Agency

Unit 2
• When one party delegates some authority to another
party whereby the latter performs his actions in a
more or less independent fashion, on behalf of the first
party, the relationship between them is called an
agency. Agency can be express or implied.

Law of Agency
• The Indian Contract Act, 1872 defines an ‘Agent’
in Sec 182 as a person employed to do any act for
another or to represent another in dealing with third
persons and the person for whom such act is done, or
who is so represented, is called the “principal”.
• 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 is an agent?
• 1. There should be appointment by the principal of an
agent.
• 2. Principal should confer authority on the agent to
act for him
• 3. Principal will be liable for the acts done by the
agent.
• 4. The contract should establish fiduciary relationship
between principal and the third parties.

Essentials of agency
• 1. Express or Implied Agents- An express agent is one
who is appointed verbally or by writing. An implied
agent is one whose appointed to be inferred from the
conduct of parties.
• 2. General, Special or Universal Agents- General agent is
employed to transact all general business. Special agent
has only authority to transact some particular act or
represent his principal in some particular transaction. A
Universal agent is one who is authorised to do all the acts
which the Principal can lawfully do and can delegate.
• 3. Agent or subagent- Agent derives authority directly
from the principal whereas the su-agent derives his
authority from the agent.

Kinds of Agents
a) Factors:
• A factor is a person who is appointed to sell goods which are put in his
possession or to buy goods for his principal. He is the evident owner of the
goods in his custody and can thus sell them in his own name and receive
payment for them. He also has an insurable interest in the goods in his
custody and a general lien regarding any claim that he may have to arise
out of the agency.

b) Brokers:
• A broker is a mercantile agent who is employed to make contracts with
the other parties for the sale and purchase of goods or securities for
brokerage. He does not have the possession of the goods and acts in the
name of the principal. Also, he has no lien over goods because he has no
possession of goods.

Mercantile Agents
c) Del Credere Agent:
• A del credere agent is a person who ensures or guarantees his principal that the
creditors of goods will pay for the goods they buy for extra remuneration. In the
case of failure to pay by the third party, he needs to pay the due amount to his
principal.
d) Auctioneers:
• An auctioneer is a person who sells the goods by auction. An auction is a process
by which goods are sold to the highest bidder in a public competition. He cannot
warrant his principal’s title to the goods. He is the agent of the seller until the
goods are auctioned or knocked down. However, after the knockdown, he
becomes the agent of the buyer. Also, he is evidence that the sale took place.
e) Bankers:
• The relation between a banker and a customer is basically that of a debtor and
creditor. However, when a banker buys or sells securities or collects cheque,
dividends, interests, bills of exchange or promissory notes on behalf of his
customer, he becomes the agent of his customer. Thus, he has a general lien on all
the securities in his possession regarding the general balance due to him by the
customer.
f) Commission agent:
• Commission agent buys and sells goods in the market on the best terms and his
own name but on commission. His only interest is in the transacting on
commission. All profits and losses accrue to principle.
• 1. Agency by Express Agreement- When a principle appoints an
agent either by spoken words or written to represent him and act for
him, an express agency is created.
• 2. Agency by Implication- The relationship between the principal
and agent need not be expressly constituted and can arise by
implication. Authority to act as agent can be inferred from the
nature of business, the circumstances, the conduct of the principal or
the way of dealing with the parties concerned. Implied agency
includes
• (a) Agency by estoppel is a legal term that refers to someone giving
the impression that they are an agent acting on behalf of an
individual or a company. This agency is not officially appointed and
the agent by estoppel is not authorized to represent the person or
company they ostensibly work for.

Creation of an Agency
• (b) Agency by holding out states that The principal is
bound by the acts of the agent if, on an earlier occasion he
made other persons to believe that other person doing
some acts on his behalf is doing with his authority.
• (c) Agency by necessity is where sometimes extraordinary
circumstances may require that a person who is not really
an agent should act as an agent of another. In such a case
though there might not have been an express or implied
authority to do an act, the law implies such an authority in
favour of that person on account of the necessity that had
risen.
• 3. Agency by Ratification- Where and agent does an act
for the principal without knowledge or authority or
exceeds beyond the give authority then the principal is not
held, bound by the transaction done by the agent.
Following are the essentials of valid ratification:
• The agent must act on behalf of the principal
• The principal must be competent to contract and must be
in existence of the contract
• The principal must have full knowledge of the material
facts
• Whole transaction must be ratified
• Ratification must be made within a reasonable time
• Ratification must be communicated to other party
• It must not injure a third person
• 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.
• 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.
• As per Sec 213 the agent is bound to render accounts along with all
vouchers to the principal whenever demanded by the principal. An agent
shall not make any secret profit and shall disclose any extra profit he
makes to the principal.
• An agent id under the duty to communicate all information to his
principal. (Sec 214)

Duties of an Agent
• As per Sec 215 an agent is not allowed to deal on his own accord
or account, if he does so the principal may repudiate the
transaction provided the principal feels that the agent has
dishonestly concealed any material facts. Further if the agent
deals on his own accord, the principal is entitled to claim from
the agent any benefit which might have resulted from the
transaction. (Sec 216)
• 6. Duty not to use information obtained in the course of agency
against the principal and if the agent does so then the principal
can restrain him through injunction from the court.
• 7. An Agent is not to appoint a sub- agent or delegate the work
which has been delegated to him by principal. Unless i) where
the principal expressly permits such delegation, ii) where there is
ordinary custom of trade to appoint a sub-agent or iii) where
appoint of sub-agent is necessary iv) where the act to be done is
purely ministerial in nature.
• Right to Remuneration- where an agent agrees to serve for
free he cannot claim remuneration if the service is gratuitous or
voluntary, if not voluntary he is entitled to receive remuneration.
• Right to retain- principal’s money until his remuneration
claims or advances are paid by the principal.
• Right to lien- an agent is entitled to retain goods, papers or
other property of principal. He has the right to lien but cannot
sell them.
• Right to be indemnified against consequences of unlawful acts
done by the principal
• Right to be indemnified against consequences to acts done by
the agent in good faith but the acts should not be unlawful one.
• Right to compensation to the agent for any loss or injury
caused to him due to the negligence or want of skill of principal.
Rights of an Agent
• The rights of the principal are the duties of agent hence the
principal is entitled to enforce all duties of agent.
• Principal may repudiate the transaction if he feels that the agent
has dishonestly concealed any material fact from him.
• If an agent without the knowledge of principal deals in the business
of agency on his own accord then the principal is entitled to claim
the benefits which may have resulted to him from the transaction.
• The principal is entitled to demand proper accounts from the
agent.
• The principal is entitled to compensation in respect of the direct
consequences of agent’s want of skill, negligence or misconduct.
• The principal has the right to refuse remuneration if the agent is
guilty of misconduct.
• The principal may revoke the authority given to his agent at any
time before the authority has been exercised so as to bind the agent.

RIGHTS OF PRINCIPAL
• To indemnify the agent against the consequences of all
lawful acts done by the agent in exercise of authority
conferred upon him.
• The principal should indemnify the agent for the acts done
by him in good faith though such an act causes injury to the
right persons.
• The principal is not liable to the agent for the criminal acts
done by the agent.
• The principal must compensate his agent in respect of injury
caused to the agent by the principal’s neglect or want of
skill.
• The principal shall pay all the dues, commission,
remuneration etc. incurred by the agent in exercise of his
authority.

DUTIES OF THE PRINCIPAL

(A) By the act of parties
• By the mutual consent between the Agent and Principal.
• By revocation of authority by the principal – the principal can revoke the
authority at any time unless the agent has vested interest in the subject
matter or can revoke at any time before the authority is executed.
Revocation may be expressed or implied. But revocation is subject to
following conditions- i) where authority has been partially exercised, ii)
where agency is for fixed period of time and principal revokes the authority
before time without sufficient cause, iii) notice must be given regarding
revocation failing which compensation must be paid, iv) where the agent
has vested interest in the subject matter.
• An agency is irrevocable if it is coupled with interest or the agent has partly
exercised his authority or he is personally liable.
• By renunciation by the agent- that is where the agent is renouncing the
contract of agency.
TERMINATION OF AGENCY- done in
two ways
(B) By operation of Law
• 1. When the business of agency is completed, agency comes to an
end.
• 2. When agency is created for a period of time, the agency is
terminated on the expiry of time even if the business of agency is
not completed.
• 3. On account of death of either parties but death of the either
parties cannot put an end to contract unless it comes to the
knowledge of the surviving parties.
• 4. An Agency is terminated by either, principal or agent on
becoming of unsound mind.
• 5. If the principal becomes insolvent.
• 6. Agency will be terminated if the subject matter is destroyed.
• 7. Where the principal and agent becomes alien enemy to each
other
• 8. An agency is terminated on winding up of the company.