Agency

Introduction
 The contract of the agency is a legal relationship, where one
person appoints another to perform the transactions on his
behalf.
 When a person employs another person to do any act for
himself or to represent him in dealing with the third persons, it
is called a ‘Contract of Agency’.
Legal Provision
 Section 182 of the Indian Contract Act, 1872 defines
“agent” and “principle”.
o An “agent” is a person employed to do any act for
another, or to represent another in dealings with third
persons.
o The person for whom such act is done, or who is so
represented, is called the “principle”.
What are the essentials of ‘Contract of Agency’?
 Competence of the parties to enter a contract of agency-
o Section183: Who may employ agent. - 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.
o Section 184: Who may be an agent. - As between the
principal and third person, any person may become an
agent, but no person who is not of the age
of majority and of sound mind can became an agent, so
as to be responsible to his principal according to the
provisions in that behalf herein contained.
  Considerations not required-
o As per Section 185 of the Indian Contract Act, 1872(ICA),
contract of agency requires no consideration. It comes
under the category of those contracts which the law has
declared to be valid without consideration.
o However, these provisions do not deprive the agent of his
legal and justified remuneration unless proven to be
specified otherwise in the contract.
Methods of Creation of Agency
 By Express agreement:
o Ordinarily the position given by the principal to
his agent is an express expert, in such a case the agent
might be selected either by the words expressed or
composed.
 By Implied agreement:
o When agency arises from the conduct of the parties or
inferred from the circumstances of the case, it is called
implied agency.
 Example: - A of Calcutta has a shop in Delhi. B, the
manager of the shop, has been ordering and
purchasing goods from C for the purpose of the
shop. The goods purchased were being regularly
paid for but of the funds provided by A. B shall be
considered to be an agent of A by his conduct.
 Partners, servants and wives are usually regarded as
agents by implication because of their relationship.
 By Necessity:
 o Under certain circumstances, a person may be compelled
to act as an agent to the other, e.g., master of the ship
can borrow money at a port where the owner of the ship
has no agent to carry out necessary repairs to the ship in
order to complete the voyage.
o In such a case of necessity, a person acting as an agent
need not necessarily have the authority of the
principal. However, the agent must act under pressing
conditions and for the benefit of the principal.
 By Estoppel:
o Section 237 of Indian Contract Act,1872, provides the
liability of principal inducing belief that agent’s
unauthorized acts were authorized. - ‘When 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.’
o In the event that an individual addresses by words or
leads that someone else is his agent and third party
sensibly accepts on such portrayal and goes into an
understanding, the individual who addresses so is limited
by the act of others, this is known as the agency by
estoppel.
 By Holding Out:
o This might emerge from the connection of manager and
worker. An administrator is an agent of the organization.
 The agency that is held because of any sort of business
relationship is known as an agency by waiting.
 By Ratification:
o Ratification means subsequent acceptance and
adoption of an act by the principal originally done by the
agent without authority.
o According to Section 196 of ICA, 1872, “Where acts are
done by one person on behalf of another, but without his
knowledge or authority, he may elect to ratify or to
disown such acts. If he ratifies them, the same effects will
follow as if they had been performed by his previous
authority.”
Classification of Agents
 Special Agent:
o A special agent is one who is appointed to
perform a particular act or to represent his principal in
some particular transaction as, for example, an agent
employed to sell a house, or an agent employed to bid at
an auction.
 General Agent:
o A general agent is one who has authority to do all acts
connected with a particular trade, business or
employment.
 Universal Agent:
o A universal agent is one whose authority to act for
the principal is unlimited.
 Commercial and Mercantile Agent:
 o According to Section 2(9) of the Sales of Goods Act,
1930, a ‘Mercantile agent’ means “a mercantile
agent having in the customary course of business as such
agent, authority either to sell goods, or to consign goods
for the purpose of sale, or to buy goods, or to raise money
on the security of goods”.
o It includes factor mercantile agent, auctioneer, broker,
commission agent, de credere agent.
 Non-Mercantile Agent:
o These include attorney, solicitors, insurance agents,
clearing and forwarding agents and wife, etc.
Rights of an Agent
 Right to claim reimbursement for expenses-
o Section 217 of ICA provides that an agent had the right to
retain, out of the money received on behalf of
the principal, money advance or expenses properly
incurred in conducting the agency business.
 Right to receive remuneration-
o According to Section 19, an agent also has a right to claim
remuneration as may be payable to him for acting as an
agent.
 Right to indemnification against consequences of all lawful
acts-
o Under Section 222 of the Indian Contract Act, 1872,
enables the agent to have a right to be indemnified by the
principal against the consequences of all lawful acts done
in exercise of his authority.
 o In Sheikh Farid Bakhsh v. Hargulal Singh (1936),
the Allahabad High Court said that the principal must pay
the remuneration as soon as the agent has substantially
performed all the tasks, they have contracted him to
perform.
 Right to Compensation-
o According to Section 225 of the Indian Contract Act,
1872, it entitles the agent to compensation in the event
of any injury or loss he suffers because a principal lacks
skill or competency.
 Right of Lien-
o Section 221 of the Indian Contract Act, 1872 says that
where the agent is not paid lawful charges,
remunerations, or expenses by his principal and the
goods are under his control. He can keep the goods until
the principal pays the lawful charges.
Duties of Agent
 Duty to Execute the Mandate-
o Section 211 of the Indian Contract Act, 1872 bounds an
agent to conduct the business of his principal according to
the principal’s directions or in the principal’s absence,
according to the custom of trade.
o In Pannalal Janakidas v. Mohanlal (1950), the Supreme
Court held the agent liable to compensate the principal.
Here, the principal told the agent to get the goods
insured. The agent charged the premium from the
principal but never got the insurance.
 Duty to Act with Care and Skill-
 o Section 212 of the Indian Contract Act, 1872 covers
another role of the agent. This law requires an agent
to conduct agency business with due care and caution.
o In Jayabharathi Corporation v. PN Rajshekara Nadar
(1991), the Supreme Court said that where the agent
misinforms the principal, and the loss occurs because of
his misconduct, he is liable to the principal.
 Duty to Render Proper Account-
o Section 213 of ICA, 1872 binds the agent to render proper
accounts to the principal on demand. He must explain
those accounts to the principal and produce the vouchers
in support of the entries.
 Duty to Communicate with the Principal-
o As per Section 214 of the Indian Contract Act,1872, in
cases of difficulty, it is the agent’s duty to use
all reasonable diligence in communication with his
principal and seeking to get his instructions.
 Duty Not to Deal on His Account-
o If the principal wishes to deal on his behalf in the agency’s
business, the agent must disclose all material
circumstances that have come to his knowledge. He must
also get consent from the principal. Non-observance of
this duty may lead to:
 Under Section 215 of the Contract Act, the principal
may repudiate the transaction and disclaim all
losses.
  Under Section 216 of the Contract Act, the principal
may claim from the agent any benefit which may
have resulted in him from the transaction.
 Duty Not to Delegate His Authority-
o An agent must not delegate his authority to a sub-agent.
 Duty to Protect and Preserve the Interest-
o Under Section 209 of the Indian Contract Act, when
the principal’s death or unsoundness causes the
termination of the agency, the agent must protect and
preserve the interests entrusted to him on behalf of the
representative of the deceased principal.
 Duty to Pay Sums Received-
o As per Section 218 of the Indian Contract Act,
the agent must pay his principal all sums received on his
account after retaining all money due to him regarding
advances made or expenses properly incurred by him
while conducting the business.
Termination of Agency
Section 201 of the act, 1872 describes the various modes of
termination of agency.
 Termination of agency by act of the parties: -
o Agreement
 The relation of principal and agent, like any other
agreement, may be terminated at any time and at
any stage by the mutual agreement between the
principal and the agent.
 o Revocation by principal
 According to Section 203, ICA,1872 the principal
may revoke the authority of the agent at any time
before the agent has exercised his authority so as to
bind the principal unless the agency is irrevocable.
o Renunciation by agent
 An agent is entitled to renounce his power by
refusing to act or by notifying the principal that he
will not act for the principal.
 Termination of agency by operation of law-
o Performance of the contract-
 Where the agency is for a particular object, it is
terminated when the object is accomplished or
when the accomplishment of the object becomes
impossible.
o Expiry of time-
 When the agent is appointed for a fixed period of
time, the agency comes to an end after the expiry of
that time even if the work is not complete.
o Death and insanity-
 As per Section 209 of ICA,1872, When the agent or
the principal dies or becomes of unsound mind, the
agency is terminated.
o Insolvency-
  The insolvency of the agent, it is accepted, also
terminate the agency unless the acts to be done by
the agent are merely formal acts.
o Destructions of subject matter-
 An agency which is created to deal with a certain
subject-matter comes to an end by the destruction
of the subject-matter.
o Principal and Agent becoming Alien company-
 The contract of agency is valid so long as the
countries of the principal and the agent are
at peace. If war breaks out between the two
countries, the contract of agency is terminated.
o Dissolution of a company-
 When a company is dissolved, the contract of
agency with or by the company automatically
comes to an end.