BY-KARAN NAGAR
BALLB
SECTION-B 21GSOL1020096
TOPIC –CONTRACT OF AGENCY
INTRODUCTION
When a person appoints another to act on his behalf with a third party, it is called 'Agency.
The person who appoints is called 'Principal'.
The other person who is appointed is called 'Agent'.
The contract between Principal and Agent is called 'Contract of Agency".
Agency is the legal relationship between an agent and Principal, to bring the principal into legal
relationship with the third party'
Example- 'A' appoints 'B' to purchase some property on his behalf. Here, 'A' is principal and 'B' is Agent.
The relationship between 'A' and 'B' is called Agency
Section 182 of the Indian Contract Act, 1872 defines Agent and Principal as follows
"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'.
ESSENTIAL ELEMENTS OF AGENCY
WHO MAY EMPLOY AN AGENT (Section 183): Section
183 says that "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 other words, any person, who is a major and is of
sound mind may appoint an agent.
WHO MAY BE AN AGENT
(Section 184) Section 184-
says " As between the principal and third persons, any person may become an agent, but no person
who is not of the age of majority and sound mind can become an agent, so as to be responsible to the
principal according to the provisions in that behalf herein contained."
Section 185 lays down that consideration is necessary for creation of an agency. However, "Knowledge
of the Agent is the knowledge of the principle”is the basis for the appointment of an agent .Knowledge
and experience of an agent on the particular work is very important factor .A person appointed as an
agent uses his knowledge and skill for his principal , for which the agent is entitled for remuneration ,
commission etc., as agreed between them, or as per the customs and usages.
KINDS OF AGENTS
Agents may be classified under the following heads
Del Credere Agents: Generally, the function of an agent is over after a contract is established
between his principal and a third person. He is not answerable to his principal for the failure of the third
person to perform the contract. A del credere agent constitutes an exception to this rule. A del credere
agent is a mercantile agent who for extra commission takes the responsibility of that person with whom
he contracts on behalf of the principal will perform their contract. Thus, if such a person fails to perform
his contract, a del credere agent will be responsible to the principal for the same.
Factor: A factor is a mercantile agent who is entrusted with the possession of the 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. According to Section 171 of the Indian Contract Act, 1872, a factor has right of general lien over
the goods belonging to his principal, which are in his possession, for the general balance of account.
Broker: A broker is an agent who has an authority to negotiate the sale or purchase of goods on
behalf of his principal, with a third person. Unlike a factor, he himself has no possession of the goods. He
merely makes the two parties to enter into a contract. He gets his commission whenever any transaction
materialises through his efforts.
Auctioneers: An auctioneer is an agent to sell property at a public auction .He is primarily an
agent for the seller ,but upon the property being knocked down he becomes also the agent of the
buyer .He is the mercantile agent within the meaning of section 2(9)of the Sale of Goods Act .If the
owner of the goods puts him in possession of goods although the authority to sell has not been
conferred in him,a buyer in good faith from such an auctioneer will get a good titlein respect of the
goods.
CREATION OF AGENCY
The word 'agency' is used to connote 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.
The relation of agency arises, whenever one person, called the 'agent' has authority to act on behalf of
another called the 'principal' and consents to act. 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.
Agency may be created under the following ways:
By Express Agreement (Section 186): According to section 186 of the Indian Contract
Act, 1872, the contract of agency may be express or implied. Exppress in the sense,it may be oral or in
the writing.It is a practice in many cases ,to appoint agents by using the power of attorney on a stamped
paper .
By implied agreement (Section-187):Section 187 defines express and implied authority
as follows:
“An authority is said to be express when it is given by words spoken or written.An authority is said to
be implied when it is to be inferred from the circumstances of the case ,and things spoken or
written ,or the ordinary course of dealing ,may be accounted circumstances of the case .”
An implied agency may be created from the conduct,situation or relationship of the parties .It may be
inferred from the circumstances of the case .
Implied agency includes :
Agency by Estoppel: It is based on the 'Doctrine of Estoppel'. If the principal by his conduct or
statement leads another person to believe that a person is his agent, he cannot deny him as his agent
later. Eg- 'A' says "B' in the presence of 'C' that he is the agent of 'C'. If 'C' does not deny the statement,
he cannot deny ‘A’ as his agent .
Agency by Holding Out: It is branch of the Agency by Estoppel. If one person knowingly
admits another to act on his behalf and allows him to do so, later he cannot deny the act of that person.
If he does not want to do so he should express his objection to that act immediately. Example: 'A'
allowed his wife 'B' to manage his property and to mortgage it. A is bound by her acts.
Agency by necessity: Agency of necessity is created in case of emergencies .In these cases ,the
persons who perform their services as agents do not seek prior permission or appointment from the
principals. The principals are also in certain difficult situation and they could not give their assent or
refusal ,but accept the services rendered by such persons.Therefore,law confers authority on a person
to act as an agent for another ,without the consent of that person(principal).Such an agency is called
‘Agency by Necessity’.
DUTIES OF AN AGENT
An agent owes a number of duties to his principal as embodied in Sections 211 to 221 of the Indian
Contract Act.
Duty to conduct the principal's business (Sec 211) - An agent has a duty to act
according to the directions of his principal, otherwise he is liable. If there are no such directions, he is
bound to conduct the business according to the custom which prevails in doing business of the same
kind and place where the agent conducts such business.
To act with reasonable care and skill (Sec 212) – Sec 212 enunciates that the agent
must have skill and diligence, while conducting the business of agency.
To render proper accounts (Sec 213) - Sec 213 imposes an obligation on agent that, he
(agent) is bound to render proper accounts to his principal on demands.
To communicate difficulties (SEC-214)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
.
RIGHTS OF AN AGENT
An agent has the following rights against the principal.
Right to receive remuneration (Sec 219) According to section 219, an agent is entitled
to his agreed remuneration or commission. If the amount of remuneration/commission is not fixed in
advance, he is entitled for a reasonable remuneration. An agent, who is guilty of misconduct in the
business of agency, is not entitled to any remuneration.
Right of lien (Sec 221) - Section 221 confers on agent,right of lien. Lien means right to retain
the property or goods till the dues are cleared/paid. An agent has a right of lien against the goods,
papers and other property, whether movable or immovable of the principal till his commission and
other payments are made to him.
Right of indemnity(SEC-222)Section 222 confers on agent ,right of indemnity .Indemnity
means promise to make good the loss.If the agent suffers any loss in discharge of his duties ,he has a
right to indemnify such loss from the principal.
Right of compensation (SEC-225)-An agent is entitled to claim compensation for the
injuries suffered as a consequence or want of skill of the principal.
TERMINATION OF AGENCY
Sections 201 to 210 of the Indian Contract Act, 1872 lay down the provisions relating to the termination
of agency or revocation of authority. Termination of agency means putting an end to the legal
relationship between principal and agent.
A contract of agency stands terminated under any of the following means-
By the Act of parties
1. By Agreement- Agency may be terminated at any time by a mutual agreement between
the principal and agent.
2. Revocation by Principal- The principal may revoke the agency at any time by giving
notice to the agent.
3. Renunciation by Agent- Renunciation means withdrawing from responsibility as
agent. As the principal can revoke the agent's authority, so also the agents can renounce the agency.
The agent must give to his principal reasonable notice of renunciation ,otherwise he will be liable to
make good for the damage caused to the principal for want of such notice(SEC 226).
By Operation of law- Termination of agency by Operation of Law takes place in the following
cases;
1. By Completion of Agency- Agency comes to an end after the completion of the work
for which the agency is created.
2. By Expiry of time- If the agency is created for a particular time, it is terminated after the
expiry of the time.
3. Death or Insanity of Principal or Agent-Section 209 imposes on agent, duty to
terminate the contract of agency on the death of the principal.
