Introduction

Agency constitutes a legal relationship in which one party, known as the agent, is empowered to act on behalf of another party, termed the principal, thereby creating legal obligations and relationships that bind the principal. The actions undertaken by the agent are legally binding on the principal, and the agent is responsible for executing the principal's directives.

The agent is obligated to fulfil several duties toward the principal, including loyalty, care, adherence to instructions, and accountability. In performing these duties, the agent must act in good faith, with reasonable skill and diligence.

The principal-agent relationship can be established through either express or implied agreements. An express agency arises from explicit written or oral agreements between the parties. Conversely, an implied agency is inferred from the actions or conduct of the parties involved. Such relationships are prevalent in various contexts, including employment, business dealings, and legal representation. For instance, a real estate agent represents a homeowner in property transactions, while an attorney represents a client in legal matters. The agency relationship can be terminated by either party at any time, subject to any contractual or legal constraints, or upon the occurrence of events such as the death, incapacity, or bankruptcy of either the principal or the agent.

Agent

In accordance with Section 182 of the Indian Contract Act, 1872, an 'Agent' is defined as an individual appointed to perform any act for another person or to represent another in dealings with third parties.

Principal

As per Section 182 of the Indian Contract Act, the term "Principal" encompasses any person for whom acts are carried out or who is represented by an agent. The principal grants the agent the authority to act on their behalf.

Appointment of Agent

Section 183 stipulates that any individual who has attained the age of majority and is of sound mind is eligible to appoint an agent. Thus, individuals who are legally competent to enter into contracts are also competent to appoint agents. Conversely, minors and individuals of unsound mind lack the authority to appoint agents.

Capacity of Agent

Section 184 mandates that an agent must be a major and of sound mind. This requirement ensures that the agent, who bears liability for their actions in relation to the principal, possesses the necessary mental and legal capacity.

Types of Agents

General Agent: A general agent is endowed with broad powers to perform any act related to the subject matter of the agency. This type of agent typically manages a business or holds a position with extensive authority and responsibilities.

Co-Agent: A co-agent is appointed by an existing agent, based on either express or implied authority from the principal, and operates under the principal's supervision. The appointment and authority of co-agents are governed by Section 194 of the Indian Contract Act. The principal maintains a direct contractual relationship with the co-agent, who is liable to the principal. The primary agent is not accountable for the acts of the co-agent.

Broker: A broker is an individual or entity hired to facilitate transactions by arranging sales or negotiating contracts in exchange for a commission. Brokers act as intermediaries or negotiators in transactions involving licenses, sales, or exchanges of stocks, bonds, real or personal property, commodities, or services. Brokers do not hold personal interest or possession of the goods involved in these transactions.

Del Credere Agent: A del credere agent guarantees the creditworthiness of a buyer and assumes the risk of non-payment by the buyer to the seller. The term "del credere" is derived from the Italian phrase for "to believe." Unlike a standard salesperson or broker, a del credere agent takes on the risk associated with the buyer’s credit. The del credere agent is liable to the principal only in the event of a default in payment by the buyer, not for other disputes between the buyer and seller.

Commission Agent: A commission agent operates on a commission basis, receiving a percentage of the sales value generated. Such agents are tasked with selling goods in specified areas or markets as per agreements with the principal. The relationship between the commission agent and the principal is commercial, rather than employment-based.

Factor: A factor is an agent who takes possession of the principal’s goods for the purpose of selling them. The factor is compensated through commission or salary. Unlike a general agent, a factor must physically possess the principal's goods. Factors are primarily involved in selling merchandise rather than purchasing goods.

Authority of an Agent

The authority of an agent can be categorized into express and implied authority.

Express Authority: Under Section 187, express authority is explicitly granted to the agent through clear verbal or written instructions.

Implied Authority: Implied authority, as outlined in Section 187, arises from the circumstances surrounding the agency. It permits the agent to undertake any lawful act necessary for the effective execution of the tasks entrusted by the principal.

Implied authority encompasses several types:

• Incidental Authority: This refers to actions that are incidental to the proper exercise of express authority, necessary for the agent to fulfill their duties.

• Usual Authority: This involves performing acts that are typical within the normal scope of the agent’s office or role.

• Customary Authority: This authority is derived from established practices or customs prevailing in the location where the agent operates.

• Circumstantial Authority: This authority arises from the particular circumstances surrounding the agency, allowing the agent to act based on reasonable inferences drawn from those circumstances.

Essential Requirements of Agency

For an agency relationship to be legally binding, certain fundamental conditions must be met:

• Competence of the Principal: The principal must possess the legal capacity to contract, meaning they must be of sound mind and have reached the age of majority as defined by applicable law. This requirement ensures that the principal is legally competent to appoint an agent.

• Competence of the Agent: The agent's personal competence to contract is not a prerequisite. Any individual can serve as an agent in transactions between the principal and third parties. Consequently, an agent is generally not personally liable for contractual obligations of the principal, and their personal competency to contract is not a necessity.

• No Requirement of Consideration: The appointment of an agent does not necessitate consideration. Typically, an agent's remuneration is provided through commissions or fees for services rendered, rather than requiring a specific consideration for the appointment itself.

Creation of Agency

An agency relationship can be established through several methods:

• Direct (Express) Appointment: The most common method of creating an agency is through a direct appointment. This occurs when one party expressly designates another as their agent, either through a written agreement or oral communication.

• Implied Agency: An implied agency is formed based on the circumstances that indicate an agency relationship, even if no formal appointment has been made. This type of agency arises from the conduct or behavior of the parties involved.

• Agency by Necessity: This form of agency arises when an individual acts on behalf of another to prevent harm or loss, despite the absence of an explicit appointment. The agency relationship is established retrospectively due to the necessity of the actions taken.

• Agency by Estoppel: An agency by estoppel occurs when one person’s conduct leads another to reasonably believe that a third party is authorized to act as their agent. If the third party relies on this belief, an agency relationship by estoppel is created, binding the principal to the agent’s actions.

• Agency by Ratification: An agency by ratification arises when an individual acts on behalf of another without prior authorization, and the principal subsequently approves or accepts those actions. This retroactively creates an agency relationship, validating the agent's actions from the time they were performed.

Rights of an Agent

An agent is entitled to several key rights, which include:

1. Right of Retainer: The agent has the right to retain any remuneration or reimbursement for expenses incurred while executing the principal’s business.

2. Right to Remuneration: Upon the conclusion of the agency's business, the agent is entitled to receive remuneration for services rendered and for expenses incurred during the course of performing their duties.

3. Right of Lien on Principal's Property: The agent may retain possession of any movable or immovable property belonging to the principal until payment of the amount due to the agent for their services is received.

4. Right to Indemnity: The agent is entitled to indemnity for all lawful acts performed in the course of executing the principal’s business, protecting the agent from any financial losses arising from such acts.

5. Right to Compensation for Loss: The agent is entitled to compensation for any damages or losses suffered as a result of performing their duties, particularly if such loss results from a lack of proper skill or competence on the part of the principal.

Agent’s Duties

In the context of an agency relationship, an agent is obligated to perform certain duties as outlined in the agency contract. These duties include:

1. Conduct of Principal's Business: The agent must conduct the principal’s business in strict adherence to the principal’s instructions. Any deviation from these instructions may result in the agent being liable to indemnify the principal for any profits derived from such deviation.

2. Exercise of Reasonable Skill and Diligence: The agent is required to perform their duties with reasonable skill and diligence. Should the agent fail to exercise such care, they may be held liable for negligence. However, such liability does not extend to damages or losses resulting from the principal’s own actions or omissions.

3. Communication with the Principal: It is essential for the agent to maintain regular communication with the principal and to adhere to the principal’s directives. This duty ensures that the principal remains informed and can effectively oversee the agency relationship.

4. Rendering Accounts: The agent is obligated to provide the principal with accurate accounts of all transactions and dealings upon request. This duty ensures transparency and accountability in the management of the principal’s affairs.

5. Avoidance of Conflicts of Interest: The agent must avoid any transactions or acquisitions that could create a conflict of interest with the principal, unless expressly authorized to do so. The agent must fully disclose all relevant information concerning such transactions. The principal retains the right to annul any transactions that are conducted in bad faith or that disadvantage the principal.

6. Prohibition on Secret Profits: The agent must not make any secret profits from transactions carried out on behalf of the principal. Any profit realized from such transactions without the principal’s knowledge is deemed to belong to the principal, who may claim such profits.

7. Prompt Remittance of Sums: The agent is required to promptly remit all sums received on behalf of the principal. The agent may deduct any lawful expenses before remitting the amounts due.

8. Restriction on Delegation: The agent is generally prohibited from delegating their duties to others unless expressly authorized by the principal. Delegation is permissible under specific circumstances, such as:

o With the principal’s consent,
o For ministerial or administrative acts,
o According to established trade practices, or
o As necessitated by the nature of the work.

When a sub-agent is appointed with the principal’s consent, the principal holds the same responsibility for the actions of the sub-agent as they do for the agent. Should the sub-agent further delegate their duties, the principal remains bound by the actions of the substituted Discharge of Contract

A contract may be discharged through various methods, including:

1. Discharge by Performance: This occurs when all parties fulfill their contractual obligations in accordance with the agreed terms and conditions, thereby discharging the contract.

o Actual Performance: This involves the complete execution of the contract's terms by one party, which then obligates the other party to perform their respective duties, thereby discharging the contract.

o Attempted Performance: If a party is ready and willing to perform their obligations but is unable to do so due to the other party’s refusal to accept performance, it is considered 'Attempted Performance' or 'Tender.' This indicates readiness to perform, although the performance has not been completed.

2. Discharge by Mutual Agreement: The parties involved in the contract may mutually agree to modify, annul, or replace the contract, thereby discharging the original agreement.

3. Discharge by Impossibility of Performance: If unforeseen circumstances render the performance of the contract impossible for one of the parties, the contract may be discharged. When such impossibility exists from the inception of the contract, it is termed 'Impossibility Ab Initio.'

4. Discharge by Lapse of Time: Under the Limitation Act, 1963, contracts must be performed within a specified period. Failure to act within this timeframe results in the discharge of the contract, rendering it unenforceable by legal means.

5. Discharge by Operation of Law: Events such as insolvency or the death of the promisor can discharge a contract by operation of law.

6. Discharge by Breach of Contract: This occurs when a party fails to adhere to the terms of the contract, either by not performing their duties on time or by indicating, prior to the performance date, an inability to fulfill the contract, known as anticipatory breach.

Termination of Agency

An agency relationship may be terminated through various means, including:

1. Revocation by Principal: The principal has the right to revoke the agent's authority at any time.

2. Renunciation by Agent: The agent may terminate the agency by providing notice to the principal of their intent to resign from the agency.

3. Completion of Work: The agency automatically terminates upon the completion of the business or task for which the agency was established.

4. Death or Insanity: The agency is terminated upon the death or mental incapacity of either the principal or the agent, as the continuation of the business becomes impracticable.

5. Insolvency of Principal: The declaration of insolvency by the principal results in the termination of the agency.

Renunciation by Agent

The agent may renounce the agency in a manner similar to the principal’s revocation, whether expressed or implied. The conditions for termination by renunciation include:

1. Completion of Business: The agency remains in effect until the business for which it was established is completed.

2. Death or Incapacity: The agency terminates automatically upon the death or mental incapacity of either party.

3. Principal’s Insolvency: The agency ends automatically upon the principal’s declaration of bankruptcy.

4. Expiry of Term: If the agent was appointed for a specific duration, the agency terminates automatically upon the expiry of this period, regardless of whether the assigned tasks are completed.

CASE LAWS

Chairman L.I.C v. Rajiv Kumar Bhaskar

In the case, according to the salary saving scheme of L.I.C, the premium was required to be deducted from the salary of employees by the employer and remit it to L.I.C. The employee died, and on verification, it was found that the employer had not complied with the obligation due to which the policy lapsed. Reference was made to a clause in the acceptance letter where the employer had admitted acting as the agent of the employee rather than L.I.C. Because of this arrangement, said the court, the employer acted as the agent of L.I.C, making L.I.C liable as principal for the default of the agent, the employer.

Bolton Partners v. Lambert

In the case, T offered to sell land to a company's managing director, who accepted the offer with no authority to accept such an offer on the firm's behalf. The offer was then withdrawn by T, who notified the company of the unauthorized acceptance by its managing director. The company later ratified such acceptance; hence the contract was valid. It was held that T's revocation was ineffective as the company ratified the acceptance in time. The managing director acted without any actual authority, but this authority was retrospectively granted by the company's ratification. Therefore, under s. 35(2), the agent (managing director) is treated as if it had the authority to do the act when the act was done.

CONCLUSION

In conclusion, the agency relationship is a fundamental legal construct that empowers an individual, known as the agent, to act on behalf of another, known as the principal, thereby creating binding obligations and making contractual decisions for the principal. This relationship can be established either through an express agreement—whether written or oral or by implication based on the conduct and circumstances surrounding the parties involved. The agency relationship is prevalent across various sectors, including employment, business transactions, and legal representation.

An agent is entrusted with several fiduciary duties towards the principal, which encompass loyalty, diligent performance, adherence to instructions, and accountability for all actions taken on behalf of the principal. These duties are designed to ensure that the agent acts in the best interest of the principal and executes their responsibilities with the utmost care and integrity.

The agency relationship may be terminated or revoked under various conditions, including mutual agreement of the parties, completion of the agency's purpose, or other events such as death, incapacity, or insolvency. Discharge of the agency may also occur through performance or by operation of law. The ability to terminate the agency at any time, subject to any contractual stipulations, allows for flexibility and adaptation in legal and business practices.

Ultimately, the agency framework is a crucial legal mechanism that facilitates the delegation of tasks and decision-making authority while imposing a structured regime of oversight and responsibility. This ensures that the principal's interests are safeguarded and that the agent’s actions are conducted within the bounds of the law and the principal's directives.