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 Indian Contract Act, 1872 makes statutory provisions governing rights and obligations of the principal and the agent.
Definition of an agent under the statute:
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”. But every person, who does something for the other is not necessarily an agent, for example, a contractor employed to carry on some construction work is not necessarily the agent of the principal. A servant may be technically an agent of the master but he is not strictly an agent in as much as he has to act entirely under the orders of the master as to how anything needs to be done. An agent has more authority and independence to function in comparison to that of a servant.
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.
Powers of an Agent:
An agent has authority to do all acts and things, which are expressly given to him but he has also implied authority to do all acts which are incidental to the main powers. S. 189 of the Indian Contract Act, 1872 provides that an agent also has powers to do all acts for the purpose of protecting the principal in emergency as would be done by a man of prudence in his own case. An agency can be granted orally or through writing and it can also be created through subsequent ratification of the acts done by one person for the other.
The 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.
The Rights of the Agents:
- The agent has a right to certain monies in his hands held on account of the principal for the expenses incurred by him in the course of agency business;
- He has a lien on the goods of the principal for his dues;
- He has a right to adjust his commission or remuneration against the amount payable to the principal;
- All these rights are, however, subject to a contract to the contrary and therefore different provisions can be made in the agreement of agency.
Duties of the Principal:
- The principal is bound to indemnify the agent against any consequences of lawful acts done by such agent in exercise of the authority conferred on him;
- The principal is bound to indemnify the agent against consequences of the acts done by the agent in good faith though it may cause injury to the third persons;
- The principal is bound to make compensation to the agent in respect of any injury caused to such agent by the principal’s neglect or want of skill;
- These duties are not subject to a contract to the contrary and, therefore, they cannot be avoided by an agreement.
Contracts lawfully entered by an agent on behalf of the principal are binding on the principal;
- What is done by the agent within authority is binding but what is done beyond authority is not binding on the principal but if both the acts cannot be separated, then both the acts are not binding on the principal;
- Notice to or information obtained by an agent in course of business is a notice or information to the principal;
- A contract entered into by an agent cannot be specifically enforced by him nor is he personally bound by it unless where the contract is for sale or purchase of goods or from a merchant abroad or unless the principal is not disclosed by the agent or unless the principal cannot be sued;
- In case of an undisclosed principal, the third party has the same right against the agent as he would have if the principal was disclosed. Similarly, in such a case a third party would not be bound by the contract if he could show that he would not have entered into the contract if he had known the principal;
- In the event of personal liability, both the agent and the principal would be liable.
- Even an act of fraud or misrepresentation done by an agent in the course of his agency business is binding on the principal;
- These provisions are not subject to any contract to the contrary between the principal and the agent.
Sub agents are generally of three types
- Those employed without the express or implied authority of the principal and by whose acts the principal is not bound;
- Those employed with express or implied authority of the principal but between whom and the principal there is no privity of contract;
- Those employed with the express authority of the principal and between whom and the principal there is a privity of contract and a direct relationship of principal and agent is accordingly established.
Overview of Sub Agents and their rights:
A sub agent is a person employed by and acting under the control of the original agent in the agency business. An agent cannot lawfully employ another person to perform acts which he has expressly or impliedly undertaken to perform personally unless by ordinary custom of trade a sub agent may or from the nature of the agency a sub agent must be employed.
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.
Types of Agency:
- The most common types of agents are:
- Sole selling agent;
- Sub agent;
- Mercantile agent;
- Forwarding or Clearing Agent;
- Insurance Agent;
- Director Agent;
- Estate Agent;
- Broker etc