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Unit 12: Law of Agency

possession of the agent. The right of lien will, therefore, be lost where he parts with the Notes
possession of goods or papers. But if the possession is obtained from the agent by fraud or
unlawful means, his lien is not affected by the loss of possession.
4. Right of stoppage in transit: The agent can stop the goods while in transit in two cases: (a)
where he has purchased goods on behalf of the principal either with his own funds, or by
incurring a personal liability for the price, he stands towards the principal in the position of
an unpaid seller. Like an unpaid seller, he enjoys the right of stopping the goods in transit if
in the meantime the principal has become insolvent. (b) Where agent holds himself liable to
his principal for the price of the goods sold, for example, del credere agent, he may exercise
the unpaid seller’s right of stopping the goods in transit in case of buyer’s insolvency.
5. Right of indemnification (Ss. 222-224): The principal is bound to indemnify agent against

the consequences of all lawful acts done by the agent in exercise of authority conferred on
him.

Examples: (i) John, at Singapore, under instructions from Amin at Calcutta,
contracts with Cooper to deliver certain goods to him. Amin does not send the goods
to John and Cooper sues John for breach of contract. John informs Amin of the suit and
Amin authorizes him to defend the suit. John defends the suit and is compelled to pay
damages and costs and incurs expenses. Amin is liable to John for such damages, cost and
expenses.
(ii) Bharat, a broker at Calcutta, by the order of Amin, a merchant there, contracts with
Cooper for the purchase of 10 casks of oil for Amin. Afterwards Amin refuses to receive the
oil and Bharat sues Cooper. Bharat informs Amin, who repudiates the contract altogether.
Bharat defends, but unsuccessfully and has to pay damages and costs and incur expenses.
Amin would be liable to Bharat for such damages, costs and expenses.
Section 223 further provides that agent shall have a right to be indemnifi ed against
consequences of acts done in good faith.

Example: B, at the request of A, sells goods in the possession of A, but which A
had no right to dispose of. B does not know this and hands over the proceeds of the sale
to A. Afterwards C, the true owner of goods, sues B and recovers the value of the goods
and costs. A is liable to indemnify B for what he has been compelled to pay to C and for
B’s own expenses, provided C has acted in good faith and he had no knowledge that the
goods did not belong to A.
However, it must be remembered that agent cannot claim indemnification for criminal act,

even though the principal had agreed to do so (s.224).

Examples: (i) A employs B to beat C and agrees to indemnify him against all
consequences of that act. B thereupon beats C and has to pay damages to C for so doing.
A is not liable to indemnify B for those damages.
(ii) B, the proprietor of a newspaper, publishes, at A’s request, a libel (defamation in
writing) upon C in the paper and A agrees to indemnify B against the consequences of the
publication and all costs and damages of any action in respect thereof. B is sued by C and
has to pay damages and also incurs expenses. A is not liable to B on the indemnity.

6. Right to compensation for injury caused by principal’s neglect (s.225): The principal must
make compensation to his agent in respect of injury caused to such agent by the principal’s
neglect or want of skill.

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