Business Laws and Ethics · Special Contracts - Indemnity and Guarantee; Bailment and Pledge; Laws of Agency

Law of Agency: Creation and Kinds of Agents

Updated 10 October 2026 · Fact-checked

An agent is a person who acts for another, the principal, and brings the principal into legal relations with third parties. Agency is created by express or implied authority, necessity, ratification or operation of law. Kinds of agents include special, general, mercantile, del credere agents and sub-agents. Identify the mode and kind, then apply the rule.

Understand Agency: Creation and Kinds of Agents

An agent is a person employed to do an act for another, or to represent another in dealings with third persons. The person for whom the act is done, or who is represented, is the principal. The core idea: the agent acts, but the principal is bound. A contract made by an agent within authority is treated as the principal's own contract.

Who can be a principal? Any person who is of the age of majority, of sound mind and not disqualified from contracting by any law can appoint an agent. This is the general rule on capacity to contract. Who can be an agent? Under Section 184, as between the principal and third persons, any person may become an agent. But a person who is not of the age of majority and of sound mind cannot become an agent so as to be responsible to the principal. So a minor agent can bind the principal to third parties, but the minor is not answerable to the principal.

Agency is created in four main ways. First, by express agreement, written or oral, or by implied agreement from conduct, relationship or circumstances (for example, a hotel employee ordering supplies). Second, by necessity, where someone must act for another in an emergency to protect that other's interests. Third, by ratification, where the principal later accepts an act done on his behalf without authority. Fourth, by operation of law, for example partners acting for each other. Consideration is not needed to create an agency.

Ratification has conditions. The agent must have purported to act for the principal. The principal must have existed and been competent at the time of the act. The principal must know the material facts, or show an intention to ratify whatever the facts. The whole transaction must be ratified, not part of it. The act must be lawful and capable of being ratified, and ratification must not injure a third party. Ratification relates back to the date of the act.

Kinds of agents. A special agent is appointed for a particular act or transaction. A general agent is appointed for all acts in a particular business or trade. A mercantile agent (such as a broker, factor or commission agent) deals in goods or finance in the course of business. A del credere agent charges extra commission and guarantees the principal that the buyer will pay. A sub-agent is a person employed by, and acting under the control of, the original agent in the business of the agency (Section 191). An agent differs from a servant: a servant works under the master's control and direction, while an agent works with discretion and can create legal relations with third parties for the principal.

Key rules to remember

Who may be an agent (Section 184): Any person can be an agent as between principal and third parties; only an adult of sound mind is responsible to the principal; A minor agent binds the principal to third parties but cannot be held liable to the principal.
Sub-agent defined (Section 191): Sub-agent = person employed by, and acting under the control of, the original agent in the business of the agency; Control by the original agent is the test.
Properly appointed sub-agent (Section 192): Principal is bound by the sub-agent's acts as if he were an original agent; agent is responsible to principal for sub-agent; sub-agent is responsible to agent, not principal, except fraud or wilful wrong; Three liability links to remember.
Sub-agent appointed without authority (Section 193): Agent stands as principal to the sub-agent and is responsible for his acts to the principal and third persons; Principal is not represented by, or responsible for, that person.
Substituted agent (Section 194): Agent with authority to name another person, who names him: that person is an agent of the principal, not a sub-agent; Example: solicitor told to employ an auctioneer; the auctioneer is the principal's agent.
Modes of creation: Express | Implied | Necessity | Ratification | Operation of law; Consideration is not necessary for agency.
Conditions for valid ratification: Act done on behalf of principal + principal in existence and competent at the time + full knowledge of facts + whole act ratified + lawful + no injury to third party; Effect relates back to the date of the act.

How to solve Agency: Creation and Kinds of Agents questions

Use this method for any question on creation of agency or kinds of agents.

1Identify the parties: who is the principal, the agent, the sub-agent (if any) and the third party.
2Check capacity: is the principal an adult of sound mind? If the agent is a minor or of unsound mind, apply Section 184.
3Decide the mode of creation: express, implied, necessity, ratification or operation of law.
4If the act was unauthorised, test ratification point by point: purported agency, existing principal, knowledge of facts, whole act, lawful act, no injury to third party.
5Classify the agent: special, general, mercantile, del credere or sub-agent. For a person named by the agent, check authority and Sections 191 to 194.
6Apply the liability rule: who is bound to whom, and who can sue whom.
7State the conclusion in one clear line, quoting the section number only where you are sure of it.

Quickest way: Three-question scan

When to use it: Use this for MCQs and short case problems when time is tight.

Ask: was the agent authorised at the time? If yes, the principal is bound. If no, go to ratification.
Ask: is there a second-level person? If appointed with authority and under the agent's control, it is a sub-agent; if the agent just named him to act for the principal, he is the principal's agent.
Ask: does the question mention a guarantee of the buyer's payment for extra commission? That is a del credere agent.

Common mistakes in Agency: Creation and Kinds of Agents

Saying a minor cannot be an agent at all.
Students mix up capacity to contract with capacity to be an agent.
Fix: Remember Section 184: a minor can be an agent as regards third parties, but is not responsible to the principal.
Saying consideration is needed to create an agency.
Students apply the general contract rule everywhere.
Fix: State that agency needs no consideration; the principal can appoint without paying.
Allowing ratification of part of an act, or ratification that harms a third party.
Conditions are memorised as a list without reasons.
Fix: Write that ratification must cover the whole transaction and cannot injure a third party.
Treating every person named by an agent as a sub-agent.
Students ignore the Section 194 exception.
Fix: If the agent had authority to name another person to act for the principal and did so, that person is the principal's agent, not a sub-agent.
Confusing a del credere agent with a surety or an ordinary commission agent.
The word guarantee suggests a separate guarantee contract.
Fix: Describe him as a mercantile agent who, for extra commission, assures the principal that buyers will pay; his role is within the agency.
Writing that an agent and a servant are the same.
Both work for another person.
Fix: Contrast: the agent has discretion and brings the principal into legal relations with third persons; the servant works under the master's direction.

Worked examples

Example 1

Ravi, a merchant in Pune, authorises Meena to recover money due to him from Sharma & Co. Meena instructs Karan, a solicitor, to take legal proceedings against Sharma & Co. Is Karan a sub-agent of Meena? Explain.

Show the solution

Meena is the agent. She was authorised to recover the money, and she named Karan to act in the business of the agency.
Under Section 194, where an agent holding express or implied authority to name another person to act for the principal has named him, that person is not a sub-agent but an agent of the principal for the part of the business entrusted to him.
Here, appointing a solicitor for legal proceedings is a step within the recovery business, so Meena had implied authority to name him.
So Karan is Ravi's solicitor, not Meena's sub-agent.

Answer: Karan is not a sub-agent. He is Ravi's agent for the legal proceedings.

Example 2

Anil, without any authority, buys 100 bags of rice on behalf of Bharat Traders Ltd, naming the company as buyer. The company was already in existence. Later, knowing all facts, it accepts the rice and pays the seller. Is the company bound? What if it had agreed to accept only 60 bags?

Show the solution

Anil purported to act on behalf of the company, which existed and was competent when he acted.
The company knew all material facts and accepted the goods and paid, which shows ratification by conduct.
The act is lawful and no third party is injured.
Ratification relates back to the date of purchase, so the company is bound as if Anil had been authorised from the start.
Ratification must cover the whole transaction. Accepting only 60 bags out of 100 is a partial ratification and is not valid ratification of the contract.

Answer: The company is bound by the purchase of 100 bags through ratification. Partial acceptance of 60 bags would not amount to valid ratification.

Exam tips

For 'who can be an agent' questions, quote the Section 184 distinction between liability to third persons and liability to the principal.
For ratification, write the conditions as a short numbered list. Each condition usually earns a step mark.
In sub-agent cases, state which section applies: 191 for definition, 192 for proper appointment, 193 for appointment without authority, 194 for a named person.
MCQs often test traps: consideration not needed, minor as agent, and del credere meaning. Read every option fully before choosing.
For agent versus servant, give three or four contrast points in two columns of text, then end with a one-line conclusion.

Practice questions from Special Contracts - Indemnity and Guarantee; Bailment and Pledge; Laws of Agency

Agency: Creation and Kinds of Agents in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Agency: Creation and Kinds of Agents: frequently asked questions

Can a minor be appointed as an agent?

Yes, as between the principal and third persons. But under Section 184 a minor cannot be an agent so as to be responsible to the principal. The principal is bound to third parties, but cannot hold the minor liable.

Is consideration required to create an agency?

No. An agency can be created without consideration. The principal's authority to the agent is enough.

What is the difference between a sub-agent and a substituted agent?

A sub-agent is employed by and works under the control of the original agent. A substituted agent is a person the agent names, with authority, to act for the principal, and he becomes the principal's agent directly under Section 194.

What is a del credere agent?

He is a mercantile agent who, for an extra commission, assures the principal that the buyers he deals with will pay. He therefore bears the risk of buyer default.

What is the difference between an agent and a servant?

A servant works under the direction and control of the master. An agent acts with discretion for the principal and can create contractual relations between the principal and third persons.