Contract of agency:

For smooth running of the business, the businessman has to depend upon the
services of some other persons. Such other persons who work for and on behalf of
another person are called agents. The person on whose behalf the agent acts is
called principal. The contract which creates such a relationship is called a
contract of agency.

Definition
Section 182 of the Indian Contract Act, 1872 defines an agent as “an agent is a
person employed to do any act for another or to represent another in dealing with
third person. The person for whom such an act is done or who is so represented is
called 'principal’.
The contract of agency may also be defined as “the relationship between an agent
and his principal created by an express or implied agreement.
The function of an agent is to bring his principal into contractual relation with third
parties.
Example: A appointed B to purchase 1000 bags of sugar on his behalf from T for
Rs 280000 and agreed to pay him Rs 15000 as commission. In the case A is the
principal and B is his agent and the relationship between A and B is a contract of
agency.
Essentials of contract of agency:
1. An agent is only a connecting link between his principal and third parties
2. There must be an agreement between the principal and the agent which may
be express or implied
3. An agent must do only the acts which are authorized to do by the principal
4. An agency can be created only for those acts which can be delegated by one
person to another
5. An agent can perform only lawful acts on behalf of principal
6. No consideration is needed for contract of agency
7. Principal must be a competent person. If a principal is not competent, the
agent only will be held responsible for the contract.
Creation of an agency:
1. Agency may be express agreement:
A contract of agency may be created by express words spoken or written. A written
agreement is the power of attorney executed on a stamp paper in favour of an
agent.
2. Agency by implied agreement:
Implied agency arises from the conduct, situation or a relationship of parties.
Implied agency may take the following forms:
1. Agency by estoppel:
When a person by his conduct or nature or words spoken or written makes another
person believe that a certain person is his agent, then he is estopped from denying
it.
2. Agency by holding out:
It is part of an agency by estoppel. Here positive or affirmative act or conduct on
the part of principal is necessary to establish agency relation subsequently.
3. Agency by necessity:
Generally the principal gives authority to the agent to act for him. But in certain
extraordinary circumstances, law gives an authority to a person to act as an agent
though he is not appointed as an agent by the principal. Such kind of agency is
called agency by necessity
3. Agency by the operation of law:
Agency is created not by the men but by the operation of law like a partner in a
partnership firm or a promoter of a new company etc.,
4. Agency by ratification:
It means subsequent acceptance of the act done by the agent without authority. If
an agent without being asked does some work for his principal and if such work is
subsequently approved by the principal it is called agency by ratification.

Classification of agents are kinds of agents:

1. On the basis of authority:
1.General agent:
He is a person who has authority to do all acts of the principal related to a
particular trade or business.
2. Special agent:
He is appointed for a particular purpose. He has a limited authority which comes to
an end soon after performing the special task.
3. Universal agent:
He has authority to transact all the business of his principal. His authority to act for
principal is unlimited.
2. Classification on the basis of nature of work performed:
1. Mercantile agent:
He is one who is authorised to buy or sell or consign the goods or to raise money
on the security of goods.
Mercantile agent maybe:
1. Factor;
Factor is a kind of mercantile agent who is given the position of the goods for sale.
He has authority to sell the goods in his own name, enter into a contract with a
third party.
2. Broker:
Broker is an agent appointed to buy or sell goods in the name of the principal. He
cannot do the business in his own name and he is not given position or custody of
the goods for sale.
3. Commission agent:
Commission agent is just like a factor that may or may not be given the position of
the goods. He is appointed to buy or sell goods on behalf of the principal and is
entitled to receive commission.
4. Del credere agent:
He is one who gives guarantee of making the payment to the principal even if
customers fail to make payment. He is both an agent and guarantor.
2. Non mercantile agent:
He may not deal with the goods. They are more concerned with services and
include advocates, insurance agents, solicitors, guardians etc.,

*Sub agent:
Sub agent is the agent of the original agent. He is employed by and acting under
the control of the original agent. Sub agent is an agents agent.
*Substitute agent:
A Substitute agent is named by the agent who works for the principal. He works as
per the instructions of the principal. He is the principal's agent.

Rights of an agent:
1. Right to receive remuneration:
An agent has every right to get his remuneration in the form of commission for the
work which is assigned to him by the principal.
2. Right to retain money due to principal:
An agent has the right to retain the money belonging to his principal until the
remuneration earned by him and expenses made by him in the course of agency are
paid to him.
3. Right to lien:
Right to lien is the right of a person to detain the property belonging to another
until some amount due to him is paid by the latter. An agent can also retain the
goods and other movable property belonging to the principal until the amount due
to him in the form of commission and expenses in respect of contract of agency has
been paid to him.
4. Right of indemnification:
He can recover all the expenses met by him in the course of agency from his
principal. This is called right of indemnification
5. Right to do lawful act:
An agent having the authority to do an act has the authority to do every lawful
thing which is necessary in order to do such an act.
6. Right of compensation;
An agent has the right to be compensated for injuries sustained by him due to the
principal's negligence in the contract of the agency.
7. Right in times of emergency:
An agent has authority in an emergency to do all such as for the purpose of
protecting his principal from loss.
8. Right of stoppage of goods in transit:
An agent has the right to stop the goods while having delivered and get back the
position of the same under two circumstances:
1. Right when the third party becomes insolvent
2. Right when the principal becomes insolvent

Duties of an agent:
1. Duty to carry out the work as per the instructions of the principal:
An agent should do his work strictly in accordance with instructions given to him
by the principal.
2. Duty to carry out the work with reasonable care,diligence and skill:
Every agent must perform his duties taking utmost care and skill.
3. Duty to render accounts to the principal:
It is the duty of an agent to keep true and correct accounts of the transactions
carried on by him.
4. Duty to get directions of principal:
In case of difficulty or emergency, agents should use all reasonable diligence in
communicating with his principal and in seeking his instructions.
5. Not to deal on his own account:
An agent must conduct his business of agency in absolute good faith.
6. Duty to pay the amount received for principal:
An agent should pay to his principal all money received on his behalf.
7. Not to make secret profits:
If an agent makes any secret profit or receives any bribe from a third party while
working as an agent, he will have to inform the principal about the same
8. Not to set up an adverse title:
The agent must not set up his own title of the goods received from the principal.
9. Not too leak out any confidential information:
An agent may have some important confidential information given by his principal
which he should not disclose to others.
10.Not to use the information received in the course of agency against
principal:
Agents should not use valuable information against the interest of the principal
under any circumstance.
11.To protect the interest of principal in case of his death or insolvency:
When the agency is terminated due to the death or insolvency of the principal, the
agent is bound to protect and preserve the interest of the principal. He should not
dupe the legal representative of the deceased or insolvent partner.
12.Not to put himself in a position where his interest and duty conflicts;
He should always act in the best interest of the principal.
13.Not to delegate the authority:
He must not delegate the work assigned to him by his principal. It is the duty of an
agent to do his duty personally

Liabilities of an agent:
An agent does not incur any liability in a contract of agency since he is only a
connecting link between his principal and third party.
In the following cases an agent is personally responsible:
1. When the contract expressly provided:
When a contract of agency expressly provides that an agent could be held liable for
the contract executed by his principal, an agent will be held liable to the third party
for all the acts of the principal.
2. When an agent acts for a foreign principal;
When a contract is made by an agent for the sale or purchase of goods for a
principal residing in a foreign country, the agent is personally liable for all the third
parties who deal with such agent on behalf of foreign principal.
3. When an Agent acts for an undisclosed principal:
Where an agent acts for an undisclosed principal, the agent is personally liable.
4. When an agent acts for an incompetent principal;
Where the principal is incapable of entering into a contract like a minor, insolvent
or lunatic, the agent is personally liable.
5. When an agent signs contract in his own name:
If an agent signs a contract in his own name he is personally liable.
6. Where an agent acts for a principal not in existence:
The promoter of a company which is yet to be registered, acts as the agents for a
company. In such cases, promoters are held to have contracted on their account and
are personally liable.
7. Where an agent receives or pays money by mistake or fraud:
Where an agent receives money from another party by mistake or fraud, the agent
is liable to third parties.

Termination of agency:
A contract of agency between a principal and agent comes to an end at the
following circumstances:
1. Termination of agency by the act of parties:
The parties in a contract of agency may take a decision to wind up the dealings
between them. Done in one of the following ways
1. By agreement:
The contractual relationship of principal and agent may be terminated at anytime at
any stage by mutual agreement.
 2. Revocation by the principal:
Principal has a right to cancel his contract with the agent in case the agent is
negligent in the performance of his duties or tends to be dishonest
3. Revocation by the agent:
It can also be revoked by the agent if he is not willing to continue with the contract
of the agency.
2. Termination of agency by the operation of law:
Law puts an end to the contract of agency in following cases:
1. By performance of the contract:
When an agent does his duty as per the terms and conditions of the contract, the
agency comes to an end.
2. Expiry of time:
When an agent is appointed for a fixed period of time, the agency gets
automatically terminated on the expiry of that period even if the assignment given
to the agent by the principal is not completed by him.
3. Death or insanity:
Death or insanity of either principal or agent puts an end to the contract of agency
4. Insolvency:
Insolvency of a principal terminates contract of agency
5. Destruction of the subject matter;
An agency which is created to deal in certain subject matter like motor car, truck,
cow etc., the agency will be terminated when there is destruction of the subject
matter.
6. Principal becoming an alien enemy:
If a war breaks out between the countries of an agent and principal, the contract of
agency is terminated.
7. Liquidation of a company:
When a company, whether principal or agent, is liquidated the contract of agency
automatically comes to an end.
8. Termination of sub agents authority:
The termination of an agent's authority puts an end to the sub agents authority
provided, the agent has appointed the sub agent with the prior permission from the
principal.
Duties of principal:
→ Duties of principal are the rights of agents
1. Duty to indemnify the agent
2. Duty to indemnify the agent against consequences of the act done in good
faith
3. Duty in respect of criminal act
→ Principal is not liable for any criminal act done by his agent
4. Duty to indemnify the Loss caused due to the negligence of principal
5. Duty to pay remuneration

Rights of the principal:

→ Rights of the principal are the duties of the agents
1. right to enforce all the duties of agent
2. right to recover damage if any caused by agent
3. right to demand on account of secret profit made by the agent
4. right to revoke the authority given to agent
5. right to get compensation for loss suffered due to negligence of the agent.