to be compensated for any injury or loss suffered by him due to the lack of skill and competency of
the Principal.

Right of stoppage in transit-

Where he has bought goods for his principal by incurring personal liability, he has a right of stoppage in transit against the principal, in respect of the money which he has paid or is liable to pay. Where he is personally liable to the principal for the price of the goods sold, he stands in the position of an unpaid seller towards the buyer and can stop the goods in transit on the insolvency of the buyer.

Delegation

General rule: The general rule is that an agent cannot lawfully employ another act, which he has expressly or impliedly undertaken to perform personally.

Exceptions
 There is a custom or usage of trade to that effect.
 Where the power of the agent to delegate can be inferred from the conduct of both the principal and the agent.
 When the principal is aware of the intention of the agent to appoint a sub-agent the does not object to it.
 When principle permits the appointment of a sub-agent.
 If the nature of the agency is such that the sub-agent is necessary
 The extent of Agents authority
 Lawful Acts
 Emergency Authority
 Ostensible Authority

Liability of principal

Sec 226- for contracts relationship between the principal and the 3rd persons becomes bound towards a third person as if he entered into the contract himself.

• Principal’s liability when agent exceeds authority- principal is not liable.
• Position when the authorized and unauthorized acts are separable sec- 227
• Principal’s liability for notice to the agent – sec 299

• Principal’s liability for agent’s fraud, misrepresentation and torts (sec -238)-do not fall within their authority – it does not affect their principals.

Personal Liability of an Agent

General Rule – No personal liability [Sec.230], In the absence of contract to contrary, an Agent cannot –

• personally, enforce contracts entered into by him, on behalf of his Principal,
• be held personally liable for them. This is because the Agent merely acts on behalf of his Principal. Thus, he enjoys immunity from being personally sued.

If a third person has no knowledge about the fact that the agent is acting for a principal, then both the agency and the principal is “undisclosed.” The agent of an undisclosed principal can be held liable on the contract as the real obligor as s/he contracted in that capacity. Similarly, an undisclosed principal can also be held liable as s/he must also assume its burdens.

The liability of an undisclosed principal and the agent is normally an alternative liability. It means that the third party can only make either the principal or the agent liable and not both of them together. A third party can decide whether to make the principal or the agent responsible only after the discovery of the principal and the opportunity to make an intelligent choice. However, once an election is made by a third party, it is generally irrevocable.

If an agent acts in his/her own name without disclosing the principal this will not preclude the liability of the principal. Note that if there is no proof of an actual agency relationship, there can be no reliance on the doctrine of undisclosed principles. Also, the principal is not liable where the contract provides that an undisclosed principal is not a party to it.

Similarly, an agent will be held liable if s/he fails to disclose the agency and the identity of the principal while making the contract. In such a case, the agent will be subject to all the liabilities created by the contract, in the same way as if the agent were the principal in interest.

Likewise, in order to avoid the personal liability of the agent, disclosure of the principal must normally be made at the time of contract. After the principal is disclosed, the agent will not be liable for subsequently authorized acts between the third person and the principal.

When an agent makes a contract for the principal concealing the fact that s/he is an agent, the principal can claim all the benefits of the contract from the other contracting party, so far as the principal does not cause any injury to the other party. However, a third person will not be liable to an undisclosed principal, if the specific terms of the contract exclude liability to any undisclosed principal or to the particular principal. There is nothing “illegal” or “unethical” about an undisclosed agency…it is done often…so long as fraud and injury to the third party are not caused by the undisclosed agency and the agreement does not prohibit it.

Undisclosed agents are often used to avoid negotiations that would otherwise be biased or tainted. Thus, if I am selling a building to a very rich buyer, I may negotiate a much higher price assuming I can do so. That buyer may use an undisclosed agent until the deal is signed to avoid that type of bias on my part. The way to avoid that danger if you are a third party is to simply put into the agreement the fact that no undisclosed principals are involved.

All Contracts are agreements but all agreements are not contracts

In a contract of agency, an agent deals with the third parties on behalf of his principal. He enters into contracts with the third parties and is responsible for his acts to the principal. However, there are also some Responsibilities of the Principal to Third-parties for the acts of the agent.

According to Black Law’s Dictionary “A fiduciary relationship created by express or implied contract or by law in which one party may act on behalf of another party and bind the other party by words or actions”

The relationship between a principal and an agent is fiduciary and an agent’s actions bind the principal. The law of agency controls the legal relationship in which an agent interacts with a third party for his/her principal.

If an agent acts within the scope of his/her authority, a principal is bound by the act of his/her agent. Moreover, a principal is responsible for any action or inaction by the principal’s agent. The liability of the principal to a third person upon a transaction conducted by an agent is based upon facts such as:

• the agent was authorized;
• the agent was apparently authorized; or
• the agent had a power arising from the agency relationship and was not dependent upon authority or apparent authority.

The principal is only responsible up to the extent to which the agent is assigned rights to do act beyond this boundary the principal isn’t responsible but the agent is self-responsible. While making a contract there may be or may not be
a consideration. Agency is the process of delegating the authority by a principal to the agent to act and represent on his behalf.

The doctrine of imputed knowledge is a rule of public policy based upon the necessities of general commercial relationships. But note that the knowledge of an agent may be imputed to the principal only where it is relevant to the agency and to the matters entrusted to the agent. If the knowledge acquired or notice received by an agent:

• Does not pertain to the duties of the agent,
• Does not relate to the subject matter of the employment, or
• Affects matters outside the scope of the agency, it is not binding on the principal unless actually communicated to him/her

The act done and representation made by an agent isn’t the act of the agent but
are regarded as the act of the principal. Therefore, rights and duties created by the agent
are the right and duties of the principal. However, some acts relating to personal
skills cannot be done through the agency.
The following action can be done through Agency:-
 To do it for himself.
 To run commercial transactions by an agent.
 To do transactions with a third person.
 To establish legal relations with the principal and third person.
We may note that the contract relating to an agency is legally recognized under
the following criteria:-
 Whatever a person can lawfully do he may also do the same through an agent.
 He who acts through another is considered to have acted personally.

Responsibilities of Principal to Third-parties

The effect of a contract that an agent makes differs according to the situations under which the agent contracts. The agent may contract under the following three situations:

1. Disclosed Principal

Where the name of the principal is disclosed and an agent enters into a contract on his behalf, he usually incurs no rights and liabilities under such contract. He drops out of the contract as soon as it is made.

Thus, the contract is between the principal and the third party and also the rights and obligations arise between them only. The legal effect of such a contract is the same as if the principal himself directly contracts with the third party.

The legal effect implies that all the acts of the agent within the actual or ostensible authority bind the principal. It is noteworthy here that the acts though out of the scope of the actual authority of a general agent but within his apparent authority are binding on the principal. Thus, any secret restrictions on the powers of the agent do not bind the third party.

2. Undisclosed Principal

In this case, where the agent discloses that he is only an agent but hides the identity of his principal, he is not liable personally. Thus, the principal when discovered is liable for the contract made by his agent and is also responsible for the acts of the agent.

3. Concealed Principal

Where an agent seems to be contracting in his own capacity without disclosing that he is an agent or the name of his principal, he becomes personally liable. In this case, the third party may sue the agent or the principal on discovering him or both.

However, if the third party sues the principal and not the agent, then he shall allow the principal the benefit of all payments that he made to the agent. He is also eligible to obtain the benefit of anything that he pays to the agent under the contract.

In a case where the principal discloses himself before the completion of the contract, the third party may refuse to fulfill the contract if he shows that:

1. If he knew the principal he would have not entered into the contract.
2. If he knew that the agent is not the principal he would have not entered into the contract.

SUB-AGENT:- Sub agent is a person employed by and acting under the control of the original Agent in the business of the Agency under section 191 of the Act. An agent may sometimes delegate the duty that has been delegated to him by the Principal to somebody else. Ordinarily, an agent cannot delegate the duty he is supposed to perform himself to another person (Delegat us Non Potest Delegare), except in particular circumstances where he must, out of necessity, do so. Section 191 of the Indian Contract Act, 1872 defines a sub-agent to be a person employed by and acting under the control of the original agent in the business of the agency.

Delegatus non potest delegare

An agent cannot in ordinary circumstances delegate the duty that was delegated to him. The principle is based upon the idea that when a Principal appoints an agent, he does so by placing his confidence and trust in the agent and might not have similar trust in the work of another person.

LEGAL POSITION OF SUB-AGENT PROPERLY APPOINTED:- Sub Agent may be either properly appointed or improperly appointed.  If he is appointed by the Agent with the authority of his principal he is called a sub-agent properly appointed.  If he is appointed without the authority of the principal he is improperly appointed.

Sec. 192. Where a sub-agent is properly appointed,
The principal is, so far as regards the third person, 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.

The agent is responsible to the principal for the acts of the sub-agent When the sub-agent is appointed properly with the consent of the principal, the principal is bound by his acts and is responsible for his action as if he was an agent appointed by the principal. 

Agent’s responsibility for sub-agent.

-The sub-agent is responsible for his acts to the agent, but not to the principal, except in case of fraud or wilful wrong against the principal he becomes directly responsible to the principal under section 192 of the Act.

Substituted agent –

Sec. 194. Where an agent, holding an express or implied authority to name another person to act for the principal in the
business of the agency has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.

Difference between sub-agent and substituted agent

There are two parties in the agency system one is the principal and another the agent. An agent is a person acting on behalf of his principal. It’s a connecting link between the principal and the third party. Herein we will discuss the creation of agency under the Indian Contract Act, 1872. Establishment of a Principal-Agent relationship confers rights and duties upon both the parties. There are various examples of such a relationship: Insurance agency, advertising agency, travel agency, factors, brokers, Del credere agents, etc. the relationship of  principal  and agent may be created in any of the following ways: 

1) expressed  agreement, 

2) implied agreement. 

3) ratification, and 

4) operation of law.  

1.Express Agreement: 

You know that when an agent acts within the scope of his authority, his acts bind the principal as well as the third party. The agent derives this authority by the contract by which he is employed as an agent. This contract may be express or implied. Section 186 of the Act says “the authority of an agent may be expressed or implied ‘. Section 187 further says, “an authority is said to be express when it is given by words spoken or written. A~I 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 accouter circumstances of the case”, 

2. Implied Agency: 

From Section 187, you have seen that an agency may be implied when it is to be inferred from the circumstance of the c:isc, ~l~ings spoken or written, or ordinary course of dealing. For example, -4 has a car, but he cannot drive it. He allows his neighbor B to drive it. B while driving the car with A meets with an accident and injures C. C can sue A for damages because B is his implied agent. 

a) agency by estoppel, 

b) agency by holding out and 

c) agency by necessity, 

a) Agency by Estoppel: 

First of all we should understand the meaning of the term .’estoppel’. The role of estoppel says “where a person by his words or conduct has wilfully led another person to believe that certain set of circumstances or facts exists, and that other person has acted on that belief, then he is estopped or precluded from denying the truth of such statements, although such a state of thing did not exist in fact. Thus, when a person, by his conduct or statement, wilfully leads another person to believe that a certain person is his a’gent, then he is estopped or prevented from denying the truth of agency.

b) Agency by Holding Out:

 Agency by holding out is a type of agency by estoppel. Here, the alleged principal by ‘his affirmative or positi~e conduct leads,others to believe that person doing some act on his behalf is doing with, his authority. For example, A allows his servant to purchase goods on credit from nearby shop, and later on he pays for such goods. Later on, when the. servant was not .in A’s employment, he buys goods on A’s credit from the same shop. The shopkeeper can recover the price from A, because A-had held out the servant as his agent on earlier occasions, so A will be bound for subsequent transactions entered into under similar circumstances.

c) Agency by Necessity:

Sometimes, owing to the exigencies of circumstances, the law confers agency on some persons to act as an agent of .another person without waiting for the consent of that person. However, before an agency of necessity can be inferred, the following conditions have to be satisfied:

(i) There should be an actual and definite necessity for acting on behalf of the principal; 

(ii) within the available time it should be impossible to obtain the principal’s instructions;

 (iii) the person acting as agent must have acted bonafide. In such situations, the principal is bound by the acts of the agent. For example, some milk was consigned from Bombay to Delhi. The tanker carrying the milk met with an accident. The milk being perishable was sold by the transporter, The sale is binding upon the principal. In this case, the transporter became an agent by necessity. 

3) Agency by ratification:

 By ratification, we mean, “where acts,are dqne by one person on behalf of another, but without his knowled ge or authority, he may elect to ratify or disown such acts. If he ratifies them, ttie same effects will follow as if they have been performed by his authority “, Ratification may be express or implied in the conduct of the person on whose behalf the acts are done.

For example, without A’s authority, his brother B lends his money to C. Later on, C pays the interest on the lended money and A accepts the interest. A’s conduct implies at ratification of the loan, and ii: may be presumed that his (A’s) brother B’s conduct in lending the money is as valid as if it were done in pursuance of 38 his (A’s) prior authority and this kind of agency is called ‘agency by ratification’

Effect of ratification: The effect of ratification is to make the agent’s acts, done without prior authority as binding and valid upon the principal as if they had the prior sanction of the principal. In fact, ratification relates back to the date when the act was done by the agent and not to the date when the principal ratified the act. 

4) By operation of Law: 

Another mode of creation of agency is by Operation of Law. In certain circumstances, the law treats one person as an agent of another. It can be better understood by the example that when a partnership is formed, every partner, by operation of law, automatically becomes the agent of other partners.  

As between the principal and third persons, any person (whether he has contractual capacity or not) may become an agent. Thus, a minor or a person of unsound mind can also become an agent.  An independent contractor merely undertakes to perform certain specified work .An independent contractor has almost absolute discretion whereas an agent is controlled by the principal. Due to the control of the principal, liability is more fairly attributed to the principal for the agent’s actions .

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Introduction

Transactions conducted under international commercial contracts, in particular those related to the sale of goods, are considered to form the backbone of international trade.

When considering an international commercial contract, two questions are of key importance: (1) where will disputes arising under the contract be heard; and (2) what law or rules govern the contract. A typical best practice would be for contractual parties to answer both of these questions by including in the contract a choice-of-forum clause and a choice-of-law clause.

While there are certain exceptions and limitations, the relevant rules in the vast majority of States allow for party autonomy, permitting parties to select both the forum and governing law for their contracts. If parties fail to select an applicable law, a court accepting jurisdiction of the dispute will have to apply the relevant conflict rules of private international law to determine which law is applicable to the contract, including any international instruments that might apply by default. The rules of private international law are notoriously complex.

In international commercial practice, it is common for parties to choose arbitration as the method for resolving the dispute.International commercial arbitration may be particularly popular because, unlike for court judgments, there is a single nearly comprehensive regime for enforcement of foreign arbitrary awards (governed by the conventions and treaties).

Arbitral tribunals are governed by the arbitration law at the seat of arbitration. The vast majority of international commercial arbitration laws, many derived from the UNCITRAL Model Law on International Commercial Arbitration also recognize party autonomy, permitting parties to choose the rules of law applicable to the contract. In addition, arbitral tribunals, unlike most courts and depending on the law at the seat of arbitration, may be authorized to decide cases based on general principles of fairness and justice without applying a specific law or to apply “rules of law,” such as lex mercatoria and the Unidroit Principles of International Commercial Contracts 2010 without reference to any national law.

DETERMINATION OF THE APPLICABLE LAW BY THE PARTIES

 When an arbitrator has to decide which law to apply for the solution of the dispute, he may find a contractual clause providing an express choice of law1 : “The validity, construction and performance of this contract shall be governed by and in accordance with the law of…” or similar provisions. The parties may provide for the application of some national law or for some nonnational set of rules. 

IF THE PARTIES CHOOSE A NATIONAL LAW 

In such situation, the arbitrator has to decide: should he test the autonomy of the parties in choosing the applicable law under a conflict of laws system or should he recognize that freedom without relying on any conflict of laws rule? The party autonomy is widely recognized both in common law and civil law. However, not every country gives parties unlimited freedom to choose the applicable law. Since every right, power or duty of a person has its root in the law of the nation, even the party autonomy principle as well as arbitration as a whole, must rely on and derive its existence from a national law system. The arbitrator must analyze the party autonomy under the conflict of laws of the lex fori and he can also disregard the choice of the parties if they did not select the national law with which the contract has its closest connection. In so doing they can find an agreement that they probably could not have reached if they had applied the national law of either party. Those factors make the choice of the parties “appropriate” – meaning that for those reasons the contract has sufficient connections with that law such as to admit that choice. 

IF THE PARTIES CHOOSE A NON-NATIONAL SET OF RULES 

Non-national standard has been defined in different ways: international law, international customs or usages, transnational law. In spite of all these different labels probably the same phenomenon reoccurs: a set of rules developed to regulate international trade in the merchants’ community. The question is whether an arbitrator should respect the choice of the parties. Furthermore, not being a highly developed system, lex mercatoria does not cover all the matters which might be the object of a dispute. 

Determination of the Applicable Law by the Arbitrator When the Parties Do Not Make a Choice.

It so happens that an agreement is sound but when parties reach the stage of selecting the applicable law they face a difficult situation. They come from different countries and therefore they are not acquainted with and do not confide in the respective national laws. Why is the determination of the applicable law by the arbitrator a problem in an international commercial arbitration?

(i) Application of the Conflict of Laws System of the Country Which Would Have Had Jurisdiction in the Absence of an Arbitration Clause The conflict of laws system controlling arbitration is that of the country which would have had jurisdiction to settle the dispute between the parties if they had not included the arbitration clause in the contract. That country has been in reality dispossessed of its jurisdictional authority by the arbitration clause and therefore it may reaffirm its control over arbitration in this way. The theory has been criticized mainly on two grounds. An arbitrator, under Anzilloti’s theory, has the difficult burden to determine which national court would have had jurisdiction if parties had not submitted to arbitration. Second, this solution is not acceptable because it is circular. An arbitrator has to select a conflict of laws rule to know which country would have had jurisdiction; hence the issue of the applicable private international law system arises again. 

(ii) Application of the Conflict of Laws System Where the Arbitral Tribunal Has Its Seat Under this theory, the will of parties is respected: they can freely choose the seat of arbitration and therefore indirectly select the applicable conflict of laws rule. An arbitration clause, as any other contract between private parties, cannot be suspended in the air, but must draw its authority from a national law provision. 

(iii) Application of the Conflict of Laws System: 

Three Trends 

It has often been suggested that the conflict of laws rules of the arbitrator should apply. The first question is: what test should be followed: the nationality, the domicile or the residence of the arbitrator? The argument in favor of this theory is that an arbitrator has the best knowledge of his personal law. It is very easy to object that in an ICA the two parties come from different countries and therefore an arbitrator choosing the law of either party leaves the other one unsatisfied. The third and last example is the attempt to apply the private international law system of the state where the arbitral award will be enforced. 

(iv) Cumulative Application of the Conflict of Laws Systems Connected with the Dispute An arbitrator, instead of applying one of the conflict of laws systems mentioned in the previous sections, looks at all the systems that have any contact with the dispute.4 From this analysis, might ascertain that these systems lead to the same solution: they all select the same national law as applicable to the contract. 

(v) Application of a Substantive National Law without Having Recourse to any Conflict of Laws System The substantive conflicting laws may contain different provisions, hence leading to dissimilar solutions of the dispute: this is a so-called true conflict of laws situation. In this context a national court would usually apply its private international law rule. When the intention of the parties to a contract with regard to the law governing it is not expressed and cannot be inferred from the circumstances, the contract is governed by the system of law with which the transaction has its closest and most real connection. 

INTERNATIONAL CONVENTIONS’ PROVISIONS AND ARBITRAL INSTITUTIONS’ RULES ON THE APPLICABLE LAW 

(i) New York Convention on Recognition and Enforcement of Foreign Arbitral Awards Its purpose is to render compulsory among contracting parties the enforcement of arbitral awards. Therefore the specific subject of the Convention does not interfere with the issue at hand: the applicable law in an international commercial arbitration. The provision is dealing exclusively with the arbitration agreement and not with the whole contract. It is undisputed today that the two issues, the validity of the arbitration agreement and the validity of the contract, are separate and therefore the law applicable to the former is not necessarily the same one applicable to the latter. Consequently a national court could refuse enforcement of the award if the arbitration clause was invalid under either law of article V (l) a, but it could not if any other substantive provision of the contract was invalid under that law.

 (ii) European Convention on International Commercial Arbitration, April 21, 1961 In contrast with the New York Convention, article VII of the European Convention specifically deals with the issue of the applicable law in an international commercial arbitration. 

(iii) Rules of Arbitral Institutions on the Applicable Law The International Chamber of Commerce, the UNCITRAL, the UNECAFE and the UNECE Arbitration Rules, contain specific provisions dealing with the law applicable in an international commercial arbitration. All three provisions follow the pattern of the 1961 European Convention: recognition of the principle of party autonomy, the rule of conflicts which the arbitrator deems applicable and the relevant trade usages.

 THE RATIONALE UNDERGIRDING THE DEBATE OF CHOICE OF LAW 

Some authors support lex mercatoria, “denationalization” of arbitration and the idea that arbitration should not be necessarily bound by any national conflict of laws rule. Another part of the doctrine, as authoritative as this, argues against lex mercatoria and any attempt to detach arbitration from any national law system. It is important to stress that international commerce needs a “denationalization” of arbitration and that international merchants look at an arbitration as disconnected from any national law system. One has to demonstrate how this new legal order, in which international arbitration plays such an important role, can subsist theoretically.

Indian private international law is majorly governed by judiciary decisions in concrete cases. The courts have generally adopted the English rules of private international law. The Supreme Court in Delhi cloth and General Mills V. Harnam Singh had to decide whether Indian private international law gave the parties the freedom to choose whatever governing law from any part of the world. The case pertained to the recovery of balance from the plaintiff who resided in Pakistan and was in business with the defendant in India.

Restrictions on the power to choose the proper law

There are many reasons for the power of choosing the proper law in the very beginning of the contract, firstly, it gives the parties a feeling of certainty as to the governing law, secondly, in domestic systems of law, the parties are largely free to choose the terms of their contract for themselves, from which the power to choose the governing law automatically follows as an apparent and rational expansion. However, there are some limitations as well to the power of parties to choose the proper law such as :

1. Mandatory rules of domestic law– Some rules of the domestic law are not optional, but mandatory, which means they are applicable irrespective of any agreement of the parties to the contrary. For instance, the rules which render the contracts void on the ground of public policy, etc. This is to say that if parties are allowed an unrestricted choice of the governing law, there will be chances on evasion from mandatory rules of the country with which the contract is most closely connected, whose purpose may be to protect the public interest or to protect the interests of a particular class, such as employees or consumers. Moreover, in the Vita Foods case, it was held by the court that the only general limitation on the choice of the parties regarding the governing law is that it must be made with bonafide intention and it must be legal.
2. The law of the country with which the contract is most closely connected– in some cases, where the choice of proper law cannot be derived either expressly or impliedly from the contract, then the law of the country with which the contract is most closely connected is deemed the proper law. The court, in this regard, considers various factors such as the place of making the contract, the place of performance of the contract, the connection of the parties with the countries, the site of any immovable property which is the subject matter of the contract, etc. However, it is sometimes hard to determine the close connection itself.
3. Convenience and business efficiency– When the interest of the parties is emphasized in the contract, then the court evaluates the contract in terms of business efficiency and convenience. For this, the court looks at multiple factors with varying relevance while deciding these connections, for instance, the factors like the place of making the contract or the place of performance may not be as important as the place where the parties carried their business or where they reside in. Moreover, in relation to the interest of the parties, the law of that country with whom the party belongs will usually be the accurate law. However, it is still not easy to answer the question that the law of which party must be preferred, in an international contract.

Conclusion

In sum, it can be said the choice of laws in context of international commercial contracts has been a complex space for stakeholders. The challenge posed of choice of laws do get amplified when there’s an ambiguity regarding the principles that are the fundamentals for International commercial contracts in Indian experience, thus it becomes relevant for the courts to resonate with international trends which provide certain fundamentals for the adjudication of suits related to international contract. This suggestion becomes more relevant in the context of increasing global trade, since it inevitably results in an increase in disputes between parties. Hence, the courts need to lay down more predictable and certain standards for the parties to choose a proper law while their autonomy of the latter remains unharmed.