In Indian law, an agency contract establishes a fiduciary relationship where one party, the principal, authorizes another, the agent, to act on their behalf. This relationship is pivotal in commercial transactions, enabling principals to conduct business through agents. The Indian Contract Act, 1872, particularly Chapter X, delineates the framework governing agency contracts, encompassing their creation, the rights and duties of agents and principals, and the termination of such relationships.

MEANING AND DEFINITION

Section 182 of the Indian Contract Act, 1872, defines an agent as a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such an act is done, or who is so represented, is called the principal. This definition underscores the representative capacity of the agent, acting on behalf of the principal in transactions with third parties.

CREATION OF AGENCY

An agency can be established through various methods:

1. Express Appointment: The principal explicitly appoints the agent through written or spoken words.
2. Implied Appointment: The agency arises from the conduct or situation of the parties, indicating an intention to create an agency.
3. Agency by Estoppel: If a person, by their conduct or statements, induces a third party to believe that another person is their agent, they are estopped from denying the agency relationship.
4. Agency by Necessity: In situations where it’s imperative to act to prevent loss to the principal, and it’s not feasible to obtain the principal’s instructions, an agency by necessity may arise.
5. Agency by Ratification: When a person acts on behalf of another without authority, and the purported principal later ratifies the act, an agency by ratification is created.

ESSENTIALS OF AGENCY

For a valid agency relationship:

• Competency of Principal: As per Section 183, the principal must be of the age of majority and of sound mind.
• Competency of Agent: According to Section 184, any person can become an agent, even if not competent to contract; however, they may not be liable to the principal unless they have attained the age of majority and are of sound mind.
• Consideration Not Necessary: Section 185 states that no consideration is necessary to create an agency.

TYPES OF AGENTS

Agents can be categorized based on the scope and nature of their authority:

• Special Agent: Appointed for a specific act or transaction.
• General Agent: Authorized to conduct all acts related to a particular trade or business of the principal.
• Sub-Agent: Appointed by an agent to assist in the duties assigned by the principal.
• Co-Agent: Multiple agents appointed jointly to perform an act.

RIGHTS OF AN AGENT

Agents possess certain rights to facilitate their duties:

• Right of Retainer: Under Section 217, an agent has the right to retain money received on behalf of the principal for any remuneration or expenses due to them.
• Right to Remuneration: Section 219 entitles the agent to agreed-upon remuneration for services rendered. However, as per Section 220, an agent forfeits this right if guilty of misconduct.
• Right of Lien: Section 221 grants the agent a lien over the principal’s property until dues are paid.
• Right to Indemnity: Sections 222 and 223 provide that the principal must indemnify the agent against consequences of lawful acts done in exercise of their authority and acts done in good faith, respectively.
• Right to Compensation: Section 225 allows the agent to claim compensation for injuries suffered due to the principal’s neglect or lack of skill.

DUTIES OF AN AGENT

Agents are obligated to:

• Conduct Business as Directed: Section 211 mandates that the agent conduct the principal’s business per instructions or, in their absence, according to the prevailing trade customs.
• Exercise Diligence and Skill: Section 212 requires the agent to act with due diligence and apply reasonable skill in executing their duties.
• Render Accounts: As per Section 213, the agent must provide proper accounts upon demand.
• Communicate with Principal: Section 214 obliges the agent to communicate with the principal in situations of difficulty and seek instructions.
• Avoid Conflict of Interest: Sections 215 and 216 prohibit the agent from dealing on their own account without the principal’s consent and from making any secret profits.
• Maintain Confidentiality: The agent must not disclose confidential information entrusted by the principal.

TERMINATION OF AGENCY

An agency relationship can be terminated through:

• By Act of Parties:

  • Revocation by Principal: The principal may revoke the agent’s authority, subject to limitations, especially if the agency is coupled with interest.
  • Renunciation by Agent: The agent can renounce the agency by providing reasonable notice.

• By Operation of Law:

  • Completion of Business: The agency terminates upon the completion of the assigned task.
  • Expiry of Time: If the agency was for a specific period, it ends when that period lapses.
  • Death or Insanity: The death or insanity of either party terminates the agency.
  • Insolvency of Principal: The agency ends if the principal is declared insolvent.