A Contract of Agency is a legal relationship where one person, called the agent, is authorized to act on behalf of another person, called the principal, to create legal relations with a third party.
Definition (Section 182)
An “agent” is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the “principal.”
Essentials of Agency
- Principal must be competent to contract
- Agent need not be competent (even a minor can be an agent, but cannot be held liable)
- There must be an intention to create agency
- The agent acts on behalf of the principal
- The act must be within the scope of the agent’s authority
Creation of Agency
Agency can be created in the following ways:
- Express Agreement: Oral or written contract
- Implied Agreement: Based on conduct or circumstances
- Agency by Estoppel: Principal by conduct or words allows third party to believe someone is his agent
- Agency by Holding Out: Extension of estoppel; based on repeated past conduct
- Agency by Necessity: Created in emergency situations to protect principal’s interest
- Agency by Ratification: Principal approves previously unauthorized acts of an agent
Types of Agents
- General Agent: Authorized to perform all acts in connection with a business or employment
- Special Agent: Appointed for a specific act or transaction
- Sub-Agent: Appointed by the agent and works under his control
- Co-Agent: Two or more agents appointed to act together
- Factor: Agent entrusted with goods for sale
- Broker: Agent who negotiates contracts but doesn’t possess goods
- Commission Agent: Buys or sells goods on behalf of principal, receives commission
Authority of an Agent
- Actual Authority: Express or implied authority given by the principal
- Apparent/ Ostensible Authority: Third party believes agent has authority due to principal’s conduct
Duties of Agent
- Act according to instructions
- Act with reasonable skill and diligence
- Render proper accounts
- Communicate with the principal in case of difficulty
- Not to deal on his own account in the business of agency
- Pay sums received for the principal
- Maintain confidentiality
Rights of Agent
- Right to remuneration
- Right of lien on principal’s property
- Right to be indemnified against lawful acts
- Right to compensation for injury caused by principal’s neglect
Duties of Principal
- To pay remuneration and expenses
- To indemnify the agent against consequences of lawful acts
- To indemnify agent for injury caused due to principal’s negligence
Termination of Agency (Section 201–210)
- By mutual agreement
- By revocation by principal
- By renunciation by agent
- By completion of the business
- By expiry of time
- By death, insanity or insolvency of either party
In case of Agency Coupled with Interest, the agency cannot be terminated to the prejudice of such interest.
Important Case Laws
Pannalal Jankidas v. Mohanlal (1951)
The agent was held liable for damages for acting beyond authority, causing loss to the principal.
Great Northern Railway Co. v. Swaffield (1874)
Established agency by necessity when a person acts to protect goods in emergency.
