Agency

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Agency

The relationship between the agent and the principal is known as “agency”.

According to 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 any third person. The person for whom such act is done, or who is so represented, is called the “principal”.

Who may employ agent?

According to Section 183 of the Indian Contract Act, any person who has attained the age of majority as per the law to which he is subject and who is of sound mind may employ an agent.

Who may be an agent?

As per Section 184 of the Indian Contract Act, 1872, any person may be an agent as between the principal and the agent, but no person who has not attained the age of majority and is not of sound mind can become an agent, so as to be responsible to the principal according to the provisions in the behalf herein contained.

Features of Agency

  1. The Principal should be competent to contract. [Section 183]
  2. The agent may not be competent to contract. [Section 184]
  3. Consideration is not necessary for the creation of an agency. [Section 185]

Modes of Creation of Agency

  1. Acts done with the Principal’s actual authority. Such authority may be either express or implied.
  2. In the situation of “Emergency”, the agent has an authority to act on behalf of the principal.
  3. On the basis of “Law of Estoppel”, the agency is created because of the conduct of the Principal.
  4. By ratification of the agent’s act by the Principal, even though it has been done without the Principal’s prior authority.
  5. By the presumption of agency in husband-wife relationship.

Rights of the Agent (Duties of Principal)

An agent has the following rights against the principal:

1. Agent’s right of retainer out of sums received on principal’s account:

According to Section 217 of the Indian Contract Act, 1872, “An agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business, and also such remuneration as may be payable to him for acting as agent.”

An agent has the right of retaining money received from the sale of principal’s good for his due remunerations on the account of the goods sold.

2. Right of remuneration

Agent’s right to remuneration is explained under Section 219 of the Indian Contract Act, 1872, “In the absence of any special contract, payment for the performance of any act is not due to the agent until the completion of such act; but an agent may detain moneys received by him on account of goods sold, although the whole of the goods consigned to him for sale may not have been sold, or although the sale may not be actually complete.”

The Agent has a right to receive agreed remuneration or commission from his principal. If the amount of remuneration was not decided then he is entitled to receive a reasonable amount of remuneration. The agent is entitled to get remuneration until the agency is not the gratuitous one.

No remuneration for business misconduct

Under Section 220 of the Contract Act, “Anagent, who is guilty of misconduct in the business of the agency, is not entitled to any remuneration in respect of that part of the business which he has misconducted.”

Illustration:

A employs B as his agent for recovering 1,000 rupees from C. Due to B’s misconduct the money is not recovered. B is not entitled to receive any remuneration for his services and he must make good the loss.

3. Right to lien

Under the Section 221 of the Indian Contract 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, disbursements and services in respect of the same has been paid or accounted for to him.”

The section provides the agent a right of lien on both movable as well as non-movable property in respect of commission, disbursement and services rendered by the agent.

The conditions of the lien are:

i. The agent must be lawfully entitled to receive money from the principal.

ii. The property must belong to the principal.

iii. Agent has only a particular lien.

As the agent parts with the possession of goods, the right of lien is lost.

4. Right to Indemnity

Agent has the right of being indemnified by the principal against the consequences of all lawful acts done in his authority. This right is provided under Section 222 of the Indian Contract Act, “The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him”.

Illustration

B, a broker, by the orders of A, a merchant, contracts with C for the purchase of 10 casks of oil for A. Afterwards A refuses to receive the oil, and C sues B. B informs A, who repudiates the contract. A is liable to B for such damages, costs and expenses.”

5. Right to Compensation 

It is the right of the agent to receive compensation for the damages or injury caused due to principal’s neglect. Section 225 states, “The principal must make compensation to his agent in respect of injury caused to such agent by the principal’s neglect or want of skill”. For example, if A employs B as a bricklayer and puts up the scaffolding himself. The scaffolding is skilfully put up, and B is in consequence hurt. A must compensate to B.

Duties of Agent (Right of Principal)

1. Duty not to delegate his acts:

According to Section 190 of the Indian Contract Act, 1870, “An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature of the agency, a sub-agent must be employed”.

The maxim, “Delegatus non potest delegate” contains the rule, which says, ‘an agent to whom authority has been delegated cannot delegate the authority further’.

2. Agent’s duty in appointing substitute agent:

Under Section 195 of the Contract Act, “In selecting such agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case; and, if he does this, he is not responsible to the principal for the acts or negligence of the agent so selected”.

Illustration:

A appoints B as his agent who was a merchant and consigned his goods for sale. B, in the due course of business employs C, an auctioneer to sell the goods of A in good credit. B also allowed C to receive the proceeds from the sale. C afterwards became insolvent without having accounted the proceeds of sale. B is not responsible to A for the proceeds.

3. Agent’s duty on termination of agency by the principal’s death

Section 209 of the Contract Act provides, “When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him”.

4. Duty to follow principal’s direction to conduct his business

According to Section 211 of the Indian Contract Act, 1872, “An agent is bound to conduct the business of his principal according to the directions given by the principal, or in the absence of any such directions according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and if any profit accrues, he must account for it”.

The most important duty of the agent is to carry out the mandate of the principal. The duties entrusted by the principal should be performed by the agent.

Illustration:

B is a broker in whose business it is not a custom to sell goods on credit. He sells A’s good to C on credit. C, before payment becomes insolvent, /b must make good the loss to A.

5. Duty to show proper skill and care

This duty is explained under Section 212 of the Contract Act. According to it, “An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business unless the principal has notice of this want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill, or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill, or misconduct.”

Illustrations:

A, an agent for the sale of goods, had the authority to sell the goods on credit. He sold on credit to B, without making any usual inquiry of solvency of B. B, at the time of such sale, is insolvent. A must make compensation to his principal in respect of such loss.

6. Duty to maintain accounts to the principal

According to Section 213 of the Contract Act, “An agent is bound to render proper accounts to his principal on demand.”

7. Agent’s duty to communicate with principal

Under Section 214 of the Contract Act, “It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.”

However, during an emergency and when there is not enough time to communicate, the agent may act bona fide without the principal’s consent.

8. Duty of the agent not to deal on his own account [Right of the principal when agent deals on his own account without principal’s consent]

According to Section 215 of the Contract Act, “If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows, either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to him.”

Illustration:

A directs B to sell A’s estate. B bought the estate for himself in the name of C. A, on discovering that B has bought A’s estate for himself, may repudiate the sale. If he can show that B has dishonestly concealed any material fact from him, or that the sale has been disadvantageous to him. 

9. Duty not to make secret profits from agency [Principal’s right to claim benefit, if the agent is acting on his own account]

An agent without the consent of the Principal must not make any benefit beyond his remuneration agreed upon them. The principal is entitled to claim such sums from the agent, if the agent has made such secret profits.

According to Section 216 of the Contract Act, “If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.”

10. Agent’s duty to pay over all sums received from the principal

Section 218 of the Indian Contract Act, 1872, provides that, “Subject to such deductions, the agent is bound to pay to his principal all sums received on his account.”

11. Duty not to use information obtained in the course of agency against the principal

An agent must not disclose confidential matters to anybody. He also should not use any information received in the course of agency against the interest of the principal.

12. Duty not to set up an adverse title

There is a special mention about it in the Indian Contract Act, but an agent must not set up an adverse title against his principal. He should also not set his title on third parties in respect of any goods received from the principal.

References

1. Mulla, The Indian Contract Act

2. K. Bangia, Contract- II

3. Avtar Singh, Contract and Specific Relief

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Dhruval
Hi, I am a law student pursuing B.Sc.LLB (Hons.) from Gujarat National Law University (GNLU), Gandhinagar. I have a keen interest in legal research and writing. I am thankful to Law Times Journal for providing me with a platform where I can hone my writing skills. I hope my work provides you with a better understanding of legal concepts and helps you save time. Enjoy reading!

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