Contract of Agency

INTRODUCTION

Agency signifies a relationship, which exists where one person has an authority to act on behalf of another occupying the position of principal, to create legal relationship between him and third parties. The agent and principle share a relationship that is contractual in nature, and therefore it is governed by the terms and conditions of the contract between them. Chapter X of the Indian Contract Act, 1872 provides the basic structure of rules and regulations that basically govern the performance and formation of any type of contract including the agency contract. In agency contracts, there exists a legal relationship between two people whereby one person acts on behalf of the other.

The Indian Contract Act, 1872 makes statutory provisions governing rights and obligations of the principal and the agent.

AGENCY

The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual fiduciary relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the principal) to create legal relations with a third party.

In India, section 182 of the Contract Act 1872 defines Agent as “a person employed to do any act for another or to represent another in dealings with third persons”.

DEFINITION OF AN AGENT

Section 182 defines “an agent” as 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”. An agent is a person, who acts for and on behalf of the principal and under the latter’s express or implied authority and his acts done within such authority are binding on his principal and for his such acts, the principal is liable to the party with whom the agent has dealings as such agent.

BASIS OF AGENCY

The person acting on behalf of the other is called an agent, and the person from whom the agent derives authority to act is called the principal. 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

CREATION OF AGENCY

  • By express or implied contract- A principal may implicitly or expressly employ an agent. The appointment may be expressed in writing or it may be oral.
  • By ratification– assent is given either to an act done by someone who had no previous authority to act or to an act that exceeded the authority granted to an agent.
  • By necessity- a person acts for another in an emergency situation without express authority to do so.
  • By conduct of party or situation– E.g. estoppel- Whereby a person allows another to act for him to such an extent that a third party reasonably believes that an agency relationship exists between the two.

DUTIES OF AN AGENT

  • To conduct the business of the principal according to the directions given by the principal;
  • To conduct business of the agency with as much skill as is generally possessed by persons engaged in similar business and to act with reasonable diligence and to make compensation to the principal in respect of the direct consequences of his own neglect for want of skill or misconduct;
  • To render proper accounts to his principal on demand;
  • To use all reasonable diligence in communicating with the principal and seeking to obtain his instructions;
  • To pay to his principal all sums received by doing anything on his account, though in the course of the agency business and without the previous consent of the principal, that is in the event of his doing so he is liable to pay to the principal for the benefit, which may have resulted from the transaction. It may be stated that it is not necessary to include these in an agency agreement as these duties are not subject to any contract

RIGHTS OF THE AGENT

  • Right to indemnity– an agent has the right to indemnity extending to all expenses and losses incurred while conducting his course of business as agency.
  • Right to compensation– an agent has the right to be compensated for any injury suffered by him due to the negligence of the principal or lack of skill.
  • Right to remuneration– an agent is entitled to get an agreed remuneration as per the contract. If nothing is mentioned in the contract about remuneration, then he is entitled to a reasonable remuneration. But an agent is not entitled for any remuneration if he is guilty of misconduct in the business of agency.
  • Right of retainer– an agent has the right to hold his principal’s money till the time his claims, if any, of remuneration or advances are made or expenses occurred during his ordinary course of business as agency are paid.
  • Right of lien– an agent has the right to hold back or retain goods or other property of the principal received by him, till the time his dues or other payments are made.

DUTIES OF PRINCIPAL TO AGENT

The duties of a principal to his agent are provided in sections 175 to 178. The main duties are:-

  • To pay the agent the commission or other agreed remuneration unless the agency relationship is gratuitous.
  • Not to willfully prevent or hinder the agent from earning his commission.
  • To indemnify and reimburse the agent for acts done in the exercise of his duties

SUB- AGENT

Section 191 of the Indian Contract Act, 1872 defines sub-agent. According to this section “a sub-agent is a person employed by, and acting under the control of, the original agent in the business of the agency.”The appointment of an agent may be done properly or improperly, which determines the relationship between the principal and the sub-agent. A sub agent cannot be appointed ordinarily by the agent without the express or implied consent of the principal. When a sub agent is appointed with the consent of the principal, he is, as regards the third persons, represented by the sub agent also and is bound by and responsible for the acts of the sub agent as if he were an agent ordinarily appointed by the principal. Otherwise it is the agent who is responsible to the principal for the acts of the sub agent and the sub agent is responsible for his acts to the agent and not to the principal except in case of fraud or willful wrong. The principal is not responsible for the acts of the sub agent if the sub agent is appointed without his consent.

There are two types of delegation

  1. Proper delegation: This is when an agent having the authority to do so, appoints a sub–agent

      Representation of principal by sub-agent properly appointed

    Section 192 says Where a sub- agent is properly appointed, the principal is, so far as regards third person,               represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally              appointed by the principal

     Agent’s responsibility for sub-agent – The agent is responsible to the principle for the acts of the sub- agent

    Sub –agent’s responsibility: – The sub – agent is responsible for his acts to the agent, but not to the principle         except in cases of fraud or wilful wrong.

  1. Improper delegation:

    This is when an agent without any authority appoints a sub- agent.

    Agent’s responsibility for sub-agent appointed without authority –

    Section 193 says where an agent, without having authority to do so, has appointed a person to act as a sub-agent,     the agent stands towards such person in the relation of a principal to an agent, and is responsible for his acts both     to the principle and to third persons; the principal is not represented, by or responsible for the acts of the person       so employed, nor is that person responsible to the principle.

DIFFERENCE BETWEEN AGENT AND SUB- AGENT

  1. An agent is appointed by a principal and is appointed by a principal and is under his control.

          A sub- agent is appointed by an agent and as such is under the control of the agent

  1. An agent acts under the principal.

         A sub – agent acts under an agent

  1. A privity of contract exists between a principal and an agent.

         No privity of contract exists between a principal and a sub- agent

  1. An agent can ask for remuneration from the principal.

         A sub- agent cannot ask for remuneration from the principal.

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