Principal’s liability when agent exceeds his authority

Where authority can be separated: (Sec 227) When an agent does more than he is authorized to do, and when the part of what he does, which is within his authority can be separated from the part which is beyond his authority, so much only of what he does as is within his authority is binding between him and his principal. The principal is therefore not bound by unauthorized acts of his agent.


A, being owner of a ship and cargo, authorizes B to procure an insurance for Rs 4,000 on the ship. B procures a policy for Rs 4,000 on the ship and another for the like sum on the cargo. A is bound to pay the premium for the ship, but not the premium for the policy on the cargo.

Where authority cannot be separated (Sec 228) Where an agent does more than he is authorized to do and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognize the transaction.


1) A authorizes B to buy 500 sheep for him. B buys 500 sheep and 700 lambs for lump sum of Rs 6,000. A may repudiate the whole transaction.
2) A authorizes B to draw bills to the extent Rs 200 each. B draws bills in the name of A for Rs 1,000 each. A may repudiate the whole transaction.

However, where an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent’s authority. Such an agency is called agency by estoppel. The principal is estopped from denying agent’s authority where he has induced third persons to believe by his words or conduct that the agent was acting on his behalf and within the scope of his authority.

Revocation and renunciation of agent’s authority:

Revocation by principal:

The principal may revoke the authority to his agent at any time before the authority has been exercised so as to bind the principal (Sec203). The authority by an agent is said to be exercised when agent has acted so as to bind principal. Principal can revoke agent’s authority before contractual relation is created with third party.

Where there is an express or implied contract that the agency should be continued for any period of time, the principal must take compensation to the agent for any revocation of the agency without sufficient cause (Sec 205). The principal will therefore be liable to pay compensation only when there is an express or implied contract that the agency shall be continued for a particular period of time and he revokes his agent’s authority before the expiry of that agreed time without sufficient cause. In the absence of a special term in the contract or in the absence of an express or implied contract, there is no implied obligation on the principal to continue with the agency and agent cannot claim any compensation. Reasonable notice of such revocation must be given otherwise the damage thereby resulting to the agent must be made good by the principal to the agent (Sec 206).

Notice must be given before revoking the authority otherwise agent will be entitled to damages. Notice period must be reasonable.

When there is no stipulation as to the duration of the agency, the agency can be terminated by reasonable notice.

The length of notice will depend, among other things on the length for which the agency has been constituted. Revocation may be express or may be implied in the conduct of the principal ( Sec 207).


A empowers B to let A’s house. Afterwards A lets it to himself. This is an implied revocation of B’s authority.