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KEY TAKEAWAYS

  • The legislation that governs contracts in India is the Indian Contract Act of 1872. It came into effect in the year 1872.
  • Chapter X of the Indian Contract Act of 1872 provisions relating to the Relationship of an agent and the principal.
  • According to Section 182 of the aforementioned Act, an agent is a person hired to act on behalf of a person, especially the principal, and to represent him in dealings with third parties.

INTRODUCTION

Agency is described as a connection in which one party, the principal, delegates certain authority to another party, the agent, to represent him or act on his behalf in dealing with a third party in order to create a legally binding relationship between the former and the latter. Their relationship is founded on the Latin phrase "Qui Facit via alium facit per se," which means "he who acts through another is recognized in law to act himself."

DIFFERENT KINDS OF AGENCY

Depending upon the authority provided to the agent, the Agency can of the following kinds:

Auctioneers– An auctioneer is a mercantile agent within the meaning of Section 2(9) of the Sale of Goods Act. He is primarily an agent whose job is to sell goods and other property by auction, i.e., by open sale. He is only permitted to sell the items vested in him and is not authorized to offer guarantees on behalf of the seller unless specifically approved by his principal.

Factors - A factor is a commercial agent who is entrusted with the possession of commodities for the purpose of sale. According to Section 171 of the Contract Act, a factor has a right of general lien on the goods belonging to his principal, which are in his possession, for the general balance of the account.

Brokers - A broker is a person who has the right to negotiate the sale or purchase of products on behalf of his principal in contrast to a factor, he does not own any items. He only makes the two parties engage in a contract. He gets his compensation anytime any deal materializes through his efforts.

Del Credere Agents – These are commercial agents who, in exchange for an additional commission guarantee the fulfillment of the contract by an obligation like that of a surety, and such obligation arises if the third party fails to pay to the principal.

FEATURES OF A CONTRACT OF AGENCY

Section 183: The principal should be competent to contract

Section 183 states that any individual who has reached the age of majority and is of sound mind may designate an agent. In other words, any person who is legally capable of contracting can designate an agent. Minors and persons of unsound minds cannot select an agent.

As per Section 11 of the Indian Contract Act, 1872, the precondition of a valid contract is the competency of the parties to the contract. Because the agent in an agency creates a contractual connection between his principle and the third party, both the principal and the third party must be competent to contract.

The court, in Syed Abdul Khader vs. Rami Reddy [AIR 1979 SC 553], found that the connection of agency occurs anytime one person called the agent has permission to act on behalf of another person, called the principal, and the latter consents to do so. The contract contains the genes for the partnership.

Although a juvenile cannot appoint an agent for himself, there is nothing in Section 183 that prevents a minor's guardian from appointing an agent on his behalf.

Section 184: The agent may not be competent to contract

In terms of the agent's ability to bind both the principal and a third party, anybody can become an agent. It means that even if an agent is a minor or otherwise unfit to contract, he can create a legitimate contract between his principal and a third party. In this case, the agent serves merely as a conduit between the principal and the third party.

The capacity of the agent to bind himself by a contract between himself and his principle - It is not required for the agent to be competent to contract in order to commit himself to the principal. However, in such instances, the agent is not liable to the principal for his actions.

Section 185: No consideration is not necessary to be an agent

The law does not need any such factor for the legitimacy of an agency contract. The principal agrees to be bound by the acts performed on his behalf by the agent, which serves as sufficient damage to the principal.

In general, an agent gets paid a commission for services done, but no payment is required at the time of his engagement. For example, when a person committed to becoming an agent for the sale of land of Mr. A, the person is not compensated at the time of his appointment. He is only compensated when the appointment's purpose has been met. However, just providing gratis employment or power does not obligate the agent to do anything.

Responsibilities of an Agent

  • According to the Latin maxim, 'Delegatus non-potest delegare,' it is the agent's duty not to delegate his authority unless and until it is necessary according to the custom of trade, business, or when the act does not require personal skill or the principal expressly or implicitly agrees to the appointment of sub-agent.
  • Section 195 requires the agent to use his judgment in appointing a replacement agent for the principal.
  • According to Section 214, it is the agent's responsibility to exercise all reasonable effort in communicating with the principal and obtaining his instructions.
  • According to Sections 215 and 216, it is the Agent’s responsibility not to trade on his behalf without the authorization of the principal. Further, he has a duty not to conceal and disclose material facts from the principal.
  • It is the agent's responsibility to pay any payments received on behalf of the principal. (Section 218)

Liability of Agent

  • Every agent is answerable for his sub-agent's actions or wrongdoings (Section 192 and 193).
  • As previously stated, it is the responsibility of the agent to keep the principal's account up to date. He is accountable for any misappropriation or damage caused by acting contrary to instructions. (Section 211)
  • An agent is liable for loss caused by negligence, lack of expertise, or malfeasance. (Section 212)
  • Agents are liable for fraud committed by them. (Section 238)

Obligations and Duties of Principal

  • Section 217 requires that the agent could retain the money due to himself out of the sums received on account of the principal in the business of the agency. Such retainer could be in respect of advance made or expenses incurred by the agent in conducting the business of his principal.
  • Sections 222 and 223 require the principle to compensate the agent against third parties for any allowed lawful activities performed by him in the course of business on behalf of the principal. If this is not done, the principal will be held accountable.
  • Section 224 explicitly specifies that when an agent commits a tort on behalf of the principle in the course of business, a principal is not liable for indemnifying for illegal conduct perpetrated by his agent.
  • Section 225 states that it is the principal's responsibility to pay the agent for any harm caused by the principal's negligence or lack of expertise. In case of failure to do so, the principal will be held accountable.

CONCLUSION

The Contracting agency is critical in the delegation of authority from the principal to the agent. Chapter X of the Indian Contract Act, 1872 details the numerous complexities of the contract of agency, including the rights, obligations, and liabilities of the third party, the principal, and the agent. Furthermore, this chapter describes the various methods for the principal and agent to revoke the contract of the agency.


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