This article contains following topics:
- Agent and Principal
- Types of agent
- Features of contract of agency
- Agent`s authority
- Ratification
- Rights of agent
- Duties of agent
- Sub agent
AGENT AND PRINCIPAL
Section 182 of the Indian Contract Act, 1872 defines two terms agent and principal as follows:
Agent- An “agent” is a person employed to do any act for another, or to represent another in dealings with third persons.
Principal- The person for whom such act is done, or who is so represented, is called the “principal.
TYPES OF AGENT
- Special Agent- A Special Agent is an agent who has been appointed to do a single specific act.
- General Agent- A General Agent is an agent who is appointed to do all general aspects relating to a specific job.
- Del Credere Agent- Del Credere is a broker who also acts as a salesperson. He often acts as the principal’s guarantor. He guarantees the buyer’s credit line. He is the person who guarantees his principal that the third party will discharge his financial obligations in return for an extra commission.
- Undisclosed Agent- An undisclosed agent is someone who holds himself out as a principal, even though he is in fact acting on behalf of an undisclosed principal
- Disclosed Agent- A disclosed agent is someone who discloses/represents to his customers that he is acting on behalf of a disclosed principal
FEATURES OF CONTRACT OF AGENCY
There are three basic features of contract of agency
- The Principal should be competent to contract- Section 183 of the Indian Contract Act, 1872 provides that the principal should be competent to contract.
- The agent may not be competent to contract – Section 184 of the Indian Contract Act, 1872 provides that any person may become a agent, there is no bar of competency of contract, but it is further stated that if person incompetent to contract becomes the agent, then such person will not be responsible for his acts to the principal.
- No consideration is necessary to create an agency- Section 185 provides that there is no need of consideration to create a contract of agency.
AGENT`S AUTHORITY
The authority of agent is determined under section 186 to 189 of the Indian Contract Act, 1872. The agent`s authority can be as follows:
Express or Implied- Section 186 of the Indian Contract Act, 1872 provides that the agent`s authority can be express or implied.
Extent of Authority- Section 188 of the Indian contract act, 1872 provides the extent of the agent`s authority which are:
- Agent in normal circumstances has authority to do any lawful thing which is necessary in order to do act
- Agent while carrying on business has authority to do any lawful thing necessary for purpose or usually done in course of conducting business.
Agent`s authority in emergency- Section 189 deals with agent`s authority in case of emergency. It provides that in case of emergency an agent has authority to do all such acts for purpose of protecting his principal which a person of ordinary prudence do in similar case.
SECTION 187- It defines express and implied authority as follows:
Express Authority- An authority is said to be express when it is given by words spoken or written.
Implied Authority- An authority is said to be implied when it is to be inferred from the circumstances of the case.
RATIFICATION
Section 196 of the Indian Contract Act, 1872 provides that, When acts are done by one person for another, then the person for whom the acts are done has the right to ratify or disown such acts. If he ratifies such acts then the same effect will be followed as they are done in his authority.
ESSENTIALS OF VALID RATIFICATION
- The act should be done on behalf of another person– Section 196 of the Indian Contract act, 1872 provides that for the act to be ratified, it is necessary that the same has been done by the person who seeks to ratify the same.
Case- Keighley Maxsted & Co. vs. Durant [(1901) AC 240]- In this case the principal give his agent authority to buy wheats at a particular price. But the agent contracted to purchased the wheat at a higher price. He tell the principal about the same and principal ratifies his act. Later the rates of wheat fell and principal tell that he did not give authority to agent to buy at higher price. It was held that the contract by agent is valid because principal ratifies that.
- Ratification may be express or Implied- Section 197 of Indian Contract Act, 1872 provides that Ratification may be expressed or may be implied.
- Ratification should be with full knowledge of facts- Section 198 of the Indian Contract Act, 1872 provides that person making ratification should have full knowledge of facts and his knowledge should not be materially defective.
- Ratification of the whole transaction- Section 199 of the Indian Contract Act, 1872 provides that A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of which such act formed a part.
- Ratified act should not be injurious to third person- Section 200 of the Indian Contract Act, 1872 provides that if ratified act would result in injury to the third person, then the ratification would be invalid.
REVOCATION OF AUTHORITY
Section 201 mentions various modes of termination of agency of an agent which are:
- By revocation of agent`s authority
- By renunciation of the business of agency by the agent
- By the completion of the business of agency
- By the death or insanity of either the agent or the principal
- By insolvency of the principal.
RULES OF REVOCATION OF AUTHORITY
- No revocation of agency when agent has interest in the subject matter- Section 202 of the Indian Contract Act, 1872 provides that in the case when the agent has interest in the subject matter then the contract of agency cannot be revoked.
- Revocation possible before the authority has been excerised- Section 203 of the Indian Contract Act, 1872 provides that principal may revoke the authority before he has exercised such authority to the agent.
- Revocation when authority has been partly exercised- Section 204 of the Indian Contract Act, 1872 provides that The principal cannot revoke the authority given to his agent after the authority has been partly exercised
- Principal to compensate, if there is premature revocation without justification- Section 205 of the Indian Contract Act, 1872 provides that when the agency is created for the fix time and principle wants to revoke it prematurely without any sufficient cause, then he is liable to compensate the agent.
- Principal should give reasonable notice of revocation – Section 206 of the Indian Contract Act, 1872 provides that the principal should give reasonable notice to the agent of revocation.
- Revocation may be express or implied– Section 207 of the Indian Contract Act, 1872 provides that the revocation may be express or implied.
Case- C.V. Subhendra vs Divine Light school for blinds (AIR 2009 Kar 5)- In this case it was held that the client losing confidence and faith in advocate could terminate the vakalatnama and advocate should return files of client
- Time from which the termination of agent`s authority become effective- Section 208 of the Indian Contract Act, 1872 provides that the termination of agency does not become effective immediately. It take effects-
- Against the Agent- When the fact of termination is known to him.
- Against the third person- The fact become known to him.
- Agent`s duty on termination of agency by principal`s death or insanity- Section 209 of the Indian Contract Act, 1872 provides that when the agency is terminated by the principal `s death or insanity then the agent should take all reasonable steps in order to protect or preserve the interests entrusted to him.
RIGHTS OF AGENT
- Right to retain sums – Section 217 of the Indian Contract Act provides that the agent has the right to hold or retain the money accrue to an agent in due course of conducting a business act as guided by the principal. The agent can retain money to clear the dues of his remunerations.
Case- Hammonds vs Barclay (102 E.R. 356)- In this case it was held that the person had the right to retain the goods or money of another person until his claims were fulfilled
- Right of remuneration- Section 219 of the Indian Contract Act, 1872 states that the agent is entitled to get remuneration from the principal for the conduct of business. Even if there is no contract of remuneration between the principal and agent than also a reasonable amount of remuneration must be given to the agent.
Case- Saraswati devi vs Motilal (AIR 1982 Raj 108) – In this case defendant contracted with plantiff to find the buyer of his property. The plantiff find a person to buy the property but later defendant decline to sell the property. In this case plantiff is entitled to get remuneration for cost incurred by him in finding the buyer.
- Right to Lien- Section 221 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.
Conditions which should be fulfilled to avail right to lien are:
- The compensation of money that the agent seeks should be lawfully owed to him by the principal.
- The property that the agent holds (movable or immovable) should belong to the principal
- If the property is under the agent’s watch or he has been dealing with it, it is considered to be sufficiently in the agent’s possession.
- The way in which the agent gets possession of the property of the principal should be lawful.
- Right to indemnity – Section 223 provides that the agent has the right to be indemnified against acts done by him in good faith.
Case- Adamson vs Jarvis[(1827) 4 Bing 66]- In this case plantiff, an auctioneer sold certain goods in good faith on behalf of the defendant. It turned out that defendant has no rights to sell the goods and the plantiff was made to compensate the true owner. The plantiff was entitled to be indemnified by the defendant for the loss.
- Right to compensation– Section 225 provides that the principal must make compensation to his agent in respect of injury caused to such agent from principal `s neglect.
DUTIES OF AGENT
- Duty to maintain accounts- Section 213 of the Indian Contract Act, 1872 provides that it is the duty of an agent to render proper accounts to his principal on demand.
Case- S. Paul & Co. v State of Tripura (AIR 1984 Cal 378)- It was held that the maintaining of accounts is necessary in order to properly perform other duties of an agent.
- Agent`s duty to take reasonable care- Section 212 of the Indian contract act, 1872 provides that The Agent is obliged to exercise reasonable diligence and compensate his Principal for the immediate consequences of his carelessness, his desire for skill or misbehavior, but not for losses or damages indirectly or remotely resulting from such neglect or wrongdoing
Case- Keppler vs Wheeler- In this case the principal instructed his agent to hire a buyer for his estate. The agent got two offers for that but only communicated one to the principal. In this case it was held that the plantiff did not take reasonable care.
- Duty not to delegate his duties- Section 190 of the Indian Contract Act, 1872 states that an agent cannot give his work to someone else. An agent cannot lawfully employ someone for his work. The work is solely given to him and he cannot appoint to do his work.
- Duty to follow principal`s directions- Section 211 of the Indian Contract Act, 1872 provides that the agent must perform or regulate the activities according to the instructions or directions of the principal only. The agent is bound to conduct the business in such a way that it does not go beyond the authority of the principal. But if the agent does not act according to the principal’s instructions, then the agent will be absolutely liable for any loss or harm caused due to his disobedience.
Case- Lilley vs Doubleday[(1881) LR 7 QBD 510]- The plaintiff had instructed the defendant, the agent, to store the goods at a particular warehouse. The plaintiff had insured all the goods that were handed over to the defendant. However, the defendant stored the part of the goods according to the instruction of the goods at a different warehouse which was also safe. The other part of the goods which were kept at different warehouses were destroyed because of the fire. In this case it was held that agent is liable to bound with principal `s directions.
- Duty to remit sums- Section 218 of the Indian Contract Act, 1872 provides that Agent is bound to pay all the sums that are received by him/her on the behalf of or Principal.
Case- Sri Konthala Venkata Raman vs State of Andhra Pradesh [(1969) 24 STC 367 (AP)]- In this case it was held that Konathala the agent who was enjoying a profit of 10000 that was received by him on behalf of the principal needs to be repaid by him to the principal.
SUB AGENT
Sub Agent- Section 191 of the Indian Contract Act, 1872 defines sub agent as a person employed by, and acting under the control of, the original agent in the business of the agency.
Liability of Agents and Sub agents- Section 192 defines the liability of agent and sub agents and provides that
- Agent is responsible for the acts of sub agent to the principal.
- Sub agent is responsible to agent and not principal.
- Principal is responsible to third parties for the act of sub agent
Sub agent appointed without authority-Section 193 provides that when agent without authority appoints sub agent, then he will be liable to principal as well as third party for the acts of sub agent.
When agent can not delegate- Section 190 provides that the agent cannot employ other person for doing his act if such acts include agent to undertake that functions personally.
References:
- Indian Contract Act, 1872
- Law of Contract-I by Dr. R.K. Bangia
