WHAT IS AGENCY?

RIGHTS AND DUTIES OF AGENTS

RESPONSIBILITIES OF PRINCIPAL TO THIRD-PARTIES
WHEN AN AGENT PERSONALLY LIABLE TO THE THIRD PARTIES?
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WHAT IS AGENCY?
Agency is a contractual relation between two parties created by agreement either expressed or
implied. The relationship of agency arises whenever one person called as ‘Agent’ has authority
to act on behalf of another person called as ‘Principal’. According to section 182 of the
“Contract Act, 1872”, an ‘Agent’ is a person employed to act or represent another in dealing
with third persons. While, a ‘Principal’ is person who is employs agent and is represented by
him.

1. CRITERIA FOR EMPLOYING AGENT:

1. Any person can employ agent who is of the age of majority and has sound mind.
2. Any person can become agent who is of the age of majority and has sound mind.
3. Consideration is not necessary to create an agency.

2. AUTHORITY OF AGENT:

The extent of an agent’s authority depends on the terms of the agent’s appointment or the
circumstances of the case. The contractual authority of an agent is the real authority. But,
implied authority means all that is incidental to carry out the contractual authority. Thus,
implied authority is the apparent or ostensible authority. Hence, an agent who has an
authority to do a certain act also has the authority to do all that is lawful to perform this act.
Also, an agent has an authority to do anything that prevents the principal from any loss or
damages. The authority of the agent may be either expressed or implied.

A. EXPRESSED AUTHORITY:

An expressed authority is said to be given by words either written or spoken.

B. IMPLIED AUTHORITY:

An implied authority is said to be inferred from the circumstances of the case, things
spoken or written, as well as the ordinary course of dealing.
3. WHAT IS A SUB-AGENT?

As per section 191, a sub-agent is a person employed by and acting under the control of the
original agent. Thus, a sub-agent is the agent of the original or the primary agent. The original
agent appoints a sub-agent and delegates the work of the principal to him. The relationship
between a sub-agent and the original agent is that of the agent and principal.

A sub-agent is confined by all the duties of the original agent. However, he is not directly
responsible to the principal except for committing any fraud and willful wrong. But, he is
directly responsible to the original agent appointing him. Also, the original agent is responsible
for the acts of the sub-agent to the principal. In the case of third parties, a sub-agent represents
the principal and binds the principal for all his acts as if he is an original agent.

RIGHTS AND DUTIES OF AGENTS

RIGHTS OF AGENTS
1. RIGHT TO REMUNERATION

As per section 219, an agent has a right to receive the agreed remuneration or in absence of
agreement, a reasonable remuneration for rendering the services to the principal that are not
voluntary or gratuitous. He becomes eligible to receive the remuneration as soon as he
completes the work that he undertook.

2. LIEN ON GOODS

Some agents who have the possession of goods, securities or properties of their principal also
have a lien on these goods, securities or properties regarding their remuneration and also for
any expenses or liabilities that they incur. When he is an unpaid seller, he has a right to stop the
goods in transit.

3. RIGHT TO BE INDEMNIFIED

An agent represents his principal to the third parties. As per sections 222 and 223, an agent has
a right to be indemnified by his principal for all charges, expenses, and liabilities that he incurs
during the course of the agency.

DUTIES OF AGENTS
A principal has a right to sue his agent for damages in case of breach of duty by the agent. The
duties of agents are:

1. As per section 211, an agent shall act within the scope of authority that his principal confers
upon him. Also, he shall strictly follow the directions of his principal. However, in the
 absence of express instructions from his principal, he shall follow the custom prevailing at
the place where he carries out his business, in a similar type of business.

2. Section 212 states that he shall work with reasonable skill and diligence. Also, where the
nature of the agent’s profession requires him to possess a special skill, he shall exercise the
skill that a member of that profession will exercise.

3. An agent shall disclose properly any material information to his knowledge to the principal
that can influence the making of the contract.

4. As per section 213, an agent shall is under the duty not to disclose any confidential
information of his principal.

5. Section 215 states that an agent shall not compete with his principal. In other words, his
interest shall not conflict with his duty.

6. It is the duty of the agent to keep true and fair accounts and prepare them on a reasonable
notice to render them.

7. An agent shall not make any secret profit and shall disclose any extra profit he makes to the
principal. Where the principal finds that the agent is making secret profits, he may dismiss
the agent without notice, recover the amount of profit and also refuse to pay him his
remuneration. He may also repudiate a contract where a third party is also involved in the
fraud and recover the damages.

8. He shall not appoint a sub-agent.

RESPONSIBILITIES OF PRINCIPAL TO THIRD-PARTIES

The effect of a contract that an agent makes differs according to the situations under which the
agent contracts. The agent may contract under the following three situations:

1. DISCLOSED PRINCIPAL

Where the name of the principal is disclosed and an agent enters into a contract on his behalf,
he usually incurs no rights and liabilities under such contract. He drops out of the contract as
soon as it is made.

Thus, the contract is between the principal and the third party and also the rights and
obligations arise between them only. The legal effect of such a contract is the same as if the
principal himself directly contracts with the third party.

The legal effect implies that all the acts of the agent within the actual or ostensible authority
bind the principal. It is noteworthy here that the acts though out of the scope of the actual
authority of a general agent but within his apparent authority are binding on the principal.
Thus, any secret restrictions on the powers of the agent do not bind the third party.
2. UNDISCLOSED PRINCIPAL

In this case, where the agent discloses that he is only an agent but hides the identity of his
principal, he is not liable personally. Thus, the principal when discovered is liable for the
contract made by his agent and is also responsible for the acts of the agent.

3. CONCEALED PRINCIPAL

Where an agent seems to be contracting in his own capacity without disclosing that he is an
agent or the name of his principal, he becomes personally liable. In this case, the third party
may sue the agent or the principal on discovering him or both.

However, if the third party sues the principal and not the agent, then he shall allow the
principal the benefit of all payment that he made to the agent. He is also eligible to obtain the
benefit of anything that he pays to the agent under the contract.

In a case where the principal discloses himself before the completion of the contract, the third
party may refuse to fulfill the contract if he shows that:

1. If he knew the principal he would have not entered into the contract.

2. If he knew that the agent is not the principal he would have not entered into the
contract.

4. PRINCIPAL LIABLE FOR AGENT’S MISCONDUCT

When an agent commits a wrong or tort or fraud while acting within his actual or ostensible
authority, the principal is liable for his acts.

An agent is also personally liable in this case and can be sued also. Even if the agent commits
such fraud for his benefit and against the interests of the principal, it renders the principal
liable.

WHEN AN AGENT PERSONALLY LIABLE TO THE THIRD PARTIES?

An agent is personally liable to the third party in the following cases:

1. He agrees to be personally liable to the third parties.

2. He acts for a principal who resides abroad.

3. When he signs a negotiable instrument in his own name without disclosing that he is
merely an agent.

4. Where a principal cannot be sued e.g. a minor

5. When he contracts as an agent without authority

6. Where he commits any kind of tort.