When a person appoints another to act on his behalf with a third party, it is called ‘Agency’. The person who appoints is called ‘Principal’. The other person who is appointed is called ‘Agent’. The contract between Principal and Agent is called ‘Contract of Agency’.
‘Agency is the legal relationship between an agent and Principal; to bring the principal into legal relationship with the third party’.
Example- ‘A’ appoints ‘B’ to purchase some property on his behalf. Here, ‘A’ is principal and ‘B’ is Agent. The relationship between ‘A’ and ‘B’ is called Agency.
Section 182 of the Indian Contract Act, 1872 defines Agent and Principal as follows-
“An ‘Agent’ is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done or who is so represented is called the ‘Principal’.
ESSENTIAL ELEMENTS OF AGENCY
WHO MAY EMPLOY AN AGENT (Section 183) : Section 183 says that “any person who is of the age of majority according to the law to which he is subject and who is of sound mind, may employ an agent”. In other words, any person, who is a major and is of sound mind may appoint an agent.
WHO MAY BE AN AGENT (Section 184) : Section 184 says “ As between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and sound mind can become an agent, so as to be responsible to the principal according to the provisions in that behalf herein contained.”
Section 185 lays down that consideration is necessary for creation of an agency. However, “Knowledge of the Agent is the knowledge of the Principal” is the basis for the appointment of an agent. Knowledge and experience of an agent on the particular work is very important factor. A person appointed as an agent uses his knowledge and skill for his principal, for which the agent is entitled for remuneration, commission etc., as agreed between them, or as per the customs and usages.
KINDS OF AGENTS
Agents may be classified under the following heads-
Del Credere Agents : Generally, the function of an agent is over after a contract is established between his principal and a third person. He is not answerable to his principal for the failure of the third person to perform the contract. A del credere agent constitutes an exception to this rule. A del credere agent is a mercantile agent who for extra commission takes the responsibility of that person with whom he contracts on behalf of the principal will perform their contract. Thus, if such a person fails to perform his contract, a del credere agent will be responsible to the principal for the same.
Pakka Adatia : A Pakka Adatia is an agent to whom goods are handed over by the principal and then the actual sale of the goods becomes the agent’s own affair such an agent is particularly in vogue in Bombay markets. A Pakka Adatia has authority has authority to enter into transactions in his own name. He may contract as a principal rather than as an agent. Thus a Pakka Adatia is one who undertakes the business of his principal but the transaction or contracts he enters into are his own affairs.
Factor : A factor is a mercantile agent who is entrusted with the possession of the goods for the purpose of sale. He has also the power to sell goods on credit and also to receive the price from the buyer. According to Section 171 of the Indian Contract Act, 1872, a factor has right of general lien over the goods belonging to his principal, which are in his possession, for the general balance of account.
Broker: A broker is an agent who has an authority to negotiate the sale or purchase of goods on behalf of his principal, with a third person. Unlike a factor, he himself has no possession of the goods. He merely makes the two parties to enter into a contract. He gets his commission whenever any transaction materialises through his efforts.
Auctioneers : An auctioneer is an agent to sell property at a public auction. He is primarily an agent for the seller, but upon the property being knocked down he becomes also the agent of the buyer. He is a mercantile agent within the meaning of section 2(9) of the Sale of Goods Act. If the owner of the goods puts him in possession of the goods although the authority to sell has not been conferred in him, a buyer in good faith from such an auctioneer will get a good title in respect of the goods.
CREATION OF AGENCY
The word ‘agency’ is used to connote the relation which exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal and third parties. The relation of agency arises, whenever one person, called the ‘agent’ has authority to act on behalf of another called the ‘principal’ and consents to act. The relationship of Principal and Agent between the person represented and the person representing has to exist in order that the principal’s liability towards the third person, arises.
Agency may be created under the following ways:
By Express Agreement (Section 186): According to section 186 of the Indian Contract Act, 1872, the contract of agency may be express or implied. Express in the sense, it may be oral or in writing. It is a practice in many cases, to appoint agents by using the power of attorney on a stamped paper.
By Implied Agreement (Section 187): Section 187 defines express and implied authority as follows-
“An authority is said to be express when it is given by words spoken or written. An 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 accounted circumstances of the case.”
An Implied Agency may be created from the conduct, situation or relationship of the parties. It may be inferred from the circumstances of the case. Implied agency includes:
Agency by Estoppel : It is based on the ‘Doctrine of Estoppel’. If the principal by his conduct or statement leads another person to believe that a person is his agent, he cannot deny him as his agent later. Eg- ‘A’ says ‘B’ in the presence of ‘C’ that he is the agent of ‘C’. If ‘C’ does not deny the statement, he cannot deny ‘A’ as his agent later.
Agency by Holding Out: It is branch of the Agency by Estoppel. If one person knowingly admits another to act on his behalf and allows him to do so, later he cannot deny the act of that person. If he does not want to do so he should express his objection to that act immediately. Example: ‘A’ allowed his wife ‘B’ to manage his property and to mortgage it. A is bound by her acts.
Agency by necessity: Agency of necessity is created in case of emergencies. In these cases, the persons who perform their services as agents do not seek prior permission or appointment from the principals. The principals are also in certain difficult situations and they could not give their assent or refusal, but accept the services rendered by such persons. Therefore, law confers authority on a person to act as an agent for another, without the consent of that person (principal). Such an agency is called ‘Agency by Necessity’.
DUTIES OF AN AGENT
An agent owes a number of duties to his principal as embodied in Sections 211 to 221 of the Indian Contract Act.
Duty to conduct the principal’s business (Sec 211) – An agent has a duty to act according to the directions of his principal, otherwise he is liable. If there are no such directions, he is bound to conduct the business according to the custom which prevails in doing business of the same kind and place where the agent conducts such business.
To act with reasonable care and skill (Sec 212) – Sec 212 enunciates that the agent must have skill and diligence, while conducting the business of agency.
To render proper accounts (Sec 213) – Sec 213 imposes an obligation on agent that, he (agent) is bound to render proper accounts to his principal on demand.
To communicate difficulties (Sec 214) – It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.
RIGHTS OF AN AGENT
An agent has the following rights against the principal.
Right to receive remuneration (Sec 219) – According to section 219, an agent is entitled to his agreed remuneration or commission. If the amount of remuneration/commission is not fixed in advance, he is entitled for a reasonable remuneration. An agent, who is guilty of misconduct in the business of agency, is not entitled to any remuneration.
Right of lien (Sec 221) – Section 221 confers on agent, right of lien. Lien means right to retain the property or goods till the dues are cleared/paid. An agent has a right of lien against the goods, papers and other property, whether movable or immovable of the principal till his commission and other payments are made to him.
Right of indemnity (Sec 222) – Section 222 confers on agent, right of indemnity. Indemnity means promise to make good the loss. If the agent suffers any loss in discharge of his duties, he has a right to indemnify such loss from the principal.
Right of compensation (Sec 225) – An agent is entitled to claim compensation for the injuries suffered as a consequence or want of skill of the principal.
Sections 201 to 210 of the Indian Contract Act, 1872 lay down the provisions relating to the termination of agency or revocation of authority. Termination of agency means putting an end to the legal relationship between principal and agent.
A contract of agency stands terminated under any of the following means-
By the Act of parties
By Agreement- Agency may be terminated at any time by a mutual agreement between the principal and agent.
Revocation by Principal- The principal may revoke the agency at any time by giving notice to the agent.
Renunciation by Agent- Renunciation means withdrawing from responsibility as agent. As the principal can revoke the agent’s authority, so also the agents can renounce the agency. The agent must give to his principal reasonable notice of renunciation, otherwise he will be liable to make good for the damage caused to the principal for want of such notice (sec 206).
By Operation of law– Termination of agency by Operation of Law takes place in the following cases:
By Completion of Agency- Agency comes to an end after the completion of the work for which the agency is created.
By Expiry of time- If the agency is created for a particular time, it is terminated after the expiry of the time.
Death or Insanity of Principal or Agent- Section 209 imposes on agent, duty to terminate the contract of agency on the death of the principal.
Written by: Sanah Sethi is a final year law student at Amity Law School, having interest in corporate laws.