Contract of Agency: Types, Classification, Duties and Rights

  • Post last modified:12 January 2022
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What is Contract of Agency?

The agent is “a person, employed to do any act for another or to represent another in dealings with third person”. Thus, the agent is a person who acts in place of another. The person for whom or on whose behalf he acts is called the Principal. For instance, Anil appoints Bharat, a broker, to sell his Maruti Car on his behalf. Anil is the Principal and Bharat is his agent. The relationship between Anil and Bharat is called Agency.

This relationship is based upon an agreement whereby one person acts for another in transaction with a third person. The function of the agent is to bring about contractual relations between the principal and a third party. The agent is only a connecting link between the principal and the third party and is rightly called a ‘conduit pipe’.

The acts of the agent, within the scope of the instructions, bind the principal as if he has done them himself. The phrase ‘Qui facit per alium facit per set contains the principle of agency, which means, he who does through another does by himself. In simple words, the act of the agent is the act of the principal.

Types of Agency

A contract of agency may be created by an express agreement or by implication (implied agreement) or by ratification. Thus, there are different types of agencies:

  1. Express Agency (Section 187)
  2. Implied Agency (Section 187)
  3. Agency by Estoppel (Section 237)
  4. Agency by Holding Out
  5. Agency of Necessity (Section 189)
  6. Agency by Ratification (Sections 196-200)

Express Agency (Section 187)

A person may be appointed as agent’ either by word of mouth or by writing. No particu1arrm-required for appointing an agent. The usual form of a written contract of agency is the power of attorney on a stamped paper.

Implied Agency (Section 187)

Implied agency arises from the conduct, situation or relationship of parties. Implied agency, therefore, includes agency by estoppel, agency by holding out and agency of necessity.

Agency by Estoppel (Section 237)

When a person has, by his conduct or statements, induced others to believe that a certain person is his agent, he is estopped from subsequently denying it. The principal is precluded from denying the truth of agency which he himself has represented as a fact, although it is not a fact.

Examples: Prakash allows Anand to represent as his agent by telling Cooper that Anand is Prakash’s agent. Later on, Cooper supplied certain goods to Anand thinking him to be Prakash’s agent. Prakash shall be liable to pay the price to Cooper. By allowing Anand to represent himself as his agent, Prakash leads Cooper to believe that Anand is really his agent.

Agency by Holding Out

Though part of the law of estoppel, some affirmative conduct by the principal is necessary in the creation of agency by holding out.

Example: Puran allows his servant Amar to buy goods for him on credit from Komal and pay for them regularly. On one occasion, Puran pays his servant in cash to purchase the goods. The servant purchases goods on credit pocketing the money. Komal can recover the price from Puran since through previous dealings Puran has held out his servant Amar as his agent.

Agency of Necessity (Section 189)

This arises where there is no express or implied appointment of a person as agent for another but he is forced to act on behalf of a particular person.

Examples: (i) The Master of a ship, which is in distress and requires heavy and urgent repairs, can pledge the ship or cargo (without express or implied authority) and raise money in order to execute the voyage. He will be considered as the agent of the owner by necessity.

Agency by Ratification (Sections 196-200)

Where an agent does an act for his principal but without knowledge of authority, or where he exceeds the given authority, the principal is not held bound by the transaction. However, Section 196 permits the principal, if he so desires, to ratify the act of the agent.

If he so elects, it will have the same effect as if the act was originally done by his authority. Agency in such a case is said to be created by ratification. In other words, the agency is taken to have come into existence from the moment the agent first acted and not from the date of the principal’s ratification. The rule is that every ratification relates back and is equivalent to a previous command or authority.

Classification of Agents

These are the classification of agents discussed below:

  1. Special and General Agents
  2. Mercantile or Commercial Agents
  3. Non-mercantile or Non-commercial Agents
  4. Sub-agent and Substituted Agent (Sections 190-195)

Special and General Agents

A special agent is a person appointed to do some particular act or enter into some particular contract. A special agent, therefore, has only a limited authority to do the specified act. If he does anything beyond the specified act, he runs the risk of being personally liable since the principal may not ratify the same.

A general agent, on the other hand, is one who is appointed to represent the principal in all matters concerning a particular business, e.g., manager of a firm or managing director of a company.

Mercantile or Commercial Agents

A mercantile or commercial agent may assume any of the following forms: broker, factor, commission agent, del credere agent, auctioneer, banker, Pakka and Katcha Adatias and indentor. A broker is a mercantile agent engaged to buy and/or sell the property or to make bargains and contracts between the engager and third party for a commission (called brokerage).

A broker has no possession of goods or property. He is merely a connecting link between the engager and a third party. The usual method of dealing by a broker is to make entries of the terms of contract in a book, called the memorandum book and to sign them.

He then sends the particulars of the same to both parties. The document sent to the seller is called the sold note and the one sent buyer is called the bought note. A factor is a mercantile agent who is entrusted with the possession of goods with the authority to sell the same.

Non-mercantile or Non-commercial Agents

Some of the agents in this category are: wife, estate agent, counsels (advocates), attorneys. The following principles provide guidelines as regards the wife as an agent of her husband:

  1. If the wife and husband are living together and the wife is looking for necessaries, she is agent. But this presumption may be rebutted and the husband may escape liability if he can prove that (a) he had expressly forbidden his wife from purchasing anything on credit or from borrowing money, (b) goods, purchased were not necessaries, (c) he had given sufficient money to his wife for purchasing necessaries, or (d) the trader had been expressly told not to give credit to his wife.

  2. Where the wife lives apart from the husband, through no fault of hers, the husband is liable to provide for her maintenance. If he does not provide further maintenance, she has an implied authority to bind the husband for necessaries, i.e., he would be bound to pay her bills for necessaries. But where the wife lives apart under no justifiable circumstances, she is not her husband’s agent and thus cannot bind him even for necessaries.

Sub-agent and Substituted Agent (Sections 190-195)

The general rule is that agent cannot appoint an agent. The governing rule is enshrined in a maxim ‘a delegate cannot further delegate’. The agent being a delegate cannot transfer his duties to another. The principle underlying the rule is that the principal engages the agent ordinarily on personal consideration and thus may not have the same confidence in the person appointed by the agent.

Hence, sub-agency is not generally recognised. However, Section 190 deals with the circumstances as to when and how far an agent can delegate his duties. The agent may appoint an agent in the following circumstances:

  1. Where expressly permitted by the principal.

  2. Where the ordinary custom of the trade permits delegation.

  3. The nature of agency is such that it cannot be accomplished without the appointment of a sub-agent.

  4. Where the nature of the job assigned to the agent is purely clerical and does not involve the exercise of discretion, e.g., if Anthony is appointed to type certain papers, because of lack of time, he assigns the job to another equally competent typist Bharat, the delegation is valid.

  5. In an unforeseen emergency.

Duties and Rights of Agent

Duties of Agent

The duties of agent towards his principal are:

  1. To conduct the business of agency according to the principal’s directions (Section 211): The duty of the agent must be literally complied with, i.e., the agent is not supposed to deviate from the directions of the principal even for the principal’s benefit. If he does so, any loss occasioned thereby shall have to be borne by the agent, whereas any surplus must be accounted for to the principal.

  2. The agent should conduct the business with the skill and diligence that is generally possessed by persons engaged in similar business, except where the principal knows that the agent is wanting in skill (Section 212).

  3. To render proper accounts (Section 213): The agent has to render proper accounts. If the agent fails to keep proper accounts of the principal’s business, everything consistent with the proved facts will be presumed against him. Rendering of accounts does not mean showing the accounts, but maintaining proper accounts supported by vouchers.

  4. To communicate with the principal in case of difficulty (Section 214): It is the duty of agent, in case of difficulty, to use all reasonable diligence, in communicating with his principal and in seeking to obtain his instructions. In case of emergency, however, the agent can do all that a reasonable man would, under similar circumstances, do with regard to his own business. He becomes agent by necessity.

  5. Not to make any secret profits: Agent should deliver to the principal all moneys including secret commission received by him. He can, however, deduct his lawful expenses and remuneration.

  6. Not to deal on his own account: Agent should not deal on his own account without first obtaining the consent of his principal. If he does so, the principal can claim from the agent any benefit which he might have obtained.

  7. Not entitled to remuneration for misconduct (Section 220): Agent who is guilty of misconduct in the business of agency is not entitled to any remuneration in respect of that part of the business which he has misconducted.

  8. Not to disclose confidential information supplied to him by the principal.

  9. To take all reasonable steps for the protection and preservation of the interests entrusted to him when the principal dies or becomes of unsound mind (Section 209).

Rights of Agent

Agent has a number of rights. These are:.

  1. Right to remuneration (Sections 219-220): Agent is entitled to his agreed commission or remuneration and if there is no agreement, to a reasonable remuneration. But the remuneration does not become payable unless he has carried out the object of agency, except where there is a contract to the contrary.

    When the object of agency is deemed to have been carried out or the act assigned to the agent is completed would depend on the terms of the contract. Further, the transaction for which the agent claims remuneration should be the direct result of his services.

  2. Right of retainer (Section 217): Agent may retain out of any sums received on account of the principal in the business of the agency, all moneys due to himself 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.

    This is known as agent’s right of retainer. However, the right of retainer can only be claimed on moneys received by him in the business of agency. He cannot, therefore, retain sums received by him in one business for his commission or remuneration in an other business on behalf of the same principal.

  3. Right of lien (Section 221): In the absence of any contract to the contrary, 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.

    This lien of the agent is a particular lien confined to all claims arising in respect of the particular goods and property by a special contract, however, agent may get a general lien extending to all claims arising out of the agency. Since, the word ‘lien’ means retaining possession, it can be enjoyed by the agent only where the goods or papers are in actual or constructive possession of the agent.

  4. Right of stoppage in transit: The agent can stop the goods while in transit in two cases: (a) Where he has purchased goods on behalf of the principal either with his own funds, or by incurring a personal liability for the price, he stands towards the principal in the position of an unpaid seller.

    Like an unpaid seller, he enjoys the right of stopping the goods in transit if in the meantime the principal has become insolvent. (b) Where agent holds himself liable to his principal for the price of the goods sold, for example, del credere agent, he may exercise the unpaid seller’s right of stopping the goods in transit in case of buyer’s insolvency.

  5. Right of indemnification (Sections 222-224): The principal is bound to indemnify agent against the consequences of all lawful acts done by the agent in exercise of authority conferred on him.

Personal Liability of Agent

The agent is only a connecting link between the principal and third parties. Being only a medium, he can, in the absence of a contract to the contrary, neither personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them (Section 230):

Breach of Warranty

Where an agent acts either without any authority or exceeds his authority, he is deemed to have committed a breach of warranty of authority in such a case. He will be held personally liable if his acts are not ratified by the alleged principal.

Further, the agent will be guilty of warranty of authority even where his authority is terminated without his knowledge, e.g., by death or lunacy of the principal.

Where the Agent Expressly Agrees to Be Personally Bound

This sort of stipulation may be provided particularly where the principal does not enjoy much creditworthiness and the third parties wish to ensure the payment or performance.

Where Agent Signs a Negotiable Instrument in His Own Name

In case the agent signs a negotiable instrument without making it clear that he is signing it as agent only, he may be held personally liable on the same. He would be personally liable as the maker of the note, even though he may be described in the body of the note as the agent (Section 28, Negotiable Instrument Act, 1881).

  1. Agent with special interest or with a beneficial interest, e.g, a factor or auctioneer, can sue and be sued personally.
  2. When agent is guilty of fraud or misrepresentation in matters which do not fall within his authority (Section 238).

  3. Where trade usage or custom makes agent personally liable. 7. Where the agency is one coupled with interest.

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