Law of Agency for CLAT: Principal, Agent & Authority

📑 On this page

⚡ The short answer

An agent acts for someone else, the principal, in dealings with third parties. If the agent acts within his authority (given, implied, apparent, or approved later by ratification), the contract binds the principal as if he had made it himself, and the agent usually drops out. Outside that authority, the principal walks free and the agent may face the bill.

🎬 The 30-second story

The jersey order

“Aarav, you handle stock orders now.”

🏪

Kabir

For a year, Aarav orders on the shop's account.

“Nothing above ₹20,000 without asking me.”

🤫

Kabir

Said privately. No supplier hears it.

“Fifty IPL jerseys, Rohan. Bill the shop.”

👕

Aarav

A ₹50,000 order to a regular supplier.

“You won't pay? Your manager ordered them!”

🧾

Rohan

Kabir says Aarav had no authority.

Tara's ruling: Kabir pays. He let Aarav order stock for a year, so to Rohan, Aarav looked authorised. A secret cap can't bind a supplier who never heard of it: that is apparent authority. Kabir can recover his loss from Aarav.

What is agency, in plain words?

You can't be everywhere, so you send someone: a manager to order stock, a broker to sell shares. You are the principal; that person is your agent. The agent's deal becomes your deal. The maxim: qui facit per alium facit per se, he who acts through another acts himself.

🧮 The formula

How an agent's deal becomes yours

🧑‍💼

Principal

gives authority

🤝

Agent

acts within it

🧍

Third party

deals with the agent

📜

Principal ↔ third party contract

🔗 Who owes whom

The agency triangle

Principal → Agent: gives authority
Agent → Third party: makes the deal — in the principal's name
Third party → Principal: sue each other — the agent usually drops out

📌 What CLAT actually expects

The passage states the rule. Ask two questions: was this person acting for someone else, and was the act within the authority the passage describes? Don't import exceptions it leaves out.

Who can be a principal, and who can be an agent?

The principal ends up bound, so he needs full capacity: a major of sound mind. The agent is only a conduit, so anyone can be one, even a 16-year-old. And agency needs no consideration: a friend who books your ticket for free is still your agent.

⚔️ Side by side

Principal vs agent: who needs what?

🧑‍💼Principal

Must be able to contract

•A major of sound mind
•Carries the deal's rights and duties

🤝Agent

Only needs to be able to act

•Anyone, even a minor
•Needn't be paid

Test	Principal	Agent
If the agent is a minor	Still bound to the third party	Not answerable to the principal for poor work

The principal carries the deal; the agent only needs to say the words.

How is an agency created?

🧩 At a glance

Five ways to become someone's agent

✍️Express

Spoken or written, like a power of attorney.

🧭Implied by conduct

Let a worker take cash at your counter and he is your agent to receive payment.

🎭Apparent authority

You make the world believe someone is your agent; you can't deny it later.

🚨Necessity

A real emergency and no way to reach the owner.

✅Ratification

Someone acts in your name unasked; you approve later.

Agency of necessity: when there's no time to ask

A truck carrying Kabir's mangoes is stuck for days behind a landslide. The fruit is rotting and Kabir is unreachable. Selling at the nearest market is what a sensible owner would want, so the law treats the transporter as Kabir's agent for that sale. It needs a real emergency, no way to reach the principal in time, and good faith, acting as a prudent person would for his own goods.

Ratification: saying yes after the fact

🕒 Timeline

How ratification relates back

1
Day 1

Unauthorised act

Aarav buys a rare bat, saying it is for Rohan.
2
Day 3

Full facts

Rohan learns the price and terms.
3
Day 4

Ratifies

By words (‘it's mine’) or conduct (paying the seller).
⏪
Effect

Relates back

Treated as authorised on Day 1.

✓Done on your behalf. If Aarav bought the bat for himself, Rohan can't adopt the deal.
✓Capacity when the act was done and when ratifying.
✓Full knowledge of the material facts.
✓All or nothing. Ratify half a transaction and you ratify all of it.
✓No harm to outsiders. You can't ratify to defeat a third person's rights.

How far does an agent's authority stretch?

Express authority is what you said. Implied authority covers everything lawful and necessary to do it: a manager told to run a shop can buy stock. Apparent authority rests on what the principal has shown the world. A secret limit binds the agent, not a third party who doesn't know of it.

🧭 Decision flow

Is the principal bound?

❓ Did the principal authorise the act, in words or by necessary implication?

Yes →

Bound: actual authority

No ↓

❓ Did the principal's conduct make the third party reasonably believe the agent had authority, with no notice of any limit?

Yes →

Bound: apparent authority

he can then claim from the agent

No ↓

❓ Was it a genuine emergency, with no way to reach the principal?

Yes →

Bound: agency of necessity

No ↓

❓ Has the principal ratified, knowing the facts?

Yes →

Bound from the start: ratification

No ↓

❓ Can the authorised part be cleanly separated from the excess?

Yes →

Bound only for the authorised part

told to buy 500 sheep, he also buys lambs separately

No →

Not bound; the agent answers to the third party

Can the agent hand the job to someone else?

Usually not: delegatus non potest delegare, a delegate can't delegate. You chose the agent for his skill, not his cousin's. Delegation is fine where trade custom allows it, the job needs it, the principal agrees, or the task is purely mechanical.

⚔️ Side by side

Proper vs improper sub-agent

✅Properly appointed

Delegation was allowed

•Principal bound to third parties
•Answers to the agent; to the principal only for fraud or wilful wrong

⛔Improperly appointed

No power to delegate

•Principal not bound by his acts
•The agent answers to principal and third parties

Either way, the agent who delegated stays answerable to the principal.

When is the agent personally liable?

✓He agreed to be under the contract.
✓He hid the principal. The seller may then hold the agent, the principal once discovered, or both.
✓The principal can't be sued, say for lack of capacity.
✓He had no authority at all. A pretended agent compensates the third party and can't enforce the deal himself.

💡 The undisclosed principal can step in

If Aarav buys a scooter in his own name, secretly for Kabir, Kabir can claim it. But the seller keeps every defence he had against Aarav, and if Kabir surfaces before the deal is complete, the seller may back out by showing he would never have sold to Kabir.

The principal also answers for his agent's fraud or misrepresentation in the course of the agency business, and notice to the agent there is notice to the principal: contract law's cousin of vicarious liability.

How does an agency end?

🧩 At a glance

Ways an agency ends

🏁Job done

The business is completed.

⏳Time runs out

A fixed period expires.

🚪Revoked or renounced

The principal sacks, or the agent quits.

⚰️Death or unsound mind

Of either side.

💸Principal insolvent

He is declared insolvent.

A sacking lands at two moments. Against the agent, it works when he learns of it; against a third party, only when that party learns of it. So a buyer who never heard of the revocation can still hold the principal to the deal.

⚠️ When the principal can't simply revoke

If the agent has his own interest in the subject (Kabir owes Aarav money and lets him sell Kabir's flat to repay himself), the agency can't be revoked to Aarav's prejudice and survives Kabir's death. Acts already done stay done. Sacking a fixed-term agent early without cause means paying compensation.

Which cases show agency at work?

🏛️

Landmark case · 1964 · Court of Appeal (England)

Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd

📋

What happened

A director ran a property company as its managing director, though never appointed. The board knew. He hired architects for the company.

❓

The question

Could the company deny his authority when the bill came?

🔨

What the court held

No. By letting him act as managing director, the board represented he had that role's usual authority. The architects recovered.

What CLAT takes from it: Apparent authority flows from the principal's conduct, not the agent's claims.

🧾

Landmark case · 1999 · Supreme Court

Delhi Electric Supply Undertaking v Basanti Devi

📋

What happened

An employer deducted an employee's LIC premium from his salary but stopped sending it to LIC. He died; LIC said the policy had lapsed.

❓

The question

Was payment to the employer payment to LIC?

🔨

What the court held

Yes. The employer had implied authority as LIC's agent to collect premiums, so LIC had to pay the widow the sum assured with interest.

What CLAT takes from it: Pay the principal's agent and you have paid the principal.

🏡

Landmark case · 2024 · Supreme Court

Thankamma George v Lilly Thomas

📋

What happened

A nurse abroad gave her sister a power of attorney over their joint plot. Back home, she herself joined in selling part of it. The sister later sold the nurse's share to her own husband, who had witnessed that sale.

❓

The question

Was the sister still an agent?

🔨

What the court held

No. By dealing with the property herself, the nurse impliedly revoked the agency, and the husband knew. The later sale of her share was void.

What CLAT takes from it: Revocation can be by conduct, but binds a third party only once he knows.

How has CLAT asked it?

All four past agency questions are from 2018–19, when CLAT gave a one-line principle and short facts. Two are solved in full below.

📝 Asked in CLAT 2018 · Q166 Acting through another

Legal Principle: The Latin maxim qui facit per alium, facit per se means that he who acts through another, acts himself. Fact Situation: Heema requests her minor sister Harika to purchase a bag for her from the local shop. Harika purchases the bag on credit telling the shop keeper that her sister will pay for it. Afterwards, Heema refuses to pay for the bag.

Which of the following statements is the most appropriate in relation to the legal principle stated above?

ASince Heema has not purchased the bag herself she is not liable to pay for it.

BHarika being a minor the shop keeper should not have sold the bag to her.

CSince she purchased the bag through her sister, Heema is liable to pay for it.

DHarika being a minor should not have been entrusted by Heema for the purchase of the bag.

Reveal answer + reasoning

Answer: C

Harika bought the bag for Heema and said so, so by the maxim Heema bought it herself. Harika's age is a decoy: a minor can be an agent.

Why the others fail

A — is exactly what the maxim rejects.
B — the sale was to Heema through her agent.
D — comments on Heema's judgment; it isn't a legal consequence.

📝 Asked in CLAT 2019 · Q110 Receipt by an authorised employee

Principle: Master is liable for the acts of his servant done in the course of his duties. Facts: X hired an employee Y in his construction business. Y was the property in-charge who received construction material and gave receipts for the material received by him. Z claimed payment for cement supplied to X which was duly received by Y. X denied the payment on the ground that he has only received half of the material and the balance was misutilized by the employee Y.

Choose the most appropriate answer.

AX is liable for the entire amount

BX is liable for the part amount only i.e. for payment of the cost of half of the material

CX is not liable for the misconduct/embezzlement of his employee

DZ can claim the balance payment only from Y

Reveal answer + reasoning

Answer: A

Our solution; the 2019 key for this set isn't available. Receiving material was Y's job, so delivery to Y was delivery to X. What Y did next is between X and Y.

Why the others fail

B — puts a loss inside X's business onto Z.
C — the receipt was in the course of duty; the misuse came later.
D — Z dealt with X through Y.

ℹ️ The other two: partners as agents

2018 Q168: a partner buys a car for personal use on the firm's credit. The other partners aren't liable (key: B); a partner is an agent only for the firm's business. 2018 Q186: a partner agrees to buy rice for a rice-trading firm, then dies. The other partner is bound (key: C); death ends authority for the future, not deals already made.

💥 Myth vs fact

Agency traps

🙅 Myth

No payment means no agency.

Tap to bust it →

✅ Fact

Agency needs no consideration.

🙅 Myth

A minor can't be an agent.

Tap to bust it →

✅ Fact

He can, and the principal is bound.

🙅 Myth

Sack your agent and his later deals can't touch you.

Tap to bust it →

✅ Fact

Only people who know of the sacking are affected by it.

🙅 Myth

The agent signed, so he's liable.

Tap to bust it →

✅ Fact

Usually he drops out, unless he agreed, hid the principal or lacked authority.

🎯 Quick quiz

Is the principal bound? 5 quick fact patterns

0 / 5

Unasked, Aarav buys a guitar ‘for Rohan’. Knowing the price, Rohan says ‘I'll keep it’, then changes his mind.

Q1. Is Rohan bound?

Aarav buys a laptop in his own name, for himself. Kabir then announces he ‘ratifies’ the purchase.

Q2. Can Kabir ratify?

Kabir texts his agent Zoya cancelling her authority to sell his car. Zoya reads it but sells to Rohan, who knows nothing.

Q3. What is the position?

A truck carrying Kabir's tomatoes breaks down in a remote area. The driver can't reach Kabir and sells the rotting tomatoes cheaply.

Q4. Can Kabir sue the driver?

Kabir asks Aarav to buy him a plot. The seller secretly pays Aarav ₹50,000 to steer the deal.

Q5. What can Kabir do?

Now test agency under the clock

Passage-based Contracts drills in the real CLAT exam screen, with full solutions.

Start a Contracts drill

🎯 In a nutshell

He who acts through another acts himself.
Principal needs capacity; agent can be anyone, unpaid.
Authority: express, implied, apparent, necessity or ratification.
Agent drops out unless he agreed, hid the principal or lacked authority.
Revocation binds third parties only once they know.

📎 Good to know, not to memorise

Indian Contract Act, 1872, ss.182–238: capacity ss.183–184; no consideration s.185; authority ss.186–189; sub-agents ss.190–195; ratification ss.196–200; termination ss.201–210 (interest s.202; revocation's effect s.208); duties ss.211–218; principal's liability ss.226–238 (personal liability ss.230, 233; undisclosed principal s.231; apparent authority s.237).
Indian Partnership Act, 1932: a partner is the firm's agent (ss.18–19).

Frequently asked questions

What is the difference between an agent and a servant?

A servant works under the employer's control over how the work is done. An agent represents the principal in dealings with third parties and can make contracts for him. One person can be both, like a shop manager.

Can a minor appoint an agent?

No. A minor's own agreement is void, and he can't do through an agent what he can't do himself. The reverse works: a major can appoint a minor as agent and is bound by the minor's deals.

Is a power of attorney the same as agency?

A power of attorney is a formal written appointment of an agent, general for many acts or special for one. It ends like any agency, and the principal's own conduct can impliedly revoke it.

Does an agency end when the principal dies?

Generally yes, as on the agent's death or either side's unsoundness of mind. The exception is an agency coupled with interest, where the agent has his own stake, such as authority to sell property and repay himself.

What is a del credere agent?

An agent who, for an extra commission, guarantees the principal that the buyers he finds will pay. If a buyer defaults, he pays. He is an agent for the sale and a guarantor for the price.