CONTRACT OF AGENCY

INTRODUCTION
 In India, the agent and principle share a relationship that is contractual in nature.
 Chapter X of the Indian Contract Act, 1872 provides the basic structure of rules and regulations of the agency
contract.
 The law of agency is based on the Latin maxim “qui facit per alium, facit per se,”
 which means, “he who acts through another is deemed in law to do it himself“.
 Agent and principal are defined under Section 182 of the Indian Contract Act, 1872.
 “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”.
 Different types of commercial agents have been identified under Indian law like
 brokers,
 auctioneers,
 del credere agents,
 persons entrusted with money for obtaining sales and insurance agents.

Who is an Agent?
 The Indian Contract Act, 1872 defines an ‘Agent’ in Section 182 as a person employed to do any act for
another or to represent another in dealing with third persons.

Who is a Principal?
 According to Section 182, The person for whom such act is done, or who is so represented, is called the
“principal”. Therefore, the person who has delegated his authority will be the principal.

Illustrations

 A, a businessman, delegates B to buy some goods on his behalf. Here, A is the principal and B is the
agent, and the person from whom the goods are bought is the ‘Third Person’.

Who can appoint an Agent?

 According to Section 183, any person who has attained the age of majority and has a sound mind can
appoint an agent.

 In other words, any person capable of contracting can legally appoint an agent.

 Minors and persons of unsound mind cannot appoint an agent.

Who may be an Agent?

 In the same fashion, according to Section 184, the person who has attained the age of majority and has a
sound mind can become an agent.

 A sound mind and a mature age is a necessity because an agent has to be answerable to the Principal.

Authority of an Agent
 Authority of an agent can be both express or implied.

Express authority

 According to Section 187, the authority is said to be express when it is given by words spoken or written.
Implied authority

 According to Section 187, authority is said to be implied when it is to be inferred from the facts and
circumstances of the case.

Implied authority is of four main types

1. Incidental authority- doing something that is incidental to the due performance of express authority
2. Usual authority- doing that which is usually done by persons occupying the same position
3. Customary authority- doing something according to the pre-established customs of a place where
the agent acts
4. Circumstantial authority- doing something according to the circumstances of the case
Illustration

 Ali owns a shop in Bihar but lives in Mumbai. His shop is managed by a person named John. John takes care
of the deals regarding the shop and buys goods from a person named Ram, with Ali’s knowledge. In this
case, John has implied authority from Ali to buy these goods.
In-Chairman L.I.C v. Rajiv Kumar Bhaskar

 It was held that the employer was acting as the agent of the company, thereby making the company (L.I.C)
responsible as a Principal due to the fault of the Agent (the employer).

Creation of Agency
An agency can be created by:

Direct (express) appointment– The standard form of creating an agency is by direct appointment. When a person, in
writing or speech appoints another person as his agent, an agency is created between the two.

Implication– When an agent is not directly appointed but his appointment can be inferred from the circumstances,
an agency by implication is created.

Necessity– In a situation of necessity, one person can act on behalf of another to save the person from any loss or
damage, without expressly being appointed as an agent. This creates an agency out of necessity.

Estoppel– An agency can also be created by estoppel. In a situation where one person behaves in such a manner in
front of a third person, as to make someone believe he is an authorized agent on behalf of someone, an agency by
estoppel is created.

Ratification– When an act of a person, who acted as another person’s agent (on his behalf) without his knowledge is
later ratified by that person, this creates an agency by ratification between the two.

Relation of principal and agent

Agent’s duties to Principal

An agent has 6 duties towards his Principal:

 1. He has to conduct the business of the Principal according to the directions of the Principal.
2. An agent is bound to conduct the business he is supposed to conduct with as much skill as a person
on his position ordinarily holds.
3. An agent is supposed to show the relevant accounts to the Principal as and when the Principal
demands.
4. An agent has the duty to communicate any difficulty whatsoever he may come across while doing the
Principal’s business. He is supposed to perform due diligence in this regard.
5. If any material fact has been concealed or the business is not carried out in the manner that the
Principal directed, the Principal can repudiate the contract between them.
6. If the agent carries out the business in the manner he wanted to perform it, rather than on the
directions of the Principal, the Principal may claim from the agent any benefit he may have achieved
through doing so.
Illustration

Hala directs her agent Saima to buy a certain house for her. Saima does not buy the house, and tells Hala that it
cannot be bought due to certain reasons, but ends up buying the house herself. In this case, Hala has the right to
claim the house from Saima at the price which Saima bought it for herself.

Principal’s duties to Agent

The Principal has 4 duties towards the Agent:

1. The Principal is bound to indemnify the agent against any lawful acts done by him in the exercise of his
authority as an agent.
2. The Principal is bound to indemnify the agent against any act done by him in good faith, even if it ended up
violating the rights of third parties.
3. The Principal is not liable to the agent if the act that is delegated is criminal in nature. The agent will also in
no circumstances be indemnified against criminal acts.
4. The Principal must make compensation to his agent if he causes any injury to him because of his own
competence or lack of skill.