(This Article is written by Prabhat Kumar, from Asian Law College,4th Year, During his internship in LeDroit India.)
Scope of Article:
- Introduction
- Meaning of Agency
- Significance of Agency
- Parties to an Agency
- Who can be appointed as Agent
- Types of Agencies
- How Agency is created
- Types of Agents
- Agency between Husband and Wife
- Modes of creation of Agency
- Rights of Agent
- Conclusion
- Reference
Abstract:
The Indian Contract Act, 1872, specifically Sections 182 to 189, deals with the formation of agency relationships through either an explicit or implied agreement. This allows one party, known as the principal, to give another party, called the agent, the authority to act on their behalf. These sections explain what an agency is, how it can be created, and the different kinds of authority an agent can have, without the need for any exchange of value or payment.
Keywords:
Indian Contract Act, Section 182, Agency, Express and Implied Contract, Principal, Agent.
Introduction:
When one party gives some power to another party, allowing the second party to act in a fairly independent way on behalf of the first, the connection between them is known as an agency. In India, the contract of agency can be either clearly stated or understood without being said directly.
Chapter X of the Indian Contract Act, 1872 covers the rules about agency.
It is essential to understand these rules because most business dealings around the world are done through an agency. Whether large or small, all companies operate through agents. Hence, understanding agency laws is a key part of business law. The relationship between a principal and an agent involves three main parties: the principal, the agent, and a third party.
Agency contracts are very common in business law cases. These contracts can be either express or implied. When someone gives another person the authority to act on their behalf, an agency relationship is formed under contract law. This authority is transferred from one person to another, and the person appointed is responsible for carrying out specific tasks under contract law. This creates a principal-agent relationship. This relationship gives both the principal and the agent certain rights and duties. There are many examples of principal-agent relationships, including insurance agencies, advertising agencies, travel agencies, factors, brokers, and del credere agents. Consideration is not a vital part of such contracts. These agreements can form based on various reasons such as estoppel, necessity, or ratification.
Meaning of Agency:
Section 182 of the Indian Contract Act 1872
Definition of Agent and Principal:
An agent is someone who is hired to perform an act for another person or to represent that person when dealing with other parties.
The person who is being acted on behalf of or represented is called the principal.
The relationship between the principal and the agent is called an agency. In this relationship, the principal gives the agent the authority to conduct dealings and transactions with other parties.
In an agency, there are two contracts:
a) The first contract is between the principal and the agent, which gives the agent the power to act on the principal’s behalf, and
b) The second contract is between the principal and a third party, which is carried out through the agent’s actions.
To be considered an agent, a person must be an adult (i.e., at least 18 years old) and of sound mind.
Either the principal or a third party can become an agent, provided they act reliably on behalf of the principal as outlined in the Act.
Significance of Agency:
Under Indian Contract Law of 1872, an agency agreement can be either clearly stated or understood through actions. It is not required for an agency contract to have consideration as a main element. These agreements can be expressed directly or implied through conduct. Consideration is not a vital part of such contracts. These agreements can form based on various reasons such as estoppel, necessity, or ratification.
Parties to an Agency:
- Agent:
According to the Indian Contract Act, 1872, the term ‘Agent’ is defined in Section 182. An agent is someone who is hired to perform an action on behalf of another person or to interact with third parties in that person’s name. The person who is acting on behalf of or representing another is referred to as the principal. The agreement between the principal and the agent is known as a ‘Contract of Agency’.
- Principal:
Section 182 says that the person for whom an action is performed or who is represented is called the “principal”. So, the person who gives authority to someone else is the principal.
For example, if A lives in Chandigarh but owns a shop in Delhi, and she hires someone named B to handle the shop’s business, then A has given her authority to B.
In this case, A is the principal and B is the agent.
Who Can be appointed as Agent:
Any person who is an adult and has a clear mind can be chosen as an agent. This means that anyone who is legally able to enter into contracts can serve as an agent. However, minors and people who are not of sound mind are not allowed to be agents.
A person must be at least 18 years old and have a clear mind to become an agent. It is important because the agent must be responsible to the person they are acting for, known as the principal (Section: 184).
Types of Agencies:
- Expressed Agency
A contract of agency can be created through spoken words or in writing. An example of a written agency contract is a Power of Attorney, which allows an agent to act and make decisions on behalf of someone else. The agent may hold a General Power of Attorney, which gives broad authority, or a Special Power of Attorney, which limits the agent’s ability to perform only a specific task or transaction.
- Implied Agency
This happens when there is any action or behavior that leads to someone being appointed as an agent indirectly. If an agent is appointed because of certain situations, or if the situations suggest that he is acting as an agent, then this situation occurs.
How an Agency is created:
- Direct Appointment: Direct appointment is the usual way to form an agency. When someone, either in writing or by speaking, names another person as their agent, an agency relationship is created between them.
- Implication: Implication occurs when an agent is not directly appointed but their role as an agent can be understood from the situation. In such cases, an agency by implication is formed.
- Necessity: Necessity happens when one person acts on behalf of another to prevent harm or loss, even without being officially appointed as an agent. This creates an agency out of necessity.
- Estoppel: Estoppel can also create an agency. If someone acts in a way that makes a third person believe they are an authorized agent for another person, an agency by estoppel is formed.
- Ratification: Ratification happens when a person, who acted as an agent for another without their knowledge, later approves that action. This creates an agency by ratification between the two people.
Types of Agents:
- Special Agent: An agent who is appointed for a single specific purpose.
- General Agents: An Agent who is appointed for all acts related to a specific job.
- Sub Agent: An Agent who is appointed by an Agent.
- Co Agent: Agents who are appointed together to do an act jointly.
- Broker: An Agent whose job is to create a contractual relationship between two parties.
- Auctioneer: An Agent who acts as a seller for Principal in Auction.
- Commission Agent: An Agent who is appointed to buy or sell goods for Principal.
- Del Credere: An Agent who acts as a salesperson, broker, guarantor for Principal.
In the case of Syed Abdul Qader v/s Rami Reddy, the Supreme Court said that the term “expression agency” is used to describe the situation where one person has the power or ability to create legal connections between someone acting as a principal and a third party.
In the case of L.I.C Chairman v/s Rajiv Kumar Bhaskar, According to the salary-saving plan of L.I.C, the employer was supposed to take out the insurance premium from the employee’s salary and send it to L.I.C. However, when the employee passed away, his family discovered that the employer hadn’t done this, which caused the insurance policy to expire. A part of the agreement was mentioned, where the employer stated that he was acting on behalf of the employee, not for L.I.C. The court decided that the employer was acting as the company’s representative, which made L.I.C responsible because of the employer’s mistake.
Agency between Husband and Wife:
In general, there is no automatic relationship of agency between a husband and wife, unless it has been clearly stated or understood that one of them is acting on behalf of the other. This special relationship can be created through a contract, an appointment, or by approval. If a husband and wife are living separately because of the husband’s fault, the husband is responsible for providing the wife with necessary things for her to live. This creates a situation called “agency of necessity,” allowing the wife to use her husband’s credit for essential needs. However, if they are separated due to the wife’s own choices or faults without a valid reason, the husband is not responsible for her necessary expenses.
Modes of Creation of Agency in Indian Contract Act:
- By Expressed Agreement:
This is the easiest and most straightforward way for an agency to be formed. When someone clearly and directly uses words, it shows a clear and definite intention from both the principal and the agent to create this relationship.
This direct expression gives the agent explicit authority. There are two types of authority—an express authority and an implied authority. We will talk about implied authority later. Express authority is given through spoken or written words. So, express agency can be created in two forms: oral or written.
- By Operation of Law:
Sometimes, a contract of agency starts working because of the law.
For example, under the partnership act, every partner is considered an agent of the firm and also of the other partners.
This is called implied agency. Because of this implied agency, a partner can represent the firm and also the other partners in their actions. Similarly, under the company act, promoters are treated as agents of the company.
- By Agency of Ratification:
A principal can later approve an action taken by someone who acted on their behalf without their permission or knowledge. If the principal approves the action, a principal-agent relationship is formed, as if the principal had originally given the person authority to act as their agent. This approval can be clear, like through words or writing, or it can be implied through actions or behaviour.
Ratification is not allowed in these situations:
When the principal doesn’t fully understand the fact they are approving.
This means they only have partial knowledge of what they are ratifying.
When an action was taken on behalf of someone that would harm or hurt them or break one of their rights, even if they had given permission.
Agency by Implies Authority:
This kind of agency starts because of the relationship between the parties involved or because of their actions.
- Agency by Necessity
- Agency by Estoppel
- Agency by Holding out.
- By Necessity:
Sometimes, a person might need to act on behalf of another in an emergency when the other person’s property or interests are in danger. The conditions that allow someone to act as an agent in such a situation are:
There must be a real need to act for the principal’s benefit.
It should not be possible to contact the principal in time.
The person acting should do so with good intentions, acting in the principal’s best interest.
- By Estoppel:
If someone intentionally acts or speaks in a way that makes another person believe that a specific individual is acting on their behalf, that person cannot later claim that the other person was not actually acting as their agent.
- By Holding Out:
The principal is held responsible for the actions of an agent if, on a previous occasion, he made others believe that someone acting on his behalf was doing so with his authority.
Rights of Agent:
- Right of retainer – An agent can keep any payment or costs he has paid while working on Principal’s business.
- Right to remuneration – If an agent has fully completed the tasks of the agency, he is entitled to get paid for all the expenses he incurred while doing the work.
- Right of Lien on Principal’s property – The agent can keep hold of any movable or immovable property belonging to Principal until he is paid the amount he is owed.
- Right to be Indemnified – The agent has the right to be compensated for any lawful actions he took while carrying out Principal’s business.
- Right to Compensation – The agent is entitled to be compensated if he suffers any harm or loss because of Principal’s lack of skill or competence.
Conclusion:
The Indian Contract Act of 1872 does not make a difference between different types of agents. An agent can be appointed by the principal, and if someone is employed by an authority that is allowed by law to do so, that employment is considered as agency. Under Indian law, an agent has certain responsibilities. The agent must follow the terms of the contract and carry out the principal’s business either as instructed or, if no instructions are given, according to common practices. Every agent is required to fulfill the tasks assigned by the principal. In order to be eligible for payment, the agent must complete all the duties expected of them under the agency and follow all the rules set by the Indian Contract Act, 1872.
