File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

Contract of Agencies

A 'Contract of Agency' is a dual-party relationship in which one person acts as a representative to the other in business trade in order to create contractual relations between that other and a third person. The person who transfers his rights & duties in the contract is now as 'Principal' and the person whom it is transferred is known as the 'Agent' (Section 182). The responsibility of the agent is to enter into legal relations on behalf of the principal with third parties. But, by doing so he himself does not become a party to the contract to the contract no does he incur any liability under that contract. Principal shall be responsible for all the acts of his agent provided they are not exterior the scope of his authority.

Competence of the parties to enter into a contract of agency.
The person employing the agent must himself have the legal capacity or be competent to do the act for which he employs the agent. A person with unsound mind & a minor can't appoint an agent so as to be legally represented by him (Section 183). But an agent so appointed need not essentially be competent to contract (Section 184) and hence a minor or an insane can be appointed as an agent he can bring about legal relations between the principal and the third party, but such an incompetent agent can't personally be held liable to the principal.

Consideration: Contract of agency requires no consideration. There is no consideration required to make the contract valid as compared to other contract where consideration is an essential element to make the contract Valid & Binding. The provision is covered under Section 185 of Indian Contract Act, 1872.

Authority of an agent as per contract of agency of the following ways:
  1. Expressly (Sec. 187)
    When an agent is appointed by written or words spoken, his authority is said to be express.
  2. Impliedly (Sec. 187)
    When agency rise from the conduct of the parties or inferred from the circumstances of the case, it is called implied agency.
Ex.: X of Calcutta has a shop in Delhi. Y, the manager of the shop, has been ordering and buying goods from Z for the purpose of the shop. The goods purchased were being regularly paid for but of the funds provided by X. Y shall be considered to be an agent of X by his conduct.

Wives, partners & servants are usually regarded as agents by implications because of their relationship.

Wife as an implied agent with her husband:
  1. Where the husband & wife are living together in a domestic establishment of their own, the wife shall have an implied authority to pledge the credit of her husband for necessaries. The implied authority can be challenged by the husband only in the following conditions:
    1. The husband has expressly forbidden the wife from borrowing money or buying goods on credit (Debenhams Vs. Mellon (1880) 6 A.C. 24).
    2. The articles bought did not constitute necessities.
    3. Husband had given enough funds to the wife for buying the articles she needed to the knowledge of the seller (Miss Gray Ltd. Vs. Cathcort (1922) 38 T.L.R. 562).
    4. The creditor had been expressly told not to give credit to the wife (Etheringtion Vs. Parrot (1703) Salia 118).
  2. Where the wife lives separately from husband without any of her fault, she shall have an implied authority to bind the husband for requirements, if he does not provide for her maintenance.

Agency by necessity
Under certain circumstances, a person may be forced to act as an agent to the other, Example. master of the ship can borrow money at a port where the owner of the ship does not have an agent to carry out necessary repairs to the ship in order to complete the voyage. In such a case of need, person acting as an agent need not necessarily have the authority of the principal. However, the agent must act under pressing conditions and for the advantage of the principal.

Ex.: The master of the ship on finding that the cargo is rapidly perishing is entitled to dispose it of at the best price available so as to bind the consignor as an agent by necessity.

Agency by estoppel (Sec. 237)
Where a person, by his conduct or work spoken or written, willfully leads another to believe that a certain person is action as his agent, he is estopped later on from denying the truth of the fact such person is dealing as his agent.

Ex.: Consider a scenario where a car dealership owner, Mr. Manav, allows a salesman, Raghav, to use a dealership-branded business card and a company email address. Raghav, without Mr. Manav's Knowledge, sells a car to a customer, Sarah, who reasonably believes he is a dealership employee. Mr. Manav later attempts to deny the sale, but Sarah relied on the apparent agency created by the dealership's representations. In this scenario, agency by estoppel can apply.

Ex.: A says to B in the presence of and within the hearing of C that he is C's agent. C remains mum. B supplies goods of Rs. 10,000/- to A taking him as C's agent. C is responsible for the payment of the price of these goods.

Agency by ratification (Sec. 196 to 200)
Ratification means, a principal may subsequently ratify an act done by a person who acted on his behalf without his permission or knowledge. According to section 196. "Where acts are done by one person on behalf of another but without his knowledge or authority, he may check to ratify or to disown such act. If he ratifies them, the same effects will follow as if they had been performed by his previous authority."

Ex.: Ram, who is not an agent of Shyam, enters into a contract with Siya on behalf of Shyam. If Shyam ratifies the contract entered into by Ram, Shyam will become liable to perform the obligations under the contract, and the contract will be binding on Shyam as if he had authorized Ram to enter into the contract.

Essentials of legal and valid ratification:
  1. The act must be done in the name of the principal.
  2. Principal must have been in existence and competent to contract at the time when agent acted on his behalf as well as on the date of ratification.
  3. The act must be legal which the principal must be competent to do.
  4. Ratification must be with full knowledge of all the material facts (Sec. 198).
  5. Ratification must relate to the whole act and not to a part of it. The Ratification of a part of the act will not be valid (Section 199).
  6. There can be no valid ratification of an act which is to the prejudice of a third person (Sec.200).
Bolton Partners V. Lambert (1889) 41 Ch. D. 295
Ex.: A holds a lease from B, terminable on three months' notice, C, an unauthorized person gives notice to termination to A. The notice can't be ratified by B, so as to be binding on A.
  • Ratification of an act must be made, either within the time fixed for this purpose or within a reasonable time after the contract was entered into by the agent.

  • Ratification is not allowed in the following circumstances:
    • When the person's knowledge of the facts of the case is defective. That's he only half knows things that he is ratifying to.
    • An act done on behalf of another person which would have the effect of injuring or harming the person or violating any of his rights if the act was done with his authority.

    Classification Of Agents

    A general classification of an agents is as follows:
    1. Special Agent - Agent appointed to do a singular specific act.
    2. General Agent - Agent appointed to do all acts relating to a specific job.
    3. Sub-Agent - An agent appointed by an agent.
    4. Co-Agent - Agents together appointed to do an act jointly.
    5. Factor - An agent who is remunerated by a commission (one who looks like the apparent owner of the things concerned).
    6. Broker - An agent whose job is to create a contractual relationship between two parties.
    7. Auctioneer - An agent who acts as a seller for the principal in an auction.
    8. Commission Agent - An appointed to buy and sell goods (make the best purchase) for his principal.
    9. Del Credere - An agent who acts as a salesperson, broker, and guarantor for the principal. He guarantees the credit extended to the buyer.
    In Syed Abdul Khader v Rami Reddy: The Supreme Court held that "the expression agency is used to connote the relation which exists where one person has an authority or ability to create legal relations between a person occupying the position of principal & a third party".

    Rights of an Agent
    1. Right to Remuneration: Under Section 219 of the Indian Contract Act, agents are entitled to retain any funds received on behalf of the principal in a commercial transaction, as well as advances provided, or expenses legitimately spent while doing business for the principle.
    2. Right to Indemnity: Section 222 of the Indian Contract Act requires the principal to indemnify the agent for the consequences of any legitimate activities performed by the agent in the exercise of the power hand over to him.
    3. Right to Reimbursement: Section 225 of the Indian Contract Act provides for reimbursement to the agent in the case of harm or loss caused by a principal's lack of ability or competency.
    4. Right of Retainer: According to Section 217 and 218 of the Indian Contract Act, the agent has the right to retain any sums received on behalf of the principal in the agency's business. This includes remuneration, advances, and expenditures incurred in conducting the business.
    5. Right of particular lien: An agent is entitled to retain under the possession both movable and immovable of the property of the principal received by him until the amount due to him for commission, disbursements and services has been paid or accounted for him, provided the contract does not provide otherwise (Sec. 221).

    Duties of an Agent
    1. Duty Not to Delegate His Authority: Agents have a duty not to assign their authority to sub-agents. Section 190 of the Indian Contract Act, 1872 is founded on the maxim Delegatus non-protest delegare, which states that a delegates cannot further delegate. An agent entrusted to work on a certain job cannot transfer that task to another since the principal selects a specific agent. After all, he reacts with trust and faith in such a person.
    2. Duty to Keep and Protect the Interest: Section 209 of the Indian Contract Act states that when the principal's death or unsoundness terminates the agency, the agent must maintain and protect the interests assigned to him on behalf of the defunct principal's representative.
    3. Duty to Execute the Mandate: Section 211 of the Indian Contract Act requires an agent to handle his principal's business in accordance with the principal's instructions or, in the absence of the principal, according to trade levies.
    4. Duty to Act with Care and Skill: Section 212 of the Indian Contract Act addresses another duty of the agent. This law requires agents to handle agency business with care and caution.
    5. Duty to Render Proper Accounts: Section 213 of the Indian Contract Act defines the following position: On demand, the agent shall present to the principal the necessary accounts. It also requires the agent to maintain the principal's money and property isolated from his own. The agent is responsible for keeping correct records of the property received as part of his duties and giving them to the principal upon request.
    6. Duty to Communicate with the Principal: Section 214 of the Indian Contract Act states that in times of difficulty, it is the agent's responsibility to communicate with his principal and seek his directions.
    7. Responsibility not to make a secret profit: The agent-principal relationship is based on mutual trust and confidence. If an agent makes a hidden profit from its agency, the principal has the right to claim the entire profit. Section 216 of the Indian Contract Act,1872 states that agents must not profit or gain any benefit from their agency without the knowledge and sanction of their principals. Such profit is referred to as "secret profit." It is the agent's job to answer to the principal about any hidden earnings.

    Rights and Duties of the Principal
    The agent's duties are principal's right and agent's rights are principal's duties.

    Termination Of Agency
    Sec. 201 of Indian Contract Act describes the modes of termination of agency: The Section is not comprehensive. The various modes of termination of agency as mentioned in Sec. 201 and other modes are indicated in the chart given below. In certain cases, the agency is irrevocable.
    1. Termination of agency by act of the parties:
      1. Agreement: The relation of principal and agent like any other agreement may be terminated at any time and at any stage by the mutual agreement between the principal and the agent.
      2. Revocation by the principal: The principal may revoke the authority of the agent

        (Sec. 201) at any time before the agent has exercised his authority so as to bind the principal unless the agency is irreversible (Sec 203). But if the act has started, the authority can only be revoked subject to any claim which the agent may have for breach of contract (Sec. 204). Where the agency is a continuous one, notice of its end to the agent and also to the third parties is important.
      3. Revocation by the agent: An agency may also be terminated by an express rejection by the agent after giving a reasonable notice to the principal (Sec. 201).

        Where there is an express or implied contract that the agency should be continued for a danger of time, the principal must make compensation to the agent, or the agent to the principal, as case may be, for any earlier revocation or rejection of the agency without sufficient cause (Sec, 205). Reasonable notice must be given of such revocation or rejection, otherwise the Barr, thereby resulting to the principal or the agent, as the case may be, must be made good to the one by the other (Sec. 206). Revocation and rejection may be implied or maybe expressed in the conduct of the principal or agent respectively (Sec. 207).

        Examples: P employs A to let P his house. Afterwards P lets it himself. This is a, implied revocation of A's authority.
    2. Termination of agency by operation of law
      1. Performance of the contract: The most obvious mode of putting an end to the agency is to do what the agent has undertaken to do (Sec. 201). Where the agency is for a particular object, it is terminated when the object is accomplished or when the achievement of the object becomes impossible.
      2. Expiry of time: When the agent is appointed for a fixed period of time, the agency comes to an end after the expiry of that time even if the work is not complete.
      3. Death and insanity: When the agent or the principal dies or becomes of unsound mind, the agency is terminated (Sec. 201). When the termination thus takes place, the agent must take, on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him (Sec. 209).
      4. Bankruptcy: The insolvency of the principal puts an end to the agency (Sec. 201) though nothing is mentioned in Sec. 201 as regards insolvency of the agent. The bankruptcy of the agent, it is accepted, also dismisses the agency unless the acts to be done by the agent are merely formal acts.
      5. Annihilation of subject-matter: An agency which is created to deal with a certain subject-matter comes to an end by the destruction of the subject-matter. Where, for example, an agent is employed to affect an insurance on a particular house, the agency terminates if, before the insurance is affected, the house is demolished by fire.
      6. Principal and Agent becoming Alien enemy: Contract of agency is valid so long as the countries of the principal and the agent are at peace. If war breaks out between the two countries, the contract of agency is ended.
      7. Dissolution of a company: When a company, whether principal or agent, is dissolved, the contract of agency with or by the company inevitably comes to an end.
      8. Cessation of sub-agent's authority: The termination of an agent's authority puts an end to the sub-agent's authority (Sec. 210).

    Law Article in India

    Ask A Lawyers

    You May Like

    Legal Question & Answers

    Lawyers in India - Search By City

    Copyright Filing
    Online Copyright Registration


    How To File For Mutual Divorce In Delhi


    How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

    Increased Age For Girls Marriage


    It is hoped that the Prohibition of Child Marriage (Amendment) Bill, 2021, which intends to inc...

    Facade of Social Media


    One may very easily get absorbed in the lives of others as one scrolls through a Facebook news ...

    Section 482 CrPc - Quashing Of FIR: Guid...


    The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of t...

    The Uniform Civil Code (UCC) in India: A...


    The Uniform Civil Code (UCC) is a concept that proposes the unification of personal laws across...

    Role Of Artificial Intelligence In Legal...


    Artificial intelligence (AI) is revolutionizing various sectors of the economy, and the legal i...

    Lawyers Registration
    Lawyers Membership - Get Clients Online

    File caveat In Supreme Court Instantly