CONTRACT OF AGENCY UNDER INDIAN CONTRACT ACT, 1872

 

This article will be discussing about the Contract of Agency under the Indian Contract Act, 1872, and contains the meaning of Contract of Agency, features of it, modes of creation of agency, kinds of agents, duties of agent, rights of agent and the duty of principal.

 

1. CONTRACT OF AGENCY:

 

Section 182 define the term “Agent” and “Principal” as follows: An “agent” is a person employed to do any act for another or to represent another in dealing with third person. The person for whom such act is done, or who is done, or who is so represented, is called the “Principal”.

 

In an agency one person employs another person to represent him or to act on his behalf, in dealing with a third person. The principal is obligated by the agent's actions in the same way that he would be by his own actions.

 

The agent may be expressly or impliedly authorized to do an act on behalf of the principal. If I authorize any agent to sell my house to a third person and he does so, I become bound for the sale of the house to the third person in the same way as if I myself contracted to sell the house to the third person. The agent is only a connecting link between his principal and the third person. Contracts entered into through an agent and obligation arising from the acts done by an agent, may be enforced in the same manner, and will have the same legal consequence, as if the contract have been entered into and acts done by the principal in person.

 

2. FEATURES OF A CONTRACT OF AGENCY:

 

Following are some features of a contract of agency;

 

• a)   The principal should be competent to contract. (Section 183)
• b)   The agent may not be competent to contract. (Section 184)
• c)   No consideration is necessary to create an agency. (Section 185)

 

Let’s have a look in detail,

 

a) The principal should be competent to contract (section 183):

According to Section 183 of the Act, 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 an agency, the agent creates a contractual relationship between his principal and the third persons, it is necessary that the principal and the third person should be competent to contract.

 

b) The agent may not be competent to contract. (Section 184):

 

The capacity of an agent could be looked from two angles. First, the agent's ability to bind both his principal and a third party while acting on behalf of the principal. Second, his ability to bind himself by an agreement with his principle.

 

So far as the agent’s capacity to bind the principal and the third person in concerned, for that any person may become an agent. It means that even if an agent is a minor or otherwise incompetent to contract, he is capable of creating a valid contract between his principal and the third person.

 

c) No consideration is necessary to create an agency. (Section 185):

 

Section 185 of the Act provides that no consideration is necessary to create an agency. From the very nature of the contract of agency, the principal agrees to be bound by the acts done by the agent on his behalf and that serves as a sufficient detriment to the principal. Moreover, the principal’s duty to indemnify the agent is also there. The law does not require any consideration as such for the validity of a contract of agency.

 

3. KINDS OF AGENTS:

 

Depending on the kind of authority given to the agent to act on behalf of the principal, the agents are of various kins.

 

a) Auctioneers:

 

An auctioneer is an agent whose business is to sell goods and other property by auction, i.e., by open sale. The authority vested in him is to sell the goods only, and not to give warranties on behalf of the seller, unless expressly authorized on that behalf. He is a mercantile agent within the meaning of section 2(9) of the Sale of Goods Act.

 

b) Factors:

 

A factor is a mercantile agent who is entrusted with the possession of 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.

 

c) Brokers:

 

A broker is an agent who has an authority to negotiate the sale or purchase of goods on behalf of the principal, with a third person. Unlike a factor, he himself has no possession the goods. He merely makes the two parties to enter into a contract. he gets his commission whenever any transaction materializes through his efforts.

 

d) Del Credere Agents:

 

An agent who is required by the principal to enter into a guarantee of the debts to the principal of customers whom he finds for the principal with whom he concludes contracts on behalf of the principal.

 

4. MODES OF CREATION OF AGENCY:

 

An act done by an agent on behalf of the principal binds the principal towards a third person. 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. In the following situations, the agent has the power to bind his principal:

 

• a)   By actual authority being conferred on the agent to act on behalf of the principal. Such authority may be either Express or Implied.

  b)   By agent’s authority to act on behalf of the principal in a situation of ‘emergency’.

  c)   By the conduct of the principal, which creates an agency on the basis of the Law of Estoppel.

  d)   By ratification of the agent’s act by the principal, even though the same has been done without the principal’s prior authority.

  e)   By presumption of agency in Husband-Wife relationship. 

 

Let’s have a look;

 

a) Acts done with Principal’s Actual Authority:

 

A contract of agency may be created by conferring authority to the agent. Such authority can be either express or implied.

 

i. Express authority: An express authority is directly granted to the agent by words, spoken or written.  

ii. Implied authority: When the authority granted to the agent can be determined from the circumstances or necessity of the case or situations of the parties, the agency is said to be formed impliedly.

 

b) Agent’s authority in an Emergency:

 

According to Section 189 of the Indian Contract Act, an agent has the authority to do every such act that is necessary for protecting his principal from any kind of loss at the time of emergency. For example, an agent for completing the sale can get the goods repaired for passing on to the buyer.

 

c) Principal bound by Estoppel:

 

Sometimes the agent does not have any authority to do an act on behalf of the principal. However, the principal develops a thought in the mind of the third person that the agent has the authority to act on his behalf. And, in such cases, the principal is liable for the acts done by the agent for the third person. This is known as the creation of agency by estoppel. 

 

D) Principal bound by Ratification.

 

When an act is done by the agent on behalf of the principal, without the authority to act, the principal can either refuse from performing the liability or can ratify the same. When the principal ratifies the act i.e. approves an act done without his authority, but on his behalf, he is bound towards such an act. And consequently, this creates an agency by ratification between the two.

 

e) Agency in Husband-Wife relationship:

 

A married woman cohabiting with her husband is presumed to have the power to pledge the credit of her husband for necessaries. She may receive the supply of goods and services which may be required for the domestic use or which may be of use to her husband, according to the condition of life of that family, the husband becomes bound to pay for them.

 

5. DUTIES OF AGENT:

 

a) Duty not to change delegate his duties (Section 190):

 

when an agent has undertaken to perform certain duties personally, he is not allowed to delegate his duties to another person. The rule is contained in the maxim ‘Delegatus non potest delegare’. Which means that an agent to whom some authority has been delegated cannot further delegate that authority to another person.

 

b) Duty to follow principal’s directions (Section 211):

 

According to Section 211 of the Indian Contract Act, an agent has a duty to follow the directions given to him by the principal. As stated in this Section:

 

i. an agent is bound to conduct the business of his principal according to the direction given by the principal.

ii. If there are no such directions, the agent should conduct the business according to the custom which prevails in doing business of the same kind at the place where the agents conduct such business.

When the agent does not act as stated above, if any loss is sustained by the principal, he must make it good to his principal, and if any profit accrues, he must account for it.

 

c) Duty to show proper skill and care (Section 212):

 

The agent is supposed to take due care and act with reasonable diligence in the matter of agency.

 

d) Duty to render proper accounts (Section 213):

 

Another duty of the agent is to render proper accounts to his principal on demand. This means that he should maintain proper accounts of the sums belonging to the principal which are in his hands, he should not mis utilize and misappropriate them, and on demand from the principal, he should render true accounts to his principal.

 

e) Duty to communicate with principal (Section 214):

 

According to Section 214 of the Act, it is the duty of an agent, in case of difficulty to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.

 

f) Duty not to deal on his own account (Section 215 & 216):

 

An agent is under a duty not to deal on his own account in the business of agency, unless the principal consents thereto.

 

e) Duty to pay sums received for principal (Section 217 and 218):

 

Another duty of the agent is to pay to his principal all sums received by him on principal’s account. Before making such payments to his principal, the agent is, however, entitled to make such deductions out of the same as are lawfully due to him.

 

6. RIGHTS OF AGENT AND DUTIES OF PRINCIPAL:

 

The Act confers a number of rights on an agent, and imposes some corresponding duties on the principal. They are as follows;

 

a) Right to Remuneration (Section 219):

 

An agent’s remuneration does not become due to him until the completion of the act assigned to him. This rule is subjected to any special contract between the principal and agent. If the parties have agreed that the agent will be entitled to commission when he finds a purchaser, who is ready and willing to purchase the property, the agent becomes entitle to the commission on doing that.  

 

b) Right to retain sums (Section 217 & 218):

 

All funds received on the principal's behalf must be paid to the principal by the agent. But he also has the right to keep all money owed to him for advances made or expenses properly incurred in running the agency business, as well as any compensation that may be due to him for serving as agents, from any money received on behalf of the principal in the agency business.

 

c) Right of lien on principal’s property (Section 221):

 

According to Section 221 of the Act, in the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other property, whether movable or immovable, of the principal received by him, until the amount due to himself for commission, disbursement and services in respect of the same has been paid or accounted for to him.

 

d) Right to be indemnified (Section 222-224):

 

Indemnity for lawful acts (Section 222)

 

In accordance with Section 222, an agent's employer is required to protect him from the effects of any legal actions taken by the agent while he was acting within the scope of his authority.

 

Indemnity for civil wring (Section 223)

 

Along with the right to indemnity against the results of all lawful acts performed by the agent, the agent is also entitled to indemnity against the results of a good faith act performed by the agent, even if the act injures the rights of third parties or constitutes a tort.

 

No indemnity in case of criminal offences (Section 224)

 

As mentioned above, the employer is required to protect the agent from the consequences of any tortious acts committed by an agent on his or her behalf. However, Section 224 makes it clear that even if the principal has made an express or implied promise to indemnify the agent against the consequences of the crime, the agent cannot do so when the crime is committed at the principal's direction.

 

e) Right to compensation for damages due to principal’s neglect (Section 225):

 

In accordance with Section 225 of the Act, the principal is required to compensate his agent for any harm brought on by the principal's negligence or lack of skill.

 

 

7. CONCLUSION:

 

The Indian Contract Act of 1872 does not differentiate between different classes of agents. An agent may be appointed by the principal, even an employment by any authority authorized by law to make the employment is considered agency.

 

Under the Indian Law, the Agent has certain duties. An agent is bound by the terms of the contract. He should conduct the business of his principal according to the directions given by the principal or in absence of any such directions, according to the prevalent customs. Every agent should carry out the mandate of his principal. In order to entitle the agent to receive his reward, he must have discharged all his duties expected of him under the agency and abide by all conditions imposed by the Indian Contract Act, 1872.