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.
Section 182 of Indian Contract Act, 1872 defines agent and principal. An agent is one who is:
Principal: 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.
Chapter X of Indian Contract Act, 1872 provides for - appointment of agents (sections 182-185); authority of an agent (sections 186-289); appointment of sub-agent (sections 190-193) and substituted agent (sections 194-195); ratification of acts done without authority (sections 196-200); revocation and renunciation of authority and its consequences (sections 201-207, 209-210); when termination of authority takes effect (section 208); effect of termination, agent's duties to the principal (sections 211-216); agent's rights (sections 217-221); the principal's duties, ie, the agent (sections 222-225); the effect of agency on contracts with third persons (sections 226-230); and presumptions of personal liability of the agent (section 230); and presumptions in such cases (sections 231-238). The chapter is not exhaustive of the principles and provisions affecting the contract of agency.
Agency is the relationship which exists where one person (the principal) authorizes another(the agent) to act on its behalf and the agent agrees to do so. Agency in law connotes the relation which exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal, and third parties. Agency is the fiduciary relationship which exists between two persons, one of whom expressly or impliedly consents that the other should act on his behalf so as to affect his relations with third parties, and the other of whom consents so to act or so acts.
The essential feature of an agent is his power of making the principal answerable to third persons, viz. enabling the principal to sue third parties directly, or render him liable to be sued directly by the third party. The test of agency is whether the person is purporting to enter into transactions on behalf of the principal; i.e., to create, modify or terminate contractual obligations between his principal, whom he represents, and some third person. In order to constitute an agency, it is not necessary to have a formal agreement. An agent, though bound to exercise his authority with all lawful instructions given to him, is not subject to the direct control or supervision of the principal.
Agency is not transferable or assignable. It is personal in character, depending on the terms of the contract between the principal and the agent. An agency does not have the effect of transferring property. Agency may be created either by express appointment by principal or by implication of law or by subsequent ratification.
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 agent (S.183). No qualifications as such are prescribed for a person to be agent except that he has attained majority and is of sound mind. Thus, a minor or a lunatic cannot contract through agent since they cannot contract themselves personally either. If agent acts for a minor or lunatic, he will be personally liable to the third party. Association or group of persons may also appoint agent; for instance, a partnership firm may, transact business through agent. Certain group of persons, because of the very nature of their organisation, must act through agent, e.g., a company, which is an artificial person and thus can transact business only through agent.
T.C. Mathai v. District and Sessions Judge1) : Every person who is sui genris has a right to appoint an agent for any purpose whatsoever, and that he can do so when he is exercising a statutory right no less than when he is exercising any other right. This rule is subject to certain well-known exceptions. As per the exceptions mentioned by the Supreme Court in that case, a person's right to appoint an agent does not extend to the following acts:
Since agent is a mere connecting link or a ‘conduit pipe’ between the principal and the third party, it is immaterial whether or not the agent is legally competent to contract. Thus, there is no bar to the appointment of a minor as agent. However, in considering the contract of agency itself (i.e., the relation between principal and agent), the contractual capacity of the agent becomes important. Thus, no person who is not of the age of majority and of sound mind can become agent, as to be responsible to his principal (S.184). Thus, if the agent happens to be a person incapable of contracting, then the principal cannot hold the agent liable, in case he misconducts or has been negligent in the performance of his duties.
Example: Japhin appoints Anjana, a minor, to sell his ring for not less than Rs.10,000 Anjana sells it for Rs.8000. Japhin will be held bound by the transaction and further shall have no right against Anjana for claiming the compensation for having not obeyed the instructions, since Anjana is a minor and a contract with a minor is void-ab-initio.
An agent may have, and often has,in fact, a large discretion, but he is bound in law to follow the principal's instructions, provided they do not involve anything unlawful. To this extent, an agent may be considered as a superior kind of servant; and a servant who is entrusted with any dealing with third persons on his master's behalf is to that extent an agent.
|He has the authority to create contractual relationship between the principal and a third party.||He ordinarily has no such authority.|
|He may work for several principals at a time.||He ordinarily works only for one master.|
|An agent is bound to follow all the lawful instructions of the principal but he is not subject to the direct control and supervision of the principal.||A servant acts under the direct control and supervision of his employer and is bound to follow all reasonable orders given to him in the course of his employment.|
|A principal is liable for the wrongs of his agent done within the scope of his Authority.||A master is liable for the wrongs of the servant if they are committed in the course of his employment.|
|An agent as such is not a servant.||A servant is generally, for some purposes, his master’s implied agent.|
|He usually gets commission.||He usually gets salary or wages.|
An agent differs from an Independent Contractor in the following respects:
|An agent||Independent contractor|
|He works under the control and supervision of the principal.||He works independently of the control of the person for whom he does the work.|
|He is not personally liable for all acts done by him within the scope of his authority.||He is personally liable for all acts done by him.|
|He usually gets commission.||He usually gets the fixed contracted amount or amount at a fixed contracted rate.|
Is Consideration for Agency Necessary?
Section 185: No consideration is necessary to create an agency. Thus, a contract of agency constitutes an exception to the general rule contained in Section 25 that no contract can be valid unless it is entered into for a consideration. It means that there can be a gratuitous contract of agency and a gratuitous agent will be as much bound by his acts as a paid agent.
The true test of agency lies in answering the question whether a person has the capacity to create contractual relationship between the principal and a third party and to bind the principal by his acts. If the answer to this question is yes, there exists the relationship of agency otherwise not.
There are various ways or methods by which the relationship of principal and agent may arise.
Express authority is given by the principal to the agent by express words, spoken or written2). A statement by a person, who has acted outside his authority, that he was acting within it, does not give authorisation to his unauthorised acts. Actual authority results from a manifestation of consent made by the principal to the agent that he should represent or act for the principal. The authority may be express if it is in writing or by words or it may be implied. The authority is apparent when it results from a manifestation made by the principal to third parties. Under this doctrine where a principal represents or is regarded by law as representing that another has authority, he may be bound as against a third party by the acts of that other within the authority which that person appears to have though in fact he had no such authority.
According to Section 187, an authority is said to be implied when it is to be inferred from the circumstances of the case. Implied authority is that which is inferred from the conduct of the parties, or from the nature of the employment. Where the authority is not express, the question whether an agent had authority to act in a particular matter on behalf of the principal, is to be decided according to the circumstances of the case. Implied authority is stated to be divided into four types:
Agency by estoppel arises where a person by his words or conducts induces third persons to believe that a certain person is his agent. The person who induces as such is estopped or prevented from denying the truth of agency. Section 237 of the Act deals with agency by estoppel.
Example X tells Y in the presence and within the hearing of Z that he (X) is Z's agent. Z does not contradict this statement. Later on Y enters into a contract with X believing that X Is Z's agent. In such a case Z is bound by this contract and in a suit between Z and Y, 2 cannot be permitted to Shy that X was not his agent, even though X was not actually his agent.
Agency by holding out is almost similar to agency by estoppel. Such agency arises when a person by his past affirmative or positive conduct leads third person to believe that person doing some act on his behalf is doing with authority.
Example X allows Y. his servant to purchase goods for him on credit from Z and later on pays for them. One day X pays cash to Y to purchase goods. Y misappropriates the money and purchases goods on credit from Z. Z can recover the price of his goods from X because X had held out Z as his agent on earlier occasions.
Similarly, where any person is held out by another as his agent, the third-party can hold that person liable for the acts of the ostensible agent, or the agent by holding out. Partners are each other’s agents for making contracts in the ordinary course of the partnership business.
Agency by necessity arises under the following two conditions:
Example I: X consigned some vegetables from Delhi to Bombay by a truck. The truck met with an accident. The vegetable being perishable were sold by the transporter. This sale is binding on X. In this case, the transporter became an agent by necessity3).
Example II: X stored some furniture In Y's house free of charge. Atter three years, Y needed the space occupied by the furniture. He obtained Ks address from his bank and wrote two letters to him but he received no reply. Y then sold the furniture. It was held that the sale was not binding on the owner because there was no emergency which required the sale of furniture4).
When an act is done by the agent on behalf of the principal without his knowledge or authority, the principal may elect to ratify or disown such acts. When he ratifies, the legal consequence is that the act is as good as done with previous authority, and the principal becomes liable. If he refuses, he is no liable. Thus, when the principal approves an act of the agent who never had the authority to undertake such an act, it is called Ratification. It is also known as ex-post facto agency i.e. agency arising after the event. Ratification may be express or implied.
Example: A agrees without authority and buys goods for P. Afterwards P sells them to C. There is implied ratification.
Where a husband and wife are living together, we presume that the wife has her husband’s authority to pledge his credit for the purchase of necessaries of life suitable to their standard of living. But the husband will not be liable if he shows that:
The agent must expressly contract as agent for a principal who is in existence and competent to contract.i.e., The principal must be named. Ratification must be done by the person to whom act is done.
The principal must be competent to contract not only at the time the agent acts but also when he ratifies the agent’s act. Ratification must be by a person competent to have authorized the transactions. The principal at the time of ratification has full knowledge of the material facts and must ratify the whole contract, within a reasonable time. Ratification must be done by a person (principal) with full knowledge of material facts or with intent to take the risk of any irregularity.
Ratification cannot be made so as to subject a third-party to damages, or terminate any right or interest of a third person. Only lawful acts can be ratified, Void or illegal contract cannot be ratified by the principal
Example: P is the owner and A is the agent. B is the lease holder. The lease is terminable with 3 months notice. A without authority gives notice to B. Later P ratifies. Held: The ratification is invalid as it has affected the right of the lease-holder B.
Agents are classified in various ways according to the point of view adopted. From the viewpoint of the authority they have, they can be classified as special agents, general agents and universal agents. They are classified as mercantile or commercial agents and non-mercantile or non-commercial agents. There are different various types of kind agents are as follows.
Section 190 provides that an agent cannot delegate his authority for acts which he has expressly or impliedly undertaken to perform. He may do so when:
Section 191 defines a sub-agent, and provides for the relationship between the principal, agent and sub-agent where the sub-agent is properly appointed, and section 193 describes their relationship where the sub-agent is not properly appointed. Section 194 deals with a substituted agent, i.e., a person appointed by the agent to act for the principal, and section 195 casts a responsibility upon the agent of exercising due care and prudence in selection of such a person.
The principal in appointing an agent expects him to act personally and not through others.The general rule that an agent cannot further delegate is founded, under the maxim delegatus non potest delegare. A delegated authority cannot be delegated further. “One who has a bare power or authority from another to do an act must execute it himself and cannot delegate his authority to another”. This maxim debars the agent from delegating his powers beyond the limit fixed by the principal. A principal is not bound by the act of a sub-agent in absence of his express or implied assent empowering the agent to delegate his authority.
There are three main exceptions to this rule that an agent must not delegate his duties to another. These are:
|Properly appointed sub-agent||Not properly appointed sub-agent|
|Section 192||Section 193|
|The principal is bound by the acts of sub-agent.||The principal is not bound by We acts of sub-agent.|
|The principal is responsible for the acts of sub-agent.||The principal is not responsible for the acts of sub-agent.|
|The original agent is responsible to the principal for the acts of sub-agent.||The original agent is responsible for the acts of sub-agent both to the principal and to the third persons.|
|The sub-agent is responsible for his acts to the original agent but not to the principal except in cases of fraud or wilful wrong.||The sub-agent is responsible for his acts to the original agent but not to the principal even in cases of fraud or wilful wrong.|
According to section. 194, if an agent who has authority to name a person to act for his principal in doing business, names another person, such a person is called substituted agent and not sub-agent. He becomes an agent of the principal for that part of business.
The authority of substituted agent may be express or implied. P directs his advocate A, to sell his property by auction and to name an auctioneer for this purpose. A names X and W to conduct auction. Here, X and W are substituted agents and not sub-agents. There is a clear and marked line of difference between ordinary sub-agent and substituted agent. The Supreme Court in Union of India Vs. Amar Singh,held that when the exigencies or circumstances demand, the rule delegatus non protest delegate is relaxed, and a sub-agent may be appointed. But, when the agent has the authority to name a person, he may duly name a substituted agent. The agent is bound to exercise his discretion, as a man of ordinary prudence would, in his own cause. If he so selects, then he is not responsible for acts of negligence of substituted agent, to the principal.
|He works under the control of original agent.||He works under the control of Principal.|
|There is no privity of contract between a sub-agent and principal and hence both cannot sue each other except that in case of fraud or wilful wrong committed by a properly appointed sub-agent, the principal can sue sub-agent.||There is a privity of contract between a substituted agent and principal hence both can sue each other.|
|The original agent is responsible for the acts or negligence of the sub-agent.||The original agent is not responsible for the acts or negligence of the substituted agent if in selecting such agent he has exercised the same amount of diligence as a man of ordinary prudence would exercise in his own case.|
A special agent is a person appointed to do some particular act or enter into some particular contract. A special agent, therefore, has only a limited authority to do the specified act. If he does anything beyond the specifi ed act, he runs the risk of being personally liable since the principal may not ratify the same. A general agent, on the other hand, is one who is appointed to represent the principal in all matters concerning a particular business, e.g., manager of a firm or managing director of a company.
A universal agent has a universal or an unlimited power to act on behalf of his principal. A universal agent is one whose authority is unlimited and who any act on behalf of his principal can do provide such act is legal and is agreeable to the law of land. A universal agent is practically substituted for his principal for all those transactions wherein his principal cannot participate. A Universal agent is one who is authorised to do all the acts which the Principal can lawfully do and can delegate.
Example: When a person leaves his country for a long time, he may appoint his son, wife or friend as his universal agent to act on his behalf in his absence.
Co-Agents are agents together appointed to do an act jointly. When a principal appoints two or more persons agents jointly or severally, such agents are known as co-agents. Their authority is joint when nothing is mentioned about the exercise of their authority. It implies that all co-agents concur in the exercise of their authority unless their authority is fixed. But when their authority is several, any one of the co-agents can act without the concurrence of other.
An agent who is remunerated by a commission (one who looks like the apparent owner of the things concerned). A factor is a mercantile agent to home goods is entrusted for sale. He enjoys wide discretionary powers in relation to the sale of goods. A Factor is an agent who is entrusted with the possession and contract of the goods to be said by him for his Principal. He has possession of the goods, authority to sell them in his own name and a general discretion as to this sale. He may sale on the usual term of credit may receive the price and give a good discharge to the buyer.
An agent whose job is to create a contractual relationship between two parties. He is one who is employed to make contracts for the purchase and sale of goods. He is not entrusted with the possession of goods. He simply act as a connecting link and bring it to parties together to bargain and if the circumstances materialise he becomes entitled to his commission called brokerage. He makes a contract in the name of his Principal. Thus, a broker is an agent primarily employed to negotiable a contract between two parties where he is a broker for sale he has no position of the goods to be sold.
An agent who acts a seller for the Principal in an auction. An auctioneer is a mercantile agent who is appointed to sell goods on behalf of the principal i.e., seller and for this function, an auctioneer get a reward in the form of a commission. An auctioneer conducts auction on behalf of a seller, as he is primarily the agent of the seller. However, after the sale, he also becomes of the purchaser who gives the highest bid. An auctioneer has no authority to sell the goods of his principal by private contract or contracts. An auctioneer is an agent to sell property at a public auction. He is primary an agent for the seller, but upon the property being knocked down he becomes also the agent of the buyer. He is mercantile agent within the meaning of Section 2(9) of the Sale of goods Act.
He is appointed to buy and sell goods (make the best purchase) for his Principal. Commission Agent is a mercantile Agent who buys or sells goods for his Principal on the best possible terms in his own name and who receives Commission for his labours. He may have possession of course or not.
He is an agent who acts as a salesperson, broker and guarantor for the Principal. He guarantees the credit extended to the buyer. He is one who in consideration of an extra commission guarantee his Principal that the third person with whom he enters into contracts on behalf of the principal shall perform their financial obligations that is, if the buyer does not pay, he will pay. Thus, he occupies the position of a surety it as well as an Agent. He is not answerable to his principle for the failure of the third person to perform the contract.A del credere agent constituted an exception to this rule.
Besides the above-mentioned agents, there are other types of agents also such as brokers, bankers, clearing agents, forwarding agents, underwriter, estate agents, etc.
They also play an important role and perform various functions for and on behalf of their principals. Bank and Bankers is the agent of the customers because the relationship between banker and customer is generally creditor and debtors. The bankers collect cheque, draft or bills or buys and sales securities on behalf and get commissions from the customer as considerations for services.
Non-Mercantile Agent: The agent who is unrelated with business activities. It includes estate agent, house agent, election agent, promoter, insurance agents, solicitors, clearing and forwarding agent etc. These include attorneys.
Section 209 to 218 of Indian contract Act, 1872 deals with the duties of an agent.
Section 217 to 225 of Indian contract Act,182 deals with rights of an agent.
Agent is only a connecting link between the principal and third parties. Being only a medium, he can, in the absence of a contract to the contrary, neither personally enforces contracts entered into by him on behalf of his principal, nor is he personally bound by them. From the above discussion, it may be inferred that agent can enforce contracts personally and be held bound for contracts entered into on behalf of his principal, if there is an agreement to the effect, express or implied. Section 230 enlists the following cases where a contract to this effect shall be presumed to exist:
Besides, agent incurs a personal liability in the following cases:
Section 226 to 228 of Indian Contract Act deals with the liability of principal to third parties.
All agency agreements, other than those under which an agent has an interest, are terminable or revocable.
An agency may be terminated
An agency will also terminate in all those circumstances in which a contract may be discharged viz, mutual agreement, destruction of subject matter of agency, agency becoming unlawful, or dissolution of the principal partnership firm.
An agency is deemed to continue in the absence of anything that would prove termination of the agency on one or the other of grounds mentioned above. The principal may also revoke the authority given to the agent at any time before it has been exercised so as to bind the principal, however, he cannot revoke the authority after it is partly exercised, with regard to acts and obligations as arise from acts already done in the agency.
For example, if A authorises B to buy 1,000 bales of cotton on account of A, and to pay for it out of As money remaining in Bs hands, and B buys 1,000 bales of cotton in his own name so as to make himself personally liable for the price, A cannot revoke Bs authority with regard to the payment for the cotton. However, if B had bought the bales in As name so as not to render himself personally liable for the price, A can revoke B's authority to pay for the cotton. Revocation by one of the many principals may not necessarily have the effect of revocation by all principals.
Where there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause. There is no liability to compensate for termination of an agency if the appointment of the agent was contrary to statutory rules, or because the agent in a managing agency was inefficient.
According to Section 208 termination of agent’s authority takes place
Where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.
The principal cannot revoke the authority given to his agent after the authority has been partly exercised; so far as regards such acts and obligations as arise from acts already done in the agency11).
Thus, the principal cannot revoke the agent's authority for the acts already done. Example A authorises B to buy 1,000 bales of cotton on account of A, and to pay for it out of A's money remaining in B's hands. B buys 1,000 bales of cotton in A's name, and so as not to render himself personally liable for the price. A cannot revoke B's authority to pay for the cotton.
The principal cannot revoke the agent's authority for the authorised acts in respect of which the agent has already incurred a personal liability.
Example A authorises B to buy 1,000 bales of cotton on account of A, and to pay for it out of A's money remaining in B's hands. B buys. 1.000 bales of cotton in his own name, so as to make himself personally liable for the price. A cannot revoke B's authority so far as regards payment for the cotton.