AGENCY

 AGENT & AGENCY

A person may do a thing himself, but many a times he engages some other
person to do for him what he himself could have done. Such a person engaged to do an
act for another is called as an agent.
Under S.182 of The Indian Contract Act, “an agent is a person employed to do
an act for another or to represent another in his dealings with third person. The person for
whom such act is done or who is so represented is called the principal.

DESU (DELHI ELECTRIC SUPPLY UNDERTAKING) Vs. BASANTI DEVI

Salary saving schemes was floated by LIC and DESU was assigned the duty of
collecting the premium from the employee by deducting their salaries. The premium of
one of the employees was collected by the employer but was not remitted to LIC.
Meanwhile, the employee died. His widow requested LIC for the amount due on the
policy.
LIC disclaimed the liability on the ground that several installments of premium
were not received and as a consequence the policy had lapsed. The widow filed a
complaint against LIC & DESU before the State Commission under The Consumer
Protection Act, 1986.
State Commission held that DESU was liable to pay the amount and discharge
LIC from its liability. Case went into appeal to National Commission. The above decision
was affirmed there also.
Case went into further appeal to Supreme Court and it was observed that LIC
was wrongly discharged of its liability and directed it to pay the amount of insurance to
the widow. Supreme Court pointed out that DESU had implied authority to collect on the
behalf of LIC the premium from its employees.
Thus, there was a valid payment of premium by the employee who had every
reason to regard DESU as an agent of LIC for collection of premium.

 WHO MAY EMPLOY AN AGENT

Any person who is of the age of majority according to the law to which he is
subject and who is of a sound mind, may employ an agent i.e. principal must have full
contractual capacity.

 WHO MAY BE AN AGENT

An agent does not make any contracts on his own behalf. He merely brings
about a contract between his principal and third party; therefore the agent need not
possess contractual capacity.
But; if an agent not having contractual capacity; brings about a contract between
his principal and third party he shall not be responsible to his principal, though the
principal is liable on such a contract to the third party.
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 EXTENT OF AGENT’S AUTHORITY

An agent having an authority to do an act has authority to do every lawful thing
which is necessary inorder to do such an act.
Eg: A is employed by B, residing in London to recover at Mumbai a debt due to B. A
may adopt any legal process necessary for the purpose of recovering the debt and
may give a valid discharge for the same.
A employs B his agent to carry on his business of a ship builder. B may purchase
timber and other materials and hire workers for the purpose of carrying on business.

 AGENT’S AUTHORITY IN AN EMERGENCY

An agent has authority in an emergency to do all such acts for the purpose of
protecting his principal from loss, as would be done by a person of ordinary prudence in
his own case under similar circumstances.
Eg: 1) A, an agent for sale of goods may have the goods repaired if necessary.
2) A consigns provisions to B at Kolkata with directions to send them immediately
to C at Cuttack. B may sell the provisions to Kolkata if they would not bear the
journey to Cuttack (perishable goods).

 KINDS OF AGENTS
The following are the different types of agents:-

1) GENERAL AGENT
He has the authority to do all acts connected with a particular trade, business or
employment for which he is appointed. Thus, a manager of a firm has the authority to do
all acts necessary for carrying on the business of a firm.

2) SPECIAL AGENT
He is a person who is appointed to perform a particular or special act or to
represent the principal in some particular transactions. He has limited authority which
comes to an end as soon as the act is done.
Eg: An agent appointed to sell a house is a special agent.

3) CO-AGENT
When two or more persons are appointed as agents jointly and severally, jointly
or severally, they are called co-agents.

4) BROKER
He is a mercantile agent. He is engaged to buy / sell property, to negotiate and
to make contracts. He has no possession and hence no right of lien.
He generally puts the forms of contract in writing and after signing he delivers
the particulars of the contract to both the parties. The note given to the seller is called the
‘sold note’ and the buyer is the ‘bought note.’ His liability depends upon these notes. If
he discloses his principal’s name, he can neither sue nor be sued.
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Where principal is undisclosed and he signs as an agent, the broker can be sued
only if there is a usage to that effect. But if broker deals in his own name and not as an
agent he is personally liable.

5) AUCTIONEER
He is a mercantile agent appointed by the seller to sell his goods by public
auction. He has no authority to sell them by a private contract. He is remunerated by a
commission. Initially an auctioneer is an agent of the seller. Once the sale is complete, on
the fall of the hammer, he also becomes an agent of the buyer.
An auctioneer can receive the price of the goods auctioned in his own name and
if the buyer fails to pay for the goods the auctioneer can bring a suit in his own name. If
the auctioneer violates the instructions given by the principal and he other wise has the
authority then it will be binding on the principal.
Thus, if the principal instructs the auctioneer not to sell below a reserved price,
and the auctioneer sells it below that price, the principal will be bound by the same
except in the case where the buyer knew about the limitation on the authority of the
auctioneer.

6) COMMISSION AGENT
He is an agent who buys / sells goods for the owner. In return for his labour, he
receives a commission on the actual sale price. He may not have possession of the goods.

7) DEL CREDRE AGENT

He is an agent who gets extra commission i.e. del credre to be liable to the
principal for the failure of the third party to perform the contract. But this guarantee is
only as regards the payment i.e. he guarantees the solvency of the other party i.e. the
buyer. He is not liable if the buyer refuses to take delivery of such goods.

 DUTIES OF AN AGENT

The mutual rights and duties of the principal and agent may be provided by a
contract between the parties. However, the following duties are imposed by law upon
every agent, unless they are modified or excluded by a contract to the contrary.

1) FOLLOW THE INSTRUCTIONS OF PRINCIPAL

Most important duty of the agent is to carry out the mandate or instructions of
the principal. His failure in this respect will make him absolutely liable for the principal’s
loss.

Eg: A, an agent, engaged in carrying on a business conducted by B in which it is the

custom to invest from time to time at interest, the money which may be in hand,
omits to make such an investment. A must make good to B the interest usually
obtained by such investment.
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2) CONDUCT THE BUSINESS OF AGENCY WITH CARE & SKILL

The agent is bound to act with reasonable diligence and to use such skills as he
possesses. The agent must compensate his principal for loss or damage which is caused
directly due to agent’s neglect or want of skill or misconduct.
When the loss is not caused due to the want of his skill, misconduct or
negligence, agent is not liable.

JAYABHARTI CORP Vs. SVPSN RAJ SEKARA NADAL

The agent first informs the principal that the goods has been purchased as per
the principal’s direction and that they would he dispatch the goods as soon as the
transporter’s strike ended. Later on, the agent communicated to the principal that goods
cold not be purchased by him at all as their delivery was dependent on third party and
third party was in turn dependent on another party for delivery of goods.
The Court held that the neglect and misconduct of the agent in misinforming his
principal makes the agent liable for the damages.

3) REMIT SUMS
Agent must pay to the principal all sums received on the principal name. He can
deduct his commission before such payments. To maintain this right he has to maintain
proper accounts and render them to his principal.

4) DUTY NOT TO MAKE SECRET PROFIT

Agent has to be faithful to his principal and he should not make secret profit. He
cannot also obtain or earn any advantage over and above his agreed commission and
remuneration without the principal’s knowledge.

5) COMMUNICATION WITH PRINCIPAL IN AN EMERGENCY

An agent must in cases of emergency, use all reasonable diligence in
communicating with his principal and seeking his instructions.

6) AVOID CONFLICT OF INTEREST

Agent should not do anything which would bring his personal interest and his
duty to his principal in conflict with each other.

Eg: Where an agent is appointed to sell a product at a fixed price; finding that there is
great demand and sells it at a profit without the knowledge of his principal and
makes extra money. After sometime the product goes down in market as its price is
higher than similar products.
A directs B, his agent to purchase a farm for him. B tells A that the goods cannot be
bought and goes to purchase the same for himself.
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7) DUTY NOT TO DELEGATE

Agent is chosen by the principal because he has trust in him, therefore, such
agent can’t delegate his duty or work to another party without the sanction of his
principal.
However the exceptions to the above rule are:
• NATURE OF WORK: Sometimes nature of work makes it necessary to delegate
duty. For example an agent has to appoint an advocate to settle a dispute in the Court
or claim a debt.
• TRADE CUSTOM: Where the custom in a trade permits or requires appointment of
sub-agent then delegation is permitted. Eg: Architect appoints surveyors.
• MINISTERIAL ACTION: Certain administrative authority can be delegated like
supervision, authority to sign, etc.
• PRINCIPAL’S CONSENT: With the consent of the principal an agent can delegate
his work or authority to another.

 RIGHTS OF AN AGENT

The rights of an agent possesses are as follows:-

1) RIGHT TO REMUNERATION
When the agent’s act is complete, he is entitled for remuneration or the agreed
commission. He can even sue his principal for the same.

2) RIGHT OF RETAINER
The agent has a right to retain his principal’s money in respect of his
remuneration or advance given or expenses properly incurred in conducting the business
of agency.

3) RIGHT OF LIEN
Agent has a right to retain principal’s goods, papers or other property until all
amounts due to him have been paid.
He is entitled to a right of particular lien but this right of lien does not empower
the agent to sell the goods of his principal. If he sells them he is liable for loss sustained
by his principal on the entire unauthorized sale.

4) RIGHT TO BE INDEMNIFIED
Principal is bound to indemnify the agent against all lawful act done by him in
course of business within the authority given by the principal.
Eg: B at Singapore under instruction of A at Kolkata contracts with C to deliver certain
goods to him. A does not send the goods to B and C sues for breach of contract. B
informs A of his suit and A authorises him to defend. B defends the suit and is
compelled to pay damages caused and also incur expenses. A is liable to B for such
damages, costs and expenses.
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5) RIGHT TO COMPENSATE
When an injury or a loss is caused to the agent by the principal’s negligence of
want of skill, the agent must be compensated by the principal.
Eg: A engages B as a brick layer for building a house. A, puts up a scaffolding himself.
The scaffolding is unskillfully put up that B, in consequence is injured. B is entitled to
compensate A.

 TYPES OF AGENCIES

An agency may be created by any of the following ways:-

1) BY EXPRESS AGREEMENT
An appointment of an agent may be expressed in writing or it may be oral.
Normally authority given by a principal is express so that the agent can bind the
principal by acts done within the scope of his authority.
No particular form is required for appointing an agent. But in certain
exceptional cases a formal document is essential.
Eg:- Advocates can be appointed only by executing a ‘Vakalatnama.’

2) BY IMPLIED AGREEMENT
No formal document is necessary for creation of agency. The contract of agency
may be implied from words or even from conduct.
Eg:- A & B are brothers. A lives in Delhi while B lives in Mumbai. B with the
knowledge of A, leases A’s property in Mumbai. He realizes the rent and remits to
A. B is the implied agent of A.

3) AGENCY BY NECESSITY
Sometimes circumstances of a person force him to act on behalf of another
without express authority from him. In such circumstances, law confers an authority on
him to act as an agent for another. Such agency is known as agency by necessity.
Agency by necessity may arise under the following circumstances:-
a) PERSON ENTRUSTED WITH ANOTHER’S PROPERTY: In such cases it
becomes necessary for the person so entrusted to do something to preserve the
property.
Although such a person may not have any express authority to do the act to
preserve the property, law confers such authority on him.
In Great Northern Railway Vs. Swaffield a horse was sent by a train. There was
nobody to take its delivery at place of destination.
The Railway Co. as an agent of necessity sent it to a livery stable for the night.
It was held that the act was necessary for preservation of the horse therefore was
binding on the consignor. Here the carrier of goods became an agent of necessity of
the cargo owner.
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Similarly Master of ships in foreign countries unable to obtain immediate

instructions from their owners when they need money for expenses, may assume
power to hypothecate or sell cargo.
b) AGENCY FROM COHABITION: When husband makes no provision for
maintenance of wife and children, wife may pledge husband’s valuables for purchase
of household necessities. What are the necessities are judged according to the
husband’s style and standard of living.
The presumption that the wife is the agent of the husband arises from cohabition
and not from marriage i.e. they must be living in domestic establishment.
The husband can negate the liability if:-
o He expressly forbade his wife to pledge his credit, or,
o He expressly informed the supplier not to supply the necessaries to his wife, or,
o He has already supplied his wife with necessaries suited to her condition in life.

4) AGENCY BY ESTOPPEL
When a person has by his words or conduct induced others to believe that a
certain person is his agent then he is estopped or precluded from subsequently denying it,
and such person becomes his agent by estoppel.
According to S.237 of The Indian Contract Act, when an agent has without
authority done acts or incurred obligations to third person on behalf of his principal, the
principal is bound by such acts or obligations if he has by words or conduct induced such
third person to believe that such acts and obligations were within the scope of his
authority.
Eg:- A entrusts B with Z’s bills endorsed in blank. B transfers them to C in violation of
private orders from A. The transfer to C is good.

5) AGENCY BY HOLDING OUT

S.235 of The Indian Contract Act states that if a person contracts as an agent,
but without the express or implied authority of the principal; he becomes an agent by
holding out or pretended agent. Such an agent becomes personally liable on the contract
with the third party.
Here false representation must be the cause of the contract. The actions are
based not on the original contract, but on the representation that the pretended agent had
authority to contract.

6) AGENCY BY RATIFICATION
S.196 of the Act states that when acts are done by one person on behalf of
another, but without the knowledge or authority of the latter may elect to ratify or disown
such act. Ratification is thus a kind of affirmation of unauthorized acts.
The ratification may be express or implied and it relates back to the time of the
act ratified. It is thus also known as ‘ex-facto agency’
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Eg:- 1) A purchases goods on behalf of B without B’s knowledge and sanction and
afterwards sells them to C. B accepts the consideration for sale of goods. B’s
conduct implies ratification of A’s purchase for him.
2) X without the authority of Y lends Y’s money to Q. Afterwards Y accepts
interest on the money from Q. Y’s conduct is implied ratification of the loan to
Q.

 TERMINATION OF AGENCY

Termination of agencies can take place by the following two ways:-

1) Act of the parties
2) Operation of Law

 ACT OF THE PARTIES:

This can take place by the occurrence of the following events:
a) PRINCIPAL REVOKING AGENT’S AUTHORITY:- A contract of agency can
be terminated by the principal when he revokes the authority of his agent (S.203).
Revocation of Agent’s authority may be express or implied by the conduct of
the principal. The principal may revoke the authority given to his agent at any time
before the authority has been exercised so as to bind the principal.
Eg: A gives powers to B to let A’s house. Afterwards, A lets the house
himself. This amounts to an implied revocation of B’s authority by A.

b) AGENT RENOUNCING THE BUSINESS OF AGENCY:- An agent may

terminate the contract of agency by renouncing the business of agency (S.206).
The renunciation may be express or implied by the conduct of the agent.

 OPERATION OF LAW (S.201):

Operation of Law in case of termination of agencies takes place in the following
events:-

a) ON COMPLETION OF BUSINESS OF AGENCY:- When agency is created for a

particular business, on completion of that business the agency is automatically
terminated. In Alliance Bank Simla Ltd. Vs. Amritsar Bank it was held that the
authority of an agent to collect bills and to remit the amount when realised, by draft,
terminates as soon as drafts are dispatched.

b) BY EFFLUX OF TIME:- When agency is created for a fixed period of time, it

terminates on expiration of that period even though the purpose of agency may not
have been accomplished.

c) DESTRUCTION OF SUBJECT MATTER:- When the subject matter of agency is

destroyed or ceases to exist the agency stands terminated.
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Eg: X appoints Y to sell his bales of cotton. The godown in which the bales are stored
catches fire; hence the agency stands terminated.

d) DEATH OF INSANITY OF PRINCIPAL OR AGENT:- An agency is terminated

automatically on the death or insanity of the principal or agent. However it was held
in Nasib Kaur Vs. Chanan Singh that acts done prior to death or insanity remain
valid even if they have to be completed after death etc.

e) INSOLVENCY OF PRINCIPAL:- When principal is adjudicated insolvent, agency

comes to an end i.e. when it comes to the knowledge of the agent.
Note: Contract of agency is not terminated by insolvency of agent.

• CONDITIONS UNDER WHICH AGENCY CANNOT BE TERMINATED:

Agency is irrevocable in the following circumstances:-

a) AGENCY COUPLED WITH INTEREST:- When an agent has himself an interest
in the subject matter of agency business, the agency cannot be terminated to the
prejudice of such interest (S.202).
When the principal owes something to the agent and authorises him to sell the
principal’s goods and pay himself out of the sale proceeds is a case of agency coupled
with interest. However in the above case if the principal owed the debt to third person
and gave the agent the authority to give him the sale proceeds (i.e. third person) it
would not make the agency irrevocable.
An agency of this kind is not even terminated by death or insanity of
principal. Interest of the agent must exist at the time of creation of the agency.
Eg: P gives authority to Q to sell P’s land and to pay himself out of the proceeds the
debts due to him from P. P cannot revoke this authority nor can it be terminated by
his insanity or death.
It was held in Smart Vs. Sanders that if the authority arose prior to and
independently of the creation of the interest it would not be irrevocable.

b) AUTHORITY PARTIALLY EXERCISED:- When the agent has in pursuance of

his authority contracted a personal liability or become liable to personal loss, the
agency cannot be revoked by the principal without his consent, as this would be
defeating rights already established.
Eg: A authorises B to buy 1000 bales of cotton on account of A and to pay for it out
of A’s money remaining in B’s hand. B buys 1000 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 cotton.
The above rule is connected with the principal’s duty to indemnify
the agent i.e. S.222 of The Indian Contract Act i.e. when the principal employs an
agent to do something which by law invokes the agent in a legal liability the principal
cannot draw back and leave the agent to bear the liability at his own expense.
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c) EXPRESS CONTRACT:- S.205 states that where there is an express contract not to
revoke authority before the expiry of a particular period or until the business of
agency is over it is called ‘irrevocable agency.’
The authority may be effectively revoked by not allowing the agent to
continue to exercise the authority, but then the principal will have to pay damages to
the agent for breach of contract and will have to indemnify him against the liability
already incurred.
Eg: S directs T to sell goods for him and agrees to give T 5% commission
on the price fetched by the goods. S afterwards, by letter revokes T’s authority. T
after the letter is sent but before he receives it, sells the goods for Rs.100/-. The sale is
binding on S and T is entitled to Rs.5/- as his commission.