LAW OF AGENCY UNDER INDIAN CONTRACT ACT

Author: R. Rebecca Vasanthini Percy (school of Excellence in law, Chennai)


INTRODUCTION:

The abstraction of principal and agent existed from time immemorial. In olden days when the king is on his leave or if he is indisposed he leaves his secretaries to act on behalf of him and also gives them his signet ring to approve certain matters if he tells his secretaries to do. This practice gradually was followed by certain affluent people too. When these wealthy people had to travel far and carry on their business in various other places they used to nominate certain people as agents to look over their business, trade or activity on their behalf in an express place and the owners go about exploring various countries to set up their business activities. Till date, the concept of principal and agent relationship is followed.

The principal-agent relationship is a marshaling in which one entity legally appoints another to act on account of the principal and should not have a conflict of interest in carrying out the act. The interconnection between the principal and agent is called the “agency[1]”.

The agency relationships are fiduciary in description (i.e,) a lot of trust and confidence is needed. The agent is obliged to act according to the wishes of his principal when the principal is not within an easy reach. Agency can be either express or implied. Without the assistance of an agency, all business transactions worldwide will be so fatal because the principal or the owner cannot be present in various countries to carry on his business transactions.


EVOLUTION OF THE LAW OF AGENCY:

The concept of agency can be traced back to the 12th century when the slave and slave owner’s relationship existed. The slaves did not have any right and they should heed what their masters command. This lead to the slave owners to be legally liable for what their slaves did. This concept of slave and owner surfaced the way for representation. The concept of principal and agent also commenced during this time.

The principal-agent relationship made headway around the end of the 12th century but the rules and the significance of an agent can be trailed only during the 19th century. Agency was not a part of the common law until the 13th century. It was introduced later on. The principle composed in the common law countries was the theory of agency and the principal was having a direct contractual relation with third parties. The development of such principles made the principal liable to third parties.

The buildout of such principles emerged from the case of Costace V. Forteye[2]. Under this particular case, a London merchant’s attorney and an apprentice approached a French merchant to buy wine for his master (Fortenye). He couldn’t pay the full payment to the seller and so he was imprisoned. The agent contended before the court stating that it was on behalf of his master that he went to buy wine and the amount of bargain was approved by his master. The Mayor then ordered the master (defendant) to satisfy the full payment to the French seller and set the plaintiff free from prison. The decision of the Mayor was based on the ground that the apprentice bought for the use and benefit of the master and the act happened during the course of the business for which he was held liable.

During the 17th and 18th centuries, two types of agents evolved in Europe by the ascendancy of mercantile law. Brokers and factors were those two agents. The concept of agency evolved even in the civil law legal system during the 15th and 16th centuries. During the Roman period, the principal started to become blameworthy for the acts of the servants or his agents during the course of the business.

LAW OF AGENCY UNDER INDIAN CONTRACT ACT:

Section 182 of the Indian Contract Act, 1872 deals with agents. It defines agents, “as a person employed to do any act for another or to represent another in dealings with third persons[3]”. There are various types of agents present under contracts in India. Some of them are,

1. The special agent who is appointed to do a particular thing in a specific act.

2. A broker whose job is to create a contractual relationship between two parties.

3. General agent who is appointed to do all work in a particular specified act.

4. Sub-agent who is appointed by an agent.

5. Co agents who are appointed to do an act jointly.

6. Factor who is reimbursed for his work by giving commission.

7. The auctioneer acts as a seller for the principal in action.

8. Commission agent who is appointed to buy and sell goods.

9. Del Credere is a person who acts as a salesman, broker, and guarantor for the principal.

One famous case law for understanding the concept of agency is broached in the case of “Chairman L.I.C V. Rajiv Kumar Bhaskar[4]. In this case, the employer was to deduct the salary of the employee and deposit it with L.I.C. according to the L.I.C. salary saving scheme. When the employee died his heirs came to find out that the employer has defaulted in payment causing the policy to lapse. The L.I.C had relied on a clause in the acceptance letter which stated that the employer did not act as an agent of L.I.C whereas he was an agent of his employees. The court held that the employer was acting as the agent of L.I.C and thereby made them be responsible for his fault.

When can an agent be terminated:

An agent can be terminated on the following grounds namely;

1. When the principal revokes the agent's authority.

2. When the business of an agency is renounced by an agent.

3. When the business of an agency is completed.

4. When the principal is termed as an insolvent.

5. When the agent dies.

6. When the agent becomes mentally disabled.

Duty of an agent towards his principal:

1. An agent must follow the directions and the instructions of his principal.

2. He must carry on his responsibilities with the utmost skill as to how a principal carries on his business.

3. The accounts must be exposed to the principal when he demands it.

4. Any difficulty in carrying on the business must be intimated to his principal.

5. He must carry on the duty with tact and due diligence.

6. The principal can claim any benefit from his agent if he does not follow his instruction and do the business in his own manner.

Rights of an agent:

1. Right to compensation

2. Right to remuneration

3. Right to be indemnified

4. Right of retainer

5. Right of lien over the principal’s property

CONCLUSION:

The inter-relation between a principal and an agent is very common in the business field. When an owner of a business or any other establishment delegates his work or authority to a person who is trustworthy the concept of agency comes into force. Thus without an agent 3/4th of the business will not happen as they are the backbone for various transactions and business-related matters.

[1] www.investopedia.com, updated July 14, 2019, by James Chen. [2] William Holdsworth/sir/A History of English Law, vol 8, 1966, pp223. [3] Document Id:911000 trans – lex.org. [4] 2003 ACJ 86.

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