AGENCY- PARAMOUNT FEATURES OF AGENT
Dibya Prakash Behera
Abstract- In the contemporary world, with the advancement and evolvement of legal terminology and
knowledge, lot of intricacies has entered in the formation of contracts. There involves a great deal of
complexities and responsibility in drafting a contract especially in case of an agency. An agency has
basically three constituents- principal, agent and third party. The role of agent in the process is of much
significance and relevance in successfully churning out the conduct of business. It is the agent that acts
as a carrier and the basic authority to come in contract with the third party. Even though he represents his
principal in conduct of business, his role is vital as he is the one who is assigned the task of forming a
contract. The Indian Contract Act, 1872 lays down a set of rules and guidelines through its different
provisions stating out the duties, rights and powers of the agent. The paper clearly makes an attempt to
simplify the process and convey a basic understanding of the position of agent along with the certain
duties, rights and authorities vested upon him. The paper highlights judgements of landmark cases to
satiate the aim of providing the readers a basic framework of role of agent in agency. In Legal
phraseology every person who acts for another is not an agent. A domestic servant renders to his master
a personal service; a person may till another’s field or tend his flocks or work in shop or factory. In none of
these instances he is considered as an agent. The term agency only gets in use when a person acts as a
representative of the other in business negotiations i.e., in creation, modification, termination of
contractual obligations between that and the third person, that he is an agent.
Keywords- Agency, Agent, Rights, Duties, Authority
INTRODUCTION
The Indian Contract Act, 1872 contains an exquisitely structured list of statutory provisions governing the
rights, duties and liabilities of the principal and agent inter se as as well as those of third parties. It throws
light on the principal-agent relationship through different provisions meted out for them in the Act. The
essential and requisite point regarding an agent is his power or authority to make the principal
accountable to third persons in lieu of his actions or deeds. Representative character and derivative
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authority can be considered as distinguishing features of an agency.
The expression agency is used to connote the relation which exists where one person has an authority or
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capacity to create legal relations between a person occupying a position of principal and third parties.
Moreover, agency depends on the true nature of relationship. Mere use of the words ‘agency’,
‘agreement’ and ‘agent’ by the parties in a contract doesn’t necessarily establish a relationship of agency
in the legal sense. The law needs to look for the substance of the transaction rather than going with the
parties’ terminology.
RELATION OF PRINCIPAL AND AGENT
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1st Year, National University of Study and Research in Law, Ranchi
P. Krishna Bhatta v Mundila Ganapathi Bhatta, AIR 11955 Mad 648
Syed Abdul Khader v. Rami Reddy, AIR 1979 SC 553
As provided by the Section 182 of the Indian Contract Act, 1872, an agent is a person employed to do
any act for another, or to represent another, in dealings with third persons, so is the definition of principal
is provided in the same section. It reads as a principal is the person who employs another person to do
an act for him, or to represent him, in dealings with the third persons. It is quite noteworthy that no
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consideration is necessary to create an agency. For a successful creation of agency, the Principal needs
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to have attained an age of majority and of sound mind with the provision that any person can become an
agent but a person who is not of the age of majority and of sound mind will not be responsible to the
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principal . Ordinarily, an agent incurs no personal liability while contracting for his principal and, therefore
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necessarily need not be competent to contract.
The relationship of principal and agent comes into existence by:
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Express appointment;
Implication of law from the conduct or situation of parties or from the necessity of case;
Subsequent ratification by the principal.
The relationship of principal and agent can only be established by the mutual consent. Moreover, the
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authority of an agent may be expressed or implied . Implied authority will include authority to act
according to customs and usages of trade, place or market in which he is engaged, such usages and
customs must be well-known and reasonable. Considering the relationship between a husband and wife,
the mere fact of marriage doesn’t make wife an agent in law of her husband. A husband has no original,
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inherent or implied power to act as an agent for his wife even if for selling his wife’s property.
AUTHORITY OF AGENT
Agents are distinguished in respect of authority as general or special agents. The former expression
includes brokers, factors, partners, and all persons employed in a business of filling a position of a
generally recognized character, the extent of authority being apparent from the nature of employment or
position; the latter denotes an agent appointed for a particular occasion or purpose, limited by the
employment. A special agent has only authority to do some particular act for some special occasion or
purpose which is not within the ordinary course of his business or profession. Every agent has the implied
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authority to act according to the customs and usages of a particular market or trade. The custom or
usage of trade must not be unlawful or unreasonable and shall not allow the agent to adjust his personal
set-off. An agent was not allowed to set-off his personal debts to the underwriters against that money
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although a custom to that effect was alleged. An agent has authority in an emergency to do all such acts
that will render protection of his principal form loss as would be done by a prudent person in similar
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circumstances.
A factor is a mercantile agent who is put in possession of goods of his principal for sale. He has the
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authority to sell them in his own name, to fix the selling price and to receive payment. A broker may
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sell goods in his own name and may receive payment but won’t receive any payment if he discloses the
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Section 185 of Indian Contract Act, 1872
Section 183 of Indian Contract Act, 1872
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Section 184 of Indian Contract Act, 1872
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Mohomedally Ebrahim Pirkhan v. Schiller, ILR (1889) 13 Bom 470
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Section 186 of Indian Contract Act, 1872
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Jawaharlal Daima & Co v. Chinta Chittemma ,1989 1 An LT 335
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Amrit Lal C Shah v. Ram Kumar AIR 1962 Punj 325.
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Mahmud-Un-Nissa v. Barkat Ullah, AIR 1927 All 44
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Blackburn v. Mason , (1893) 9 TLR 286 (CA)
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Section 189 of Indian Contract Act,1872
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Baring v. Corrie , (1914-23) All ER Rep 283
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Drinkwater v. Goodwin , 1775 Cowp 251
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Campbell v. Hassell ,(1816) 1 Stark 233
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name of principal. An auctioneer acts for both the seller and buyer
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sell by private contact or on credit .
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but doesn’t have the authority to
Implied authority is real authority, the exercise of which is binding not only as between the principal and
the third party, but also between the principal and agent differing from express authority only in terms of
expressive words. The term ‘ostensible authority’ denotes no authority at all. It is a phrase conveniently
used to when a person is allowed to assume an appearance of authority to act on his behalf, without
actually giving him any authority, by which appearance of authority a third party is misled into believing
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that a real authority exists.
In a scheme of group insurance where the employer acts as an agent of the insurer, the insurer is bound
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to pay the insurance money to employee’s family in case of default in premium and is also
considered to have knowledge of death of employee within time the moment it is in knowledge of its agent
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i.e., the employer.
Where an agent exceeds his authority, actual or apparent, the principal is not bound by the excess work,
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but where it is separable from the authorized work the principal is bound to that extent. Where the
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authorized work is not separable from rest, the principal may repudiate the whole of transaction. The
principal in certain situations may be liable for tort committed by the agent. The doctrine of respondent
superior will be applied to make the principal liable where the agent commits a tort while engaged in the
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business of the principal or acting within the scope of agency. It should be the duty of the principal to
apprise the agent of the whole situation else he will be responsible for creation of innocent
misrepresentation on the part of agent.
DUTIES OF AGENT
The first and foremost duty of the agent is to carry out the mandate by his principal. An agent is bound to
conduct the proceedings according to the direction of his principal and to keep himself abide by the
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authority of principal. . In the absence of commands, instructions or directions, the agent is supposed to
act according to the customs of trade and liable to make good the loss or profit made when he acts
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otherwise. Moreover, every agent is bound to carry out his duties with the proper application of
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reasonable skill and due diligence. The standard of care and skill which an agent has to bestow depends
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upon the nature of his profession. In cases of difficulty the agent’s duty is to use all reasonable diligence
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in communicating with the principal and in seeking to obtain his instruction or commands.
Moreover, if an agent deals on his own account in the business of agency, without first obtaining the
consent of his principal’s property for himself, the prinicipal may repudiate the transaction if he can show
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that the agent has concealed any material fact or that sale has been disadvantageous to him. When an
agent on discovering a mine in the principal’s estate decides to buy it, it is held in the light of facts as a
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conflict of interest and a sufficient disadvantage for the principal. As a part of agent’s duty to be honest
to his principal, it is necessary that the agent should not disclose any confidential information received by
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Linck, Mocller & Co v. Jameson & Co , (1885) 2 TLR 206 (CA)
Emerson v. Heclis ,(1809) 11 RR 520
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Mews v.Carr,(1856) 1 H&N 484
18
Bharat Survodaya Mills Co Ltd v. Shree Ram Mills ,AIR 1959 Bom 39
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Valapad Coop Stores Ltd v. Srinivasa Iyer ,AIR 1964 Ker 176
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LIC v. K.Rama Iyer,2004 AIR Kant 594
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LIC v. Rajiv Kumar Bhaskar, AIR 2005 SC 3087
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Section 227 of Indian Contract Act,1872
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Section 228 of Indian Contract act,1872
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Atlantic Die Casting Co v. Whiting Tubular Products Inc 337 Mich 414
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Section 211 of Indian Contract Act,1872
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Pannalal Jankidas v. Mohanlal, AIR 1951 SC 144,147
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Section 212 of Indian Contract Act,1872
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Pandurang v. Jairamdas Pandurang, AIR 1925 Nag 166
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Section 214 of Indian Contract Act,1872
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Section 215 of Indian Contract Act,1872
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Janakidas v. Dhumanmal, AIR 1917 Sind 5
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him from his principal, failing to do so ,the principal may terminate the contract and the agent will be held
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liable for damages for loss, if any.
The agent is bound to pay to his principal all sums received on his account with being entitled to deduct
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his lawful charges. If an agent receives money on his principal’s behalf under an illegal and void
contract, the agent must account to the principal for the money so received and cannot set up the
illegality of contract as a justification for withholding payment, which illegality the other contracting party
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has waived by paying the amount. An agent is bound to render proper accounts to his principal on
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demand. The provisions of the Contract Act was not exhaustive in regard to institution of a suit against
the principal by the agent. The right of an agent to sue the principal for accounts is an equitable right
arising under special circumstances, the one being where all the accounts are in possession of the
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principal. In cases where settlement of accounts alone can do the complete justice between the parties,
the agent is allowed to sue the principal for accounting even if he is having some evidence of the
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transaction with him.
Delegatus non potest delegare- a well-known maxim of the law of agency which clearly states that an
agent can’t lawfully employ another person to perform acts expressly or impliedly vested upon him to
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perform until unless a case of ordinary custom of trade or nature of agency arises exists. Sometimes the
very nature of work makes it requisite for the agent to appoint a sub-agent. A banker authorized to let out
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a house and collect rents may entrust the work to an estate agent. An architect may generally appoint a
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surveyor owing to the need arising due to custom of trade. The principal may expressly allow his agent
to appoint a sub-agent. Moreover, his consent can also be implied from the conduct of the parties. An
agent is bound to take reasonable steps to protect the interest of his principal’s legal representatives on
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the death or insanity of the principal.
RIGHTS OF AGENT
Moving over to rights of agents, every agent is entitled to his agreed remuneration, or if there is no
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agreement, to a reasonable remuneration. When person is proved to be acted as a broker, he is entitled
to his commission; and even if he fails to prove the rate of commission agreed upon, a reasonable
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amount ought to be awarded to him as such commission. The agent has the right to retain his principal’s
money until his claims, if any, in respect of his remuneration or advances made or expenses incurred in
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conducting the business of agency are paid. In the special case of solicitor it is well-settled that a
judgement which he has obtained for his client by his labour or his money should stand, so far as needful,
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as security for his costs, and he is entitled to have its proceeds pass through his hands.
In addition to the above right of retainer, the agent also has the right to retain goods, papers and other
property, immovable or movable, of the principal received by him, until the amount due to himself for
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commission, disbursements and services in respect of the same has been paid or accounted for to him.
The property over which lien is to be exercised should belong to the principal and should have been
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received by the agent during the course of his agency. If the principal has limited rights, the lien will be
equally limited. The right to be indemnified extends to all losses and expenses incurred by the agent in
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Harris (L.S) trustees Ltd v. Power Packing Services Ltd , (1970) 2 Lloyd’s Rep 65
Section 218 of Indian Contract Act,1872
Bhola Nath v. Mul Chand, ILR (1901-03) 25 All 639
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Section 213 of Indian Contract Act,1872
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Narandas Morardas Gajjiwala v. S.P.A.M Papammal, AIR 1967 SC 333
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Thiruvenkidam v. Quilon Pencil Factory, (1990) 2 KLT 327
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Section 190 of Indian Contract Act,1872
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Mohinder v. Mohan, AIR 1939 All 188
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Moon v. Witney Union,(1837) 43 RR 802
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Section 209 of Indian Contract Act,1872
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Hindustan Antibiotics Ltd v. Kohli Medical Stores, 1997 AIHC 2630 (MP)
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Khursheed Alam v. Asa Ram, AIR 1933 Lah 784
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Section 217 of Indian Contract Act,1872
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Menon v. Cochine Mercentiles Ltd, (1962) 32 Comp Cas 378
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Section 221 of Indian Contract Act,1872
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Pestonji Bhimji v. Ravji Javerchand,1934 150 IC 483 (Sind), 447
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the conduct of the business. An agent can recover indemnity for losses incurred by him in wagering
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transactions entered into on instructions of his principal. Every principal owes to his agent the duty of
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care not to expose him to unreasonable risks.
CONCLUSION
All these above rights, duties and authorities of agent in the process of agency is of much relevance. An
agent plays a vital role in the agency and therefore, there lies a great degree of responsibility with regards
to conduct of business. The Indian Contract Act, 1872 justifiably executes the process of successful
conduct of agency with the provisions laid down for protecting and preserving the interests of agent. An
agent acts a fulcrum in agency. Dating back to ancient times, in countries such as UK & USA, the basic
interests of agent were continued to be protected exhibiting a true sense of morality and justice.
The agent should carry out his responsibilities in the most sincere and dedicated way possible and should
try to protect and uphold the interest of his principal, only then he can be availed of his rights. The agent
needs to maintain his position and shouldn’t resort to unlawful activities in the conduct of business.
Agency is an indispensable and inevitable form of contract which continues to sustain or maintain its
relevance in the society. It is noteworthy that often an agent has a large discretion but he is bound in law
to follow the principal’s lawful instructions and commands and abide by it with utmost sincerity and
dedication. To an extent, an agent may be considered as a kind of superior servant who not only renders
his duties for his master but also makes him accountable to third persons for his actions in the form of
duties vested upon him.
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Section 222 of Indian Contract Act,1872
Kishanlal v. Bhanwar Lal, AIR 1954 SC 500
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Federal Insurance Co v. Nakano Singapore(P) Ltd ,(1992) 1 Curr LJ 539 (CA Singapore)
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