Law of Agency

“Agency in law connotes an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties.” Critically discuss the concept of agency. Explain the duties of an agent to principal” Asked in UPHJS 2007

As per sec 182 of Indian Contract Act, An “agent” is (1)

a person employed to do any act for another, or (2) to represent another in dealing with third persons.

Ramaswami, J, gave the most comprehensive definition of agency. He held that “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 Hocks or work in his shop or factory or mine or may be employed upon his roads or ways; one may act for another in aiding in the performance of his legal or contractual obligations to third persons, as when he serves a public carrier, warehouse-man or innkeeper in performance of the latter's duties to the public. In none of these capacities he is an "agent" within the above meaning as he is not acting for another in dealings with third persons. It is only when he acts as representative of the other in business negotiations, that is to say, in the creation, modification, or termination of contractual obligations between that other and the third persons, that he is an "agent." Representation of another in business negotiations with third persons so as to bind such other by his own acts as if they were done by the former, is of the essence of the relation of agency and the distinguishing feature between art "agent" and other persons who act for another. Looked at from this point of view, an agency is a contract of employment for the purpose of bringing another-in legal relation with a third party or in other words, the contract between the principal and agent is primarily a contract of employment..” see P. Krishna Bhatta And Ors. vs Mundila Ganapathi Bhatta (Died) ... on 15 July, 1954

Creation of agency is also a contract between agent and principal but no consideration is necessary for same. Agency is based on principle that Whatever a person can do personally shall also be allowed to be done through an agent except in case of contracts involving personal services such as painting, marriage, singing, etc. The test of agency is whether the person is purporting to enter into the transaction on behalf of the principal or not. Power of Attorney holder is also an agent.

In Lakshminarayana Ramgopal Vs Government (AIR 1954 SC 364), Lordships observed, “A principal has the right to direct what work the agent has to do, but a master has the further right to direct how the work is to be done.”

Who may be principal (sec 183)

Any person who is of

(1) Major and

(2) Sound mind

Creation of agency

(i) by expressed authority (sec 186).

(ii) by implied authority (sec 187).

(iii) by ratification by principal (sec 197).

(iv) by estoppel (sec 237)

(v) by holding out (sec 189).

(vi) by necessity (sec 189).

It was held in DESU Vs Basanti Devi AIR 2000 SC 43 that Delhi Electric Supply undertaking who deducts insurance premium from employee salary to deposit the same in LIC may not be insurance agent as define under insurance regulation but he is agent as per sec 182 of Contract Act and LIC is liable for his act.

 The ratification also may be implied but with an intention to ratify. Ratification should be for whole act and not a part of the act (sec 196 to 199). Ratification of unauthorised act should not be in manner that it injured third person. (sec 200)

Any person even minor and sound mind can become an agent but they cannot be responsible to the principal. (sec 184)

An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss and would be done by a person or ordinary prudence, in his own case, under similar circumstances. (sec 189) notice given to agent is deemed given to or obtained by the principal (sec 229).

Generally an agent cannot sub delegate, unless by the ordinary custom of trade a sub-agent may, or, from the nature or agency, a sub-agent must, be employed. (sec 190) Agent liable u/s 193 for sub-agent appointed without authority.

Where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal. Agent is responsible to the principal for the acts of the sub-agent. The sub-agent is responsible for his acts to the agent, but not to the principal, except in cases of fraud, or willful wrong. (sec 192)

In selecting other agent (not a sub agent) for his principal, an agent is bound to exercise the same amount of discretion as a man or ordinary prudence would exercise in his own case; and, if he does this, he is not responsible to the principal for the acts of negligence of the agent so selected. (sec 195)

REVOCATION OF AUTHORITY (sec 201)

An agency is terminated by the principal

(i) revoking his authority, or

(ii) by the agent renouncing the business of the agency; or

(iii) by the business of the agency being completed; or

(iv) by either the principal or agent dying or becoming of unsound mind; or

(v) by the principal being adjudicated an insolvent

Hon’ble High Court of Allahabad held that a person is “committing an immoral and an unethical act by acting on a power of attorney of a principal whom he knows is mentally unsound, weak, suffers from mental infirmity and has no legal capacity to authorise. This is like continuing to act on a power of attorney of a dead man.” See Mahendra Pratap Singh (Deceased) Vs Smt Padam Kumari Devi on 22 May, 1992.

But as per sec 202 if agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest. if there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause.

as per sec 230, in the absence of any contract to that effect an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them.

Presumption of contract to the contrary: Such a contract shall be presumed to exit in the

following cases-

(1) Where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad;

(2) Where agent does not disclose the name of his principal;

(3) Where the principal, though disclosed, cannot be sued.

Agent’s duty

(i) to take all reasonable steps for the protection and reservation of the interests after the death  ir insanity of principal (sec 209)

(ii) to conduct the business of his principal according to the directions given by the principal, or in the absence of any such directions according to the customs (sec 211)

(iii) to conduct the business of the agency with as much skill as is generally possessed by person engaged in similar business unless the principal has notice of his want of skill (sec 212)

(iv) to render proper accounts on demand (sec 213)

(v) to communicate any difficulty to principal and in seeking to obtain his instructions (sec 214)

(vi) to give benefit gained by agent dealing on his own account in business of agency without the knowledge of his principal (sec 216)

(vii) to pay sums received for principal after making lawful deductions (sec 218)

(vii) Agent cannot personally enforce, nor be bound by, contracts on behalf of principal

(viii) Agent not entitled to remuneration for business misconducted (sec 220)

Agent’s right

(i) to retain sums received on principal’s account (sec 217) in respect of advances made or expenses properly incurred by him in conducting such business, and also such remuneration as may be payable to him for acting as agent.

(ii) Agent’s lien on principal’s property (sec 221).  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 him.

Hon’ble Delhi High Court held in Kavita Trehan And Ors Vs Balsara Hygiene Products Limited on 28 May, 1991that, “under Section 221 of the Contract Act the lien of an agent extends only to the retention of the property till his dues are paid Section 221 of the Contract Act does not provide for sale of property for satisfaction of the agents dues. Lien over the principal's property is of a very limited nature and is confined to mere right of retainer, which may be used as a defense to any action for the recovery of the property brought- against him by the principal. Lien in the ordinary sense means a right to keep possession of moveable and immoveable properties belonging to a person in debt until the same has been paid off. Lien cannot give any right interest or title in the goods or immoveable property. The holder of the lien cannot sell the property. Even at common law a legal lien merely confers on the holder of the articles in respect of which it was claimed, a passive right to detain the articles until the debts was paid. Such a lien cannot be enforced by sale of the goods. Sometimes only in rare cases sale could be effect by the order of the court

Q (Asked in UPHJS 2007) X, a wholesale cloth dealer appoints Y his as his agent for the sale of cloth on the basis of five percent commission on the sale made by him. Y had an agreement that he could retain part of the some amount of goods to adjust the commission due to him. X terminates the agency of Y. Y refuses to handover the cloth in his possession to X, and claims that he is rested with authority coupled with interest and that agency cannot be terminated. Decide.

Ans. Y cannot claim that he had interest or right in agency to such an extent that it cannot be terminated. Y has an interest or right on commission only after selling the goods and no right in subsistence of agency.

PRINCIPAL’S DUTY TO AGENT

(i) Agent to be indemnified against consequences of lawful acts (sec 222 & 223) but not for criminal act (sec 224)

(ii) Compensation to agent for injury caused by principal’s neglect (sec 225)

(iii) Principal  bound when agent exceeds authority if exceed part is separable (sec 227 & 228)

(iv) Principal liable even for misrepresentation made or fraud committed, by agent acting in the course of their business for their principals (sec 238)

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