Definition of Agent (Section 182)
An agent is a person who is employed to bring his principal into contractual relations with third parties and is a mere connecting link between the principal and a third-party. But during the period that an agent is acting for his principal, he is clothed with the capacity of his principal.
Creation of Agency –
Express Agency: A contract of agency may be made orally or in writing. The usual form of written contract of agency is the Power of Attorney which gives him the authority to act on behalf of his principal in accordance with the terms and conditions therein.
Implied Agency: Implied agency may arise by conduct, situation of parties or necessity of the case such as:
- Agency by Estoppel (Section 237): Estoppel arises when you are precluded from denying the truth of anything which you have represented as a fact, although it is not a fact.
- Wife as agent: Where a husband and wife are living together, the wife is presumed to have her husband’s authority to pledge his credit for the purchase of necessities of life suitable to their standard of living. But the husband will not be liable if he shows that (i) he had expressly warned the trade man not to supply goods on credit to his wife (ii) he had expressly forbidden the wife to pledge his credit (iii) his wife was already sufficiently supplied with the articles in question (iv) she was supplied with a sufficient allowance.
- Agency of Necessity (Sections 188 and 189): In certain circumstances, a person who has been entrusted with another’s property, may have to incur unauthorised expenses to protect or preserve it. Such an agency is called an agency of necessity.
- Agency by ratification (Sections 169-200): The principal may ratify the agent’s transaction and accept liability. Where a person having no authority purports to act as agent, or a duly appointed agent exceeds his authority, the principal is not bound by the contract supposedly based on his behalf.
Classes of Agents –
- Special Agent: A special agent is one who is appointed to do a specified act, or to perform a specified function. He has no authority outside this special task. Any act of the agent beyond that authority will not bind the principal.
- General Agent: A general agent is appointed to do anything within the authority given to him by the principal in all transactions, or in all transactions relating to a specified trade or matter. The third-party may assume that such an agent has power to do all that is usual for a general agent to do in the business involved.
- Sub-Agent: Sub-agent is the agent of the original agent. The relationship of the agent and sub agent is similar to that of principal and agent and therefore the agent is bound by the transactions of the sub agent.
- Mercantile Agents: Section 2(9) of the Sale of Goods Act, 1930, defines a mercantile agent as “a mercantile agent having in the customary course of business as such agent authority either to sell goods or consign goods for the purposes of sale, or to buy goods, or to raise money on the security of goods”. This definition covers factors, brokers, auctioneers, commission agents etc.
Duties of the Agent –
- An agent must act within the scope of the authority conferred upon him and carry out strictly the instructions of the principal (Section 211).
- In the absence of express instructions, he must follow the custom prevailing in the same kind of business at the place where the agent conducts the business (Section 211).
- He must do the work with reasonable skill and diligence, the agent purports to have special skill and he must exercise the skill which is expected from the members of the profession (Section 212).
- He must disclose promptly any material information coming to his knowledge which is likely to influence the principal in the making of the contract.
- He must not disclose confidential information entrusted to him by his principal (Section 213).
- He must not allow his interest to conflict with his duty, e.g., he must not compete with his principal (Section 215).
- The agent must keep true accounts and must be prepared on reasonable notice to render an account.
- An agent must not delegate his authority to sub-agent. A sub-agent is a person employed by and acting under the control of the original agent in the business of agency (Section 191). This rule is based on the principle: Delegatus non-protest delegare—a delegate cannot further delegate (Section 190). But there are exceptions to this rule and the agent may delegate (i) where delegation is allowed by the principal (ii) where the trade custom or usage sanctions delegation (iii) where delegation is essential for proper performance (iv) where an emergency renders it imperative (v) where nature of the work is purely ministerial (vi) where the principal knows that the agent intends to delegate.
Rights of Agents –
- Where the services rendered by the agent are not gratuitous or voluntary, the agent is entitled to receive the agreed remuneration, or if none was agreed, a reasonable remuneration as soon as he had undertaken the task (Section 219).
- Certain classes of agents, e.g., factors who have goods and property of their principal in their possession, have a lien on the goods or property in respect of their remuneration and expense and liabilities incurred and also has a right to stop the goods in transit where he is an unpaid seller.
- As the agent represents the principal, the agent has a right to be indemnified by the principal against all charges, expenses and liabilities properly incurred by him in the course of the agency (Sections 222-223).
Responsibilities of Principal to third Parties –
The effect of a contract made by an agent varies according to the circumstances under which the agent contracted. There are three circumstances in which an agent may contract, namely:
- Disclosed principal: Where the agent contracts as agent for a named principal and the contract is made between the principal and the third- party with the rights and obligations. The effect is that the principal is bound by all acts of the agent done within the scope of actual, apparent or ostensible authority. This ostensible authority of the agent is important, for the acts of a general agent are binding on the principal if they are within the scope of his apparent authority, although they may be outside the scope of his actual authority. Therefore, a private or secret limitation or restriction of powers of an agent do not bind innocent third-party.
- Undisclosed principal: Where the agent disclose that he is merely an agent but conceals the identity of his principal, he is not personally liable. The principal, on being discovered will be responsible for the contract made by the agent.
- Concealed principal: Where an agent contracts without disclosing either the name of the principal nor the existence of the agency, he becomes personally liable. The third-party may sue either the principal (when discovered) or the agent or both.
Principal Liable for Agent’s Torts (Section 238) –
If an agent commits a tort or other wrong (e.g., misrepresentation or fraud) during his agency, whilst acting within the scope of his actual or apparent authority, the principal is liable. But the agent is also personally liable, and he may be sued also. The principal is liable even if the tort is committed exclusively for the benefit of the agent and against the interests of the principal.
Personal liability of Agent to Third-party –
An agent is personally liable in the following cases:
- Where the agent has agreed to be personally liable to the third-party.
- Where an agent acts for a principal residing abroad
- When the agent signs a negotiable instrument in his own name without making it clear that he is signing it only as agent.
- When an agent acts for a principal who cannot be sued (e.g., he is minor)
- Where a person contracts as agent without any authority there is a breach of warranty of authority and he is liable to the person who has relied on the warranty of authority and has suffered loss.
- He is also liable for his torts committed in the course of agency.
Termination of Agency –
An agency comes to an end or terminates:
- By the performance of the contract of agency
- By an agreement between the principal and the agent
- By expiration of the period fixed for the contract of agency
- By the death of the principal or the agency
- By the insanity of either the principal or the agent
- By the insolvency of the principal, and in some cases that of the agent
- Where the principal or agent is an incorporated company, by its dissolution
- By the revocation of authority by the principal. (Section 201)
When Termination Takes Effect –
Termination of an agency takes its effect when it becomes known to an agent. However, in the case of third parties, termination comes into effect only when such termination of agency comes to their knowledge. According to Section 210 of the Act, termination of an agent’s authority also terminates the sub-agent’s authority appointed by the agent. A per Section 209 of the Act, it is the duty of an agent to protect his principal’s interest in case his principal becomes of unsound mind or dies. It is the duty of an agent to take all the reasonable steps on behalf of his principal on the termination of an agency due to death of the principal or his becoming insane.
When Agency is irrevocable –
Revocation of an agency by the principal is not possible in the following cases:
- Where the authority of agency is one coupled with an interest, even the death or insanity of the principal does not terminate the authority in this case (Section 202).
- When agent has incurred personal liability, the agency becomes irrevocable.
- When the authority has been partly exercised by the agent, it is irrevocable in particular with regard to obligations which arise from acts already done (Section 204).