Lecture No.

4
Agency
Meaning of Agency
Definition of “Agent”: Agent is defined in
Section 182 of the Contract Act:
“Agent” and “principal” defined. 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
acts is done, or who is so
represented, is called the “
principal”.
 ESSENTIALS OF AGENCY

1.      Principal should be competent to

contract
183. Who may employ agent. –
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.
 2.      Agent need not be
competent
• 184. Who may be an agent. – 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 of sound
mind can become an agent, so as to
be responsible to his principal
according to the provisions in that
behalf herein contained.
 3.      Consideration for
appointment not necessary
Lastly, no consideration is necessary to create an
agency. Generally, an agent is remunerated by way
of commission for services rendered, but no
consideration is immediately necessary at the time
of appointment.
 
185. Consideration not necessary. – No
consideration is necessary to create
an agency.
 
 4. Legality of object
• Agency relation is a contractual relation, so
in order to bind a contractual obligation and
enforceability, agency should be based on
any lawful subject. Any unlawful matter
can’t be the basis of an agency relation.
 Possibility of performance
• The agency function should be real and
must not be any impossible task or function.
However, the commercial impossibility
does not create the ground of impossibility.
 Agent and servant

An agent occupies a position which in many respects is similar to

that occupied by a servant, bailee or trustee.
 
The distinction between an “agent” and a “servant” has been
underlined by the Supreme Court in Lakshminarayan Ram Gopal
& Sons v Hyderabad Government. BHAGWATI J adopted the
distinction as it is stated in Powell’s LAW OF AGENCY and
Halsbury’s LAWS OFENGLAND. The main points of
distinction which have been emphasized are as follows:
 
 
 
•    An agent has the authority to act on behalf of
his principal and to create contractual relations
between the principal and a third party. This kind
of power is not generally enjoyed by a servant.
•     “A principal has the right to direct what the
agent of his to do; but a master has not only that
right, but also the right to say how it is to be done.”
“A servant acts under the direct control and
supervision of his master and is bound to conform
to all reasonable orders given to him in the course
of his work. But an agent, though bound to exercise
his authority in accordance with all lawful
instructions… is not subject in its exercise to the
direct control or supervision of the principal.”
•     The mode of remuneration is generally different. A
servant is paid by way of salary or wages; an agent
receives commission on the basis of the work done.
•     A master is liable for the wrong of his servant if it
occurs in the course of employment. A principal is liable
for his agent’s wrong done within the “scope of
authority”.
•    A servant usually serves only one master, but an agent
may work for several principals at the same time.
 Agents and bailee

An agent differs from a bailee in certain respects.

• Firstly, the relationship of bailor and bailee subsists
only so long as the bailee holds some goods
belonging to the bailor, but this is not necessary for
the subsistence of agency relationship. Sometimes an
agent may be in possession of his principal’s
property and to that extent he may also be a bailee.
And, sometimes a bailee may become an agent when
he is authorized to dispose of the bailor’s property
according to his directions.
•Secondly, an agent is a representative with a power to
contract on behalf of his principal. A bailee does not have
that power. The Supreme Court accepted these points of
distinction in a case in which a banker had accepted the
responsibility of receiving the goods on behalf of an
account holder and to release them in favor of his
customers’ agents’ payment. The banker was thereby held
not to have become an agent remained only a bailee.
 Agent and buyer

• A selling agency has to be distinguished from a

transaction resulting in an out – and – out sale.
The legal position of an independent buyer is
different from that of an agent. The Supreme
Court pointed out in Gordon Woodrufee & Co. v
Shaik M. A. Majid & Co, that even an agent could
become a purchaser when he pays the price to his
principal and discloses to him that fact.
 
Kinds of agent
Agents are of several kinds. The word “agent” is used
to describe various types of activity.

•Factor
•Broker
•Delcredere Agent
•Non-mercantile Agent.
•General vs. specific agent
•Gratuitous Agent
Factor
“The word “factor” in India, as in England,
means an agent entrusted with the possession of goods
for the purpose of selling them.” “He is a mercantile
agent whose ordinary course of business is to dispose
of goods, of which he is entrusted with the possession
or control by his principal.”
Broker
A “broker” is also a kind of mercantile agent. He
is appointed to negotiate and make contracts for the
sale or purchase of property on behalf of his principal,
but is not given possession of the goods.
 
 Del Credere agent

A “del credere agent” is another type of mercantile agent.

In ordinary cases the only function of an agent is to affect
a contract between his principal and a third party. The
agent then drops out. He can neither sue on the contract,
nor he is held liable for the failure of the third party to
perform. But where an agent undertakes, on the payment
of some extra commission, to be liable to the principal for
the failure of the third party to perform the contract, he is
called del credere agent and his extra commission for the
guarantee is known as del credere commission.
 Non-Mercantile Agent
• A non-mercantile agent is an agent who
performs any activities of the principle
other than mercantile activities. It includes
advocate, attorney, insurance agent etc.
 General vs. specific agent
• A general agent may be authorized to do
any activities necessary to carry out any
specific business. For example, if an
individual is appointed as an agent to
conduct any particular business on behalf of
the principal, the person being so
authorized, can perform any function in
relation to the natural functioning of the
organization.
On the other hand, a specific
agent is the person who acts on
any specific function as specified
and authorized by the principal.
In case of specific agency, the
function of the agent is limited to
the specific authority.
 Gratuitous Agent
• A gratuitous agent is a person who
volunteered to help another, and the person
being helped accepted this assistance.
 CREATION OF AGENCY

• by express appointment;
• by the conduct or situation of the parties;
• by necessity of the case; or
• by subsequent ratification of an
unauthorized act.
 Relations of Principal and
Agent
•   Duty to execute mandate
• Duty to follow instructions or customs
[S. 211]
•   Duty of reasonable care and skill
[S. 212]
• Duty to Maintain Confidence
• Duty to Avoid Conflict of Interest
• Duty not to Make Secret Profit
• Duty to Remit Sums
• Duty to Maintain Accounts
• Duty Not to Delegate
 RIGHTS OF AGENT

1.      Right to remuneration [Section 219]

219. When agent’s remuneration becomes due. –
In the absence of any special contract, payment,
for the performance of any act is not due to the
agent until the completion of such act: but an
agent may detain moneys received by him on
account of goods sold, although the whole of the
goods consigned to him for sale may not been
sold, or although the sale may not be actually
complete.
 
 Right of retainer [Section 217]

      217. Agent’s right of retainer out of sums

received on principal’s account. – An agent
may retain, out of any sums on account of the
principal in the business of the agency, all
moneys due to himself in respect of advances
made or expensed properly incurred by him in
conducting such business, and also such
remuneration as may be payable to him for
acting as agent.
 
 Right to lien [Section 221]

     221. Agent’s lien on principal’s property. –

In the absence of any contract to the
contrary, an agent is entitled to retain
goods, papers and other property, whether
movable, or immovable, of the principal
received by him, until the amount due to
himself for commission, disbursements
and services in respect of the same has
been paid or accounted for to hi.
     The right to indemnity [Section 222 and 223]
The right to indemnity is founded upon the statutory
provision contained in Section 222 of the Indian
Contract Act.
222. Agent to be indemnified against consequences
of lawful acts. —The employer of an agent is
bound to indemnity him against the consequences
of all lawful acts done by such agent in exercise of
the authority conferred upon him.
 
223. Agent to be indemnified against
consequences of acts done in good
faith. – Where one person employs
another to do an act, and the agent
does the act in good faith, the employer
is liable to indemnify the agent against
the consequences of that act, though it
causes an injury to the rights of third
persons.
Right to compensation [Section 225]
225. Compensation to agent for injury caused by
principal’s neglect. – The principal must make
compensation to his agent in respect of injury
caused to such agent by the principal’s neglect
or want skill.
 
Illustration
 A employs B as a bricklayer in building a
house, and puts up the scaffolding himself.
The scaffolding is unskillfully put up, and B
is in consequence hurt. A must make
compensation to B.
 
 Termination of Agency

Termination of agency. An agency is terminated by

the principal revoking his authority; or by the
agent renouncing the business of the agency; or by
the business of the agency being completed; or by
either the principal or agent dying or becoming of
unsound mind; or by the principal being
adjudicated an insolvent under the provisions of
any Act for the time being in force for the relief of
insolvent debtors. 
 Modes of Termination
1.       Revocation.
2.       Renunciation by agents.
3.       Completion of business.
4.       Principal or agent’s death.
5.       Principal or agent becoming person of
unsound mind.
6.       Insolvency of principal.
7.       Expiry of time.
      By revocation [Section 203]

The principal may revoke his agent’s authority and

that puts an end to the agency. Section 203 clearly
declares:
 
When principal may revoke his agent’s authority. –
The principal may, save as in otherwise provided
by the last preceding section; revoke the authority
given to his agent at any time before the authority
has been exercised so as to bind the principal.
 By renunciation by agent
[Section 206]
• Agent may renounce the business of agency in the
same manner in which the principal has the right
of renunciation. In the first place, if the agency is
for a fixed period, the agent would have to
compensate the principal for any previous
renunciation without sufficient cause. Secondly, a
reasonable notice of renunciation is necessary.
Length of notice is to be determined by the same
principles, which apply to revocation by the
principal. If the agent renounces without proper
notice, he shall have to make good any damage
thereby resulting to the principal.
 
 Completion of business
[Section 201]
        An agency is automatically and by operation of
law determined when its business is completed.
Thus, for example, the authority of an appointed to
sell goods ceases to be exercisable when the sale is
completed. He cannot afterwards alter the terms of
the sale. But the Allahabad and Calcutta High
Courts have held that agency is not terminated on
the completion of the sale but continues until
payment of the sale proceeds to the principal.
       Death or insanity
An agency is determined automatically of the
death or insanity of the principal or the
agent.
 Principal’s insolvency

An agency ends on the principal being

adjudicated insolvent.
 
      On expiry of time.

 
“Where an agent has been appointed for a
fixed term, the expiration of the terms puts
an end to the agency, whether the purpose
of the agency has been accomplished or
not.”
 
Effects of Termination [Section
208]
208. When termination of agent’s
authority takes effect as to agent, and
as to third person. The termination of
the authority of an agent does not, so
far as regards the agent, take effect
before it becomes known to him, or, so
far as regards third persons, before it
becomes known to them. 
Illustration  
(a)    A directs B to sell goods for him, and
agrees to give B five per cent commission to
the price fetched by the goods. A afterwards,
by letter, revoke B’s authority. B after the
letter is sent, but before the receives it, sells
the goods for 100 Taka. The sale is binding
on A, and B is entitled to five Taka as his
commission.
    
• As between the principal and the agent, the
authority of the agent ends when he comes
to know of termination. Where, for
example, the authority of an agent
appointed to sell goods is revoked, but he
sells the goods before receiving the letter of
revocation, the sale is good. 
 Agent’s duty on termination
[Section 209]
 
209. Agent’s duty on termination of agency by principal’s
death or insanity. – When an agency is terminated by the
principal dying becoming of unsound mind, the agent is
bound to take, on behalf of the representatives of his late
principal, all reasonable steps for the protection and
preservation of the interested to him.