Law of Agency

Law of Agency

The law of agency governs the relationship where one person (the agent) is authorized to act on behalf of another person (the principal) and create legal relations with third parties. It’s a fundamental concept in commercial law, allowing individuals and businesses to conduct transactions through representatives. The Indian Contract Act, 1872, deals with the law relating to agency in Sections 182 to 238.

General Principles of Agency:

• “Qui facit per alium facit per se”: He who acts through another acts himself. This Latin maxim encapsulates the core idea of agency.
• No Consideration Necessary: Consideration is not required to create an agency (Section 185).
• Principal Must Be Competent: The principal must be competent to contract (Section 183).
• Agent May Not Be Competent: An agent may not be competent to contract (Section 184), meaning a minor can be an agent, but they won’t be personally liable to the principal.

Types/Creation of Agency:

1. Express Agency: Created by an express agreement (oral or written) between the principal and the agent.

2. Implied Agency: Arises from the conduct of the parties or the circumstances of the case.

   • Agency by Estoppel: When the principal holds out another person as their agent, leading third parties to believe that an agency relationship exists.
   • Agency by Necessity: Arises in emergency situations where one person is compelled to act on behalf of another to protect their interests.
   • Agency by Cohabitation: A presumption of agency may arise in certain cases where a husband and wife live together, but this has limited application.

3. Agency by Ratification: When an agent acts without authority, the principal can subsequently ratify (approve) the act, making it binding as if the agent had prior authority.

Legal Relationship Between the Parties Involved:

• Principal and Agent: A fiduciary relationship characterized by trust, confidence, and good faith.
• Principal and Third Party: The agent acts as a connecting link, creating a legal relationship between the principal and the third party.
• Agent and Third Party: Generally, no contract exists between the agent and the third party, except in certain circumstances.

Rights and Duties of Agent:

Duties of Agent:

• To follow Principal’s Instructions (Section 211): The agent must act according to the principal’s instructions or, in their absence, according to the custom of the trade.
• To act with Reasonable Skill and Diligence (Section 212): The agent must exercise reasonable care and skill in performing their duties.
• To render Proper Accounts (Section 213): The agent must keep and provide accurate accounts to the principal.
• To avoid Conflict of Interest (Section 216): The agent must not allow their personal interests to conflict with the principal’s interests.
• Not to Delegate (Section 190): An agent cannot delegate their authority to a sub-agent unless authorized by the principal or by the custom of the trade.

Rights of Agent:

• Right to Remuneration (Section 219): The agent is entitled to agreed-upon remuneration or a reasonable sum if no specific amount is agreed upon.
• Right of Retainer (Section 221): The agent can retain money received on the principal’s account for their lawful dues.
• Right of Lien (Section 221): The agent has a lien on the principal’s property in their possession until their dues are paid.
• Right to Indemnity (Section 222): The agent must be indemnified by the principal against the consequences of lawful acts done in the exercise of their authority.

Rights and Duties of Principal:

Duties of Principal:

• To Pay Remuneration (Section 219): The principal must pay the agent the agreed-upon remuneration.
• To Indemnify the Agent (Section 222): The principal must indemnify the agent for lawful acts done in the exercise of their authority.

Rights of Principal:

• To hold the agent accountable: The principal can hold the agent liable for any breach of duty.
• To recover damages for agent’s misconduct.

Breach of Warranty of Authority:

If an agent acts beyond their actual authority and a third party suffers a loss as a result, the agent can be held personally liable to the third party for breach of warranty of authority.

Termination of Agency:

An agency can be terminated by:

• Agreement: Mutual agreement between the principal and the agent.
• Performance: Completion of the agency’s purpose.
• Expiration of Time: If the agency was for a fixed period.
• Operation of Law:
  • Death of the principal or agent.
  • Insanity of the principal or agent.
  • Insolvency of the principal.
  • Destruction of the subject matter of the agency.
• Revocation by the Principal (Section 203): The principal can revoke the agent’s authority, subject to certain limitations.
• Renunciation by the Agent (Section 206): The agent can renounce the agency, subject to giving reasonable notice.

Personal Liability of Agents:

Generally, an agent is not personally liable for contracts they make on behalf of their principal. However, there are exceptions:

• When the agent expressly agrees to be liable.
• When the agent acts for an undisclosed principal.
• When the agent acts for a foreign principal.
• When the agent exceeds their authority.
• When the agent is guilty of fraud or misrepresentation.

The law of agency is a vital component of commercial law, facilitating transactions and allowing businesses to operate effectively. Understanding the rights, duties, and liabilities of the parties involved is crucial for ensuring smooth and legally sound agency relationships.