Author: – Vishal Patidar
In our country, the connection between the agent and the principle is contractual, therefore it is controlled by the provisions and obligations of the contract between them. The Indian Contract Act of 1872, Chapter X, lays forth the general outline of legislation and requirements that regulate the execution and creation of every sort of contract, which includes agency contracts. A legal connection exists between two persons under agency contracts when one individual works on behalf of another.
The individual who acts on behalf of another is known as an agent, and the individual who grants the agent authorized to act is known as the principle. The law of agency is built upon this Latin phrase “Qui facit per alium, facit per se,” which roughly translates to “he who acts through another is deemed in law to act for himself.” Sec. 182 of the Indian Contract Act of 1872 defines the terms agent and principal.
The qualified agent has the lawful authority to act on behalf of the principal in front of a 3rd party. Who can now work as an agent? This question is answered in Section 184. Anyone could become an agent, as per this clause, and there is no requirement that they have the contracting ability. As a result, a minor may act as an agent. The kid, on the other hand, would not be accountable to his principal. According to Law in India, corporate agents such as brokers, persons entrusted with money to secure sales, and insurance agents are being designated.
Who are Agent and Principle?
Before knowing the authority of an agent, let us understand what actually agent and principle and what does agency means.
An agent is a person engaged to execute any act for another, or to represent others in transactions with third parties, as described in Section 182 of the Indian Contract Act, 1872, and the person for whom such act was done or who was so represented was known as the “principal.” An agent is just the principal’s outstretched hand, with no autonomous rights.
In Loon Karan Sohan Lal vs. John and Co, the Court stated that it was well established that the use of or omission of the word “agent” was not conclusive in assessing the legal nature of the connection between the claimed principal and agent.
Even though they may not have the authority to change their principal’s connection with third parties, certain people are referred to as “agents” in common language. Distributors and franchisees are sometimes referred to as agents, even though they may be acting as principals in their own right. The specifics of each situation will determine whether the connection between the parties is one of agency or something else conceptually (though superficially similar).
Duties of an agent
The Indian Contract Act, 1872 provides a provision that assigns certain duties and obligations of the agent to perform towards the principal. A few of these duties are: –
- To safeguard and maintain the interests of the principal in the event of his demise or bankruptcy: – Section 209 states that whenever an agency is dissolved due to the principal’s death, insolvency, or mental incapacity, the agent is obligated to take all possible efforts on the part of his deceased principal’s heirs to safeguard and protect the interests entrusted to him.
- Obligation to act following the principal’s instructions: – Section 211 of the act put an obligation on the agent to do operations following the principal’s instructions. If the agent behaves improperly and causes a loss to his principal, he shall compensate him.
- To act with caution and efficiency: – Section 212 bounds the agent to handle the agency’s operations with appropriate care and diligence and compensate his principal for losses incurred due to his negligence or wrongdoing.
- The agent in the event of a problem needs to contact the principal: – Section 214 of the act states that the agent is obligated to make every effort to reach his principal to get his directions.
- To reveal all relevant conditions and seek the principal’s approval, while carrying out personal deals: – In personal transactions, an agent is required to report to the principal all relevant conditions that have arrived at his knowledge on the topic and get his approval. When an agent trades in the agency’s activity through his account outside his principal’s knowledge, the principal may (i) reject the agreement and recover any damages. (Section 215) (ii) sue the agent for any advantage he might have received as a consequence of the transaction (Section 216).
Creation of Agency
The term “agency” refers to a situation in which one party, the principle, delegated certain authority to another party (the agent), to represent him or act on his behalf in dealings with a third party, resulting in a legally binding connection between the two. The most important aspect of an agent’s role is his ability to make the principal responsible to other parties. The principal is obligated by the agent’s act in the same way as he would be if he performed it personally.
There are several modes by which agent can be created, some of them are as follows: –
- Agency by Express Agreement: – The most common way of agreement is through expression. The term expression connotes words, spoken or written confession. Thus, both the Principal and the Agent have made a clear, categorical expression of intent to engage in the partnership. The agent is given explicit authority as a result of this. When the Principal uses clear words to establish the connection, this generates actual authority, allowing the agent to act on behalf of the Principal. The agreement’s wording is critical for finding out the agent’s true authority.
- Agency by Operation by Law: – With no explicit agreement or lawful obligation to participate in every procedure, the legislation establishes the connection between Principal and Agent.
- Agency by Ratification: – A principle may later confirm an act performed on his behalf without his knowledge or approval. If the act is validated, an agency relationship will be established, and it will be as if he had previously allowed the individual to serve as his agent. Ratification might be expressed verbally or in writing (by act or conduct).
- Agency by necessity: – In an emergency, one person can act on behalf of another to protect that person from loss or injury without being specifically authorized as an agent. This necessitates the formation of an agency.
- Agency by Estoppel: – Estoppel can also be used to start an agency. An agency by estoppel is created when one person acts in such a way in front of a third party that makes the third party believe he is an authorised agent on behalf of someone.
Authority of an Agent
“Polestar Electronics Private Limited v. Additional Commissioner” case established that the agent’s activities inside the extent of his power compel the principal. Contracts entered into by an agent, as well as responsibilities deriving from activities performed by an agent, maybe implemented and have the same legal implications as if contracts were entered into and the acts performed by the principal personally.
For this impact to occur, the agent should have acted to the extent of his power. There is a lot of uncertainty regarding the authority of an agent because it is not dependent on a single source. An agent’s authority refers to his ability to adhere to the principal. It corresponds to “the entirety of the activities decided upon by the principal and the agent to be performed on behalf of the principal.”
Agents are classified as general or special agents based on their level of authority. The special denotes an agent assigned for some specific situation or intent, restricted by employment; the general agents signifies an individual employed in the company or organization of filling a place of a generally recognized personality. A special agent’s power is limited to performing a specific act for a specific situation or objective that is outside of his or her normal trade or activity.
Indian Contract Act’s Section 186 and Section187 mentions the express and implied authority of an agent. Whenever authority is conveyed through written or verbal communication, it is said to be express. When anything stated or written, or the regular way of business, are deemed conditions of the situation, such authority is said to be implied. Section 189 of the Indian Contract Act talks about the authority of the agent in an emergency. The provision gives the control to the agent to act according to the situation and do things that are in the best interest of his principal.
- When agent exceeds authority: –
When an agent accomplishes more than he is authorized to do and the two cannot be separated. The principal is not obligated to recognize the transaction if the act cannot be distinguished from what is included within it. Any notice made to or information received by the agent in the course of business done for the principle has the same legal implications as if it had been given to or obtained by the principal.
Misrepresentations or frauds done by agents operating in the course of their employment have the same effect on agreements made by agents as if the principals had made or committed such misrepresentations or frauds. If the principal has authorized or knows that the agent is making a false statement, or if the principal withholds the facts from the agent, is liable. This concept is based on the maxim “Respondent Superior (let the superior answer)” it means when an agent commits any wrongful act in the course of employment and if any loss/ mishap occurs the principal will be held vicariously liable.
The contractual agency plays an essential part in the transfer of authority from the principal to the agent in contemporary days, as the corporate organization grows. The Indian Contract Act, Chapter X, explains the many complexities of an agency contract, including the powers, responsibilities, and obligations of the 3rd party, the principal, and the agent. These type of contract have grown in considerable number and we have a variety of agreements of agency for instance; insurance, broker, auctioneer, etc.
Since almost all commercial activities in the world are conducted by the agency, it is critical to understand the regulations surrounding the agency. All businesses, large and small, use agencies to carry out their tasks. As a result, legislation governing agencies are an essential part of business practice. Indian laws on the agency may be a little older but the Indian Contract Act covers every aspect of it. The regulations dating to the colonial period still in place tells a lot about the efficiency of the provision of the agency in the country.
Vishal Patidar is a first-year law student at Narsee Monjee Institute of Management Studies (NMIMS) Navi Mumbai campus, currently pursuing a BA.LL. B (Hons).