Introduction

• The laws relating to agency are dealt under ‘Chapter X’ of the Indian Contract Act, 1872(ICA).
• The definition of agent and principal is provided under Section 182 of the Indian Contract Act 1872.
• ‘Agency’ is defined as a relationship where one party, namely the principal, who delegates some authority to another party, namely agent to represent him or to act on his behalf, in dealing with a third person.
• In this relationship, the principal is the person who gives authority to another person to run activities on their behalf, while the agent is a person who performs activities on behalf of another person.
• Their relationship is based on the Latin maxim, ‘Qui Facit per alium facit per se’, means, ‘he who acts through another is deemed in law to do it himself’.

Essentials of Agency

• Competency of Principal (Section 183):
• For the contract of agency, the principal should be competent to form a contract.
  • That is, he must be of the
    • age of majority.
    • sound mind.
    • Not disqualified by the law.
• Competency of Agent (Section 184):
  • The capacity of an agent in the contract of agency is immaterial. Any person can become an agent between the principal and the third person.
  • However, they (the agent) may not be liable to the principal unless they have attained the age of majority and are of sound mind.
• Consideration Not Necessary (Section 185):
  • According to Section 185 ICA, consideration is not an essential element for the creation of an agency.
  • Hence no consideration is required to be presented while the formation of an agency.

Types of Agents

• Special Agent: He is appointed to do a singular specific act.
• General Agent: He appointed to do all acts relating to a specific job.
• Sub-Agent: He is appointed by an agent himself.
• Co-Agent: Agents together appointed to do an act jointly.

Rights of an Agent

• Rights of Retainer
  • According to Section 217, the right of retainer means the agent has the right to hold or retain the money accrued to an agent in the due course of conducting a business act as guided by the principal. The agent can retain money to clear the dues of the remunerations also.
• Right to Remuneration
  • Receiving the remuneration from the principal is one of the rights of the agent. Section 219 of ICA states that the agent is entitled to get remuneration from the principal for the conduct of business. An agent must get the remuneration as agreed by the principal and the agent at the time of making the contract.
  • Section 220 of ICA states that the agent is not entitled to remuneration for the misconduct of the business. It means that the agent will lose his right to claim remuneration if an agent is found guilty of fraud or breach. Along with this, he will be liable to the principal for the compensation of loss or harm caused due to the breach of duty.
• Right of Lien
  • Section 221 of ICA provides for the right of lien that an agent has on the principal’s property.
• The section provides that an agent is well within his rights to retain the movable or immovable property of the principle until he is compensated or accounted for his services relating to the property that he was provided with.
• Right to Indemnity
  • Section 222 talks about ‘Right of indemnification’ for lawful acts: The principal is sure to indemnify the agent against all consequences of lawful acts wiped out the exercise of his authority.
  • Section 223 of ICA talks about ‘Right of indemnification’ against acts done in good faith included under Section 222. Where the agent acts in good faith on the instruction of the principal, an agent is entitled to indemnification for any loss or damage from the principal.
• Right to Compensation
  • Section 225, of ICA says an agent is entitled to claim compensation for the injuries suffered as a consequence or want of skill of the principal.

Duties of an Agent

• Duty Not to Delegate His Authority
  • An agent must not delegate his authority to a sub-agent. Section 190 of the Indian Contract Act is based on the maxim ‘Delegatus non-protest delegare’ which means, a delegate cannot further delegate.
  • An agent appointed to work on a specific task cannot delegate that task to another because the principal chooses as an agent a particular person. After all, he responds to trust and confidence in such a person.
• Duty to Protect and Preserve the Interest
  • Under Section 209 of the ICA when the principal’s death or unsoundness causes the termination of the agency, the agent must protect and preserve the interests entrusted to him on behalf of the representative of the deceased principal.
• Duty to Execute the Mandate
  • Section 211 of the ICA bounds an agent to conduct the business of his principal according to the principal’s directions or in the principal’s absence, according to the custom of trade.
• Duty to Act with Care and Skill
  • Section 212 covers another role of the agent. This law requires an agent to conduct agency business with due care and caution.
• Duty to Render Proper Account
  • Section 213 of the act provides the duty to render proper account. On-demand, the agent should show the relevant accounts to the principal. It binds the agent to keep the money and property of the principal separate from his own. The agent is responsible for maintaining accurate records of the property he receives as part of his duties and providing those records to the principal on request.
• Duty to Communicate with the Principal
  • As per Section 214 of the act, in cases of difficulty, it is the agent’s duty to use all reasonable diligence in communication with his principal and seeking to get his instructions.
• Duty Not to Deal on his Account
  • If the principal wishes to deal on his behalf in the agency’s business, the agent must disclose all material circumstances that have come to his knowledge. He must also get consent from the principal. Non-observance of this duty may lead to:
    • Under Section 215 of the Contract Act, the principal may repudiate the transaction and disclaim all losses.
    • Under Section 216 of the Contract Act, the principal may claim from the agent any benefit which may have resulted in him from the transaction.
• Duty Not to Make a Secret Profit
  • The relationship between the agent and the principal is of mutual trust and confidence. If an agent makes a secret profit from its agency, the principal can demand all the profits from the agent. As per Section 216 of the ICA, agents should not make any profit or acquire any benefit in the course of their agency without their principals’ knowledge and consent. Such profit is called secret profit. It is the agent’s responsibility to account to the principal for secret profits.
• Duty to Pay Sums Received
  • As per Section 218 of the ICA, the agent must pay his principal all sums received on his account after retaining all money due to him regarding advances made or expenses properly incurred by him while conducting the business.

Principal’s duties towards Agent

• The principal is bound to indemnify the agent against any lawful acts done by him in the exercise of his authority as an agent.
• The principal is bound to indemnify the agent against any act done by him in good faith, even if it ended up violating the rights of third parties.
• The principal is not liable to the agent if the act that is delegated is criminal in nature. The agent will also in no circumstances be indemnified against criminal acts.
• The principal must make compensation to his agent if he causes any injury to him because of his own competence or lack of skill.

Termination of Agency

The relationship between principle and agent comes to an end, it’s known as termination of agency. Section 201 to 210 of the act deals with termination of agency. Agency may be terminated two ways: By the Act of the Parties and By Operation of Law.

By the Act of the Parties:

• Revocation by Mutual Agreement:
  • The agency of contract can be terminated at any time by mutual agreement between the principal and the agent.
• Revocation by the Principal:
  • Agency can be terminated by the principal by revoking the agent’s authority.
  • The principle can revoke his agent’s authority when it has not been exercised by the agent reasonable, notice must be given for such revocation.
• By Renunciation of An Agent:
  • Renunciation which means withdrawing from responsibility as agent. Like Principal, Agent can also renounce the agency.
  • According to Section 206 of the Indian Contract Act 1872, 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.

By Operation of Law:

• By the Completion of Agency:
  • Agency can come to an end after the completion of work for which the agency is created.
  • Example: Ram employed Shyam as his agent to sell his house in China when the house was sold by Shyam, it automatically terminates the contract of agency between Ram and Shyam.
• By Expiry of the Time:
  • Agency can also be terminated by the expiry of time. If the agency is created for the specific period, it is terminated after the expiry of the time.
• Death or Insanity of Principal or Agent:
  • Section 209 of the Indian Contract Act 1872 imposes an agent, duty to terminate the contract of agency on the death of the principal. In other words, Agency comes to an end on the death or insanity of the principal or agent.
• Insolvency of Principal:
  • According to Section 201 of the ICA, an insolvent or bankrupt is a person who is unable to run the business due to excess of liabilities over assets. In this way, if the principal becomes an insolvent agency can be terminated.
• Destruction of the Subject Matter:
  • If this subject matter of the agency is destroyed the agency comes to an end.
• Principal becoming an alien enemy:
  • If the Principal becomes an alien enemy, the contract of the agency comes to an end.
• Dissolution of company or firm:
  • In certain cases, the company may be considered a principle in a contract of agency and if it is dissolved then the contract comes to an end. If the company is that of either principal or agent and it is dissolved, then the contract comes to an end.
• An event renders the agency unlawful:
  • Due to an act of either the principal or the agent the agency that was lawful may be declared unlawful which makes it impossible for the agency to continue and the contract of agency is hence terminated. It is also possible during the time of war.

Case Laws

• In Pannalal Jankidas v. Mohanlal (1950):
  • The Supreme Court held the agent liable to compensate the principal. Here, the principal told the agent to get the goods insured. The agent charged the premium from the principal but never got the insurance.
• In Jayabharathi Corporation v. PN Rajesekara Nadar (1991):
  • The Supreme Court said that where the agent misinforms the principal, and the loss occurs because of his misconduct, he is liable to the principal.