In India, the Contract of Agency is governed by the Indian Contract Act, 1872. An agency relationship is created when one party (the principal) appoints another party (the agent) to act on their behalf in a legal transaction with a third party. The Indian Contract Act lays down the rules regarding the relationship between the principal and the agent, and the rights and obligations of both parties. In this essay, we will discuss the contract of agency in Indian law in detail.
Definition of Agency:
Section 182 of the Indian Contract Act 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 act is done, or who is so represented, is called the principal.
Essentials of a Contract of Agency:
- Consent: There must be a valid agreement between the principal and the agent. Both parties must give their free consent to the agreement.
- Consideration: There must be some consideration for the agency relationship. Consideration can be in the form of payment or some other benefit that the principal gives to the agent.
- Capacity: The principal must have the capacity to enter into a contract of agency. The agent must also have the capacity to act on behalf of the principal.
- Object: The object of the agency must be legal. The agency relationship cannot be used to do anything illegal.
Types of Agents:
- Universal Agent: A universal agent is a person who is authorized to do all acts that can be legally done by the principal. The authority given to a universal agent is very broad.
- General Agent: A general agent is a person who is authorized to act on behalf of the principal in a particular area of business or for a particular purpose.
- Special Agent: A special agent is a person who is authorized to do only one specific act or a limited number of acts on behalf of the principal.
Creation of Agency:
Agency can be created in the following ways:
- Express Agency: An express agency is created when the principal and the agent enter into an agreement either orally or in writing. The terms of the agency must be clearly defined in the agreement.
- Implied Agency: An implied agency is created when the circumstances indicate that the parties intended to create an agency relationship. For example, if a person is given a power of attorney to manage the affairs of another person, an implied agency relationship is created.
- Agency by Estoppel: An agency by estoppel is created when the principal creates an impression that a person is his agent, and a third party relies on that impression to his detriment. In such cases, the principal is estopped from denying the agency relationship.
Rights and Duties of an Agent:
- Duty to follow instructions: An agent must follow the instructions of the principal. If the agent acts outside the scope of his authority, he will be personally liable for any losses that may result.
- Duty of care: An agent must exercise reasonable care and skill in carrying out his duties. If the agent is negligent in the performance of his duties, he may be held liable for any losses that may result.
- Duty to account: An agent must keep accurate accounts of all transactions he undertakes on behalf of the principal. The agent must also be ready to give an account of his actions whenever required by the principal.
- Right to remuneration: An agent has the right to receive remuneration for his services unless he has agreed to act without remuneration.
- Right to indemnity: An agent has the right to be indemnified by the principal for all expenses incurred by him in the performance of his duties.
Rights and Duties of a Principal:
- Duty to compensate: The principal must compensate the agent for his services unless they have agreed to act without remuneration.
- Duty to indemnify: The principal must indemnify the agent for any expenses incurred by him in the performance of his duties.
- Duty to cooperate: The principal must cooperate with the agent in the performance of his duties.
- Right to revoke authority: The principal has the right to revoke the agent’s authority at any time unless a specific agreement is made otherwise.
- Duty to give notice: The principal must give notice to third parties of the termination of the agency relationship to avoid any confusion.
Termination of Agency:
An agency relationship can be terminated in the following ways:
- By mutual agreement: The agency relationship can be terminated by mutual agreement between the principal and the agent.
- By completion of the task: The agency relationship can be terminated when the agent has completed the task for which he was appointed.
- By revocation: The principal has the right to revoke the agent’s authority at any time.
- By renunciation: The agent can renounce his authority if he chooses to do so.
- By death or insanity: The agency relationship is terminated if either the principal or the agent dies or becomes insane.
The contract of agency plays an important role in commercial transactions in India. The Indian Contract Act lays down the rules regarding the relationship between the principal and the agent, and the rights and obligations of both parties. It is essential for both parties to understand their roles and responsibilities in the agency relationship to avoid any disputes. The termination of the agency relationship must be done in accordance with the law to ensure a smooth transition. The agency relationship is beneficial for both parties as it allows the principal to delegate certain tasks and responsibilities to the agent while allowing the agent to earn a livelihood.