authority of an agent: prescription and prohibition

INTRODUCTION

Who is an Agent?

In Section 182 of the Indian Contract Act of 1872, a ‘Agent’ is defined as a person hired to perform any act for another or to represent another in dealings with third parties.

Who is a Principal?

The person for whom such an act is performed, or who is so represented, is referred to as the “principal” in Section 182. As a result, the principal will be the one who has delegated his authority.

A legal relationship exists between two people under agency contracts, when one person acts on behalf of the other. The principle-agent relationship is defined by the fact that the principal is too busy to perform various tasks, thus he hires an agent to do so on his behalf. The principle “qui facit per alium facit per se” underpins this relationship. An agency can be formed by the principal’s direct or implicit assent, action, necessity, or ratification of the agent’s act. Agents and servants, agents and sub-agents, and sub-agents and replaced agents are all defined in the paper.

Creation of Agency

An agency can be created by:

Direct (express) appointment– Direct appointment is the most common method of forming an agency. When a person selects another person as his agent in writing or voice, an agency is formed between the two.

Implication– An agency is created by implication when an agent is not formally appointed but his appointment can be inferred from the circumstances.

Necessity– In a situation of necessity, one person can act on behalf of another to save the person from any loss or damage, without expressly being appointed as an agent. This creates an agency out of necessity.

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.

Ratification– When a person acts as another person’s agent (on his behalf) without that person’s awareness, that person then ratifies the act, it forms an agency between the two.

Types of Agents

  1. Special Agent: An agent assigned to do a single, specific task.
  2. General Agent- An agent who is assigned to perform all tasks related to a specific profession.
  3. Sub-Agent—An agent who has been appointed by another agent.
  4. Co-Agent: A group of agents who have been assigned to perform a task together.
  5. Factor- An agent who is paid on a commission basis (one who looks like the apparent owner of the things concerned)Broker- An agent whose job is to create a contractual relationship between two parties.
  6. Auctioneer- An agent who serves as a seller in an auction on behalf of the Principal.
  7. Commission Agent- A person hired to acquire and sell items on behalf of his principal (make the best purchase).
  8.  Del Credere- An agent who represents the Principal as a salesperson, broker, and guarantor. He backs up the credit given to the customer.

Authority of an Agent

Authority of an agent can be both express or implied.

Express Authority-

According to Section 187, the authority is said to be express when it is given by words spoken or written.

Implied Authority-

Authority is said to be implied when it can be inferred from the facts and circumstances of the case, according to Section 187. The agent can take any legal action in carrying out the Principal’s work. That is, the agent has complete legal authority to carry out the Principal’s duties.

Implied authority is of four main types

  1.  Incidental authority- doing something unrelated to the proper execution of express authority.
  2. Usual authority- performing something that is normally done by others in the same position.
  3. Customary authority- acting in accordance with the pre-established customs of the location where the agent is acting.
  4. Circumstantial authority- doing something in response to the situation’s circumstances.

Illustration

  • Rohit lives in Mumbai but owns a shop in Bihar. Jane is the person in charge of his store. Jane is in charge of the shop’s transactions and, with Rohit’s knowledge, buys products from a man named Ram. Jane has implicit authority from Rohit to purchase these items in this circumstance.
  • Abhinav hired Ayush, a shipbuilder, to construct ships for him. As a result, Ayush will be able to legally purchase all of the materials required to construct the ships.

Chairman L.I.C v. Rajiv Kumar Bhaskar

In this case, the employer was required to deduct the premium from the employee’s salary and deposit it with L.I.C. under the salary saving programme. When the employee died, his heirs discovered that the employer had failed to do so, leading the policy to lapse. It was mentioned that a section in the acceptance letter stated that the employer would operate as the employee’s agent rather than L.I.C.’s. It was decided that the employer was operating as the company’s agent, rendering the company (L.I.C) liable as a Principal due to the Agent’s wrongdoing (the employer).

Agency between Husband and Wife

In general, there is no agency between a husband and wife unless it has been clearly or impliedly agreed that one of them will do particular acts or transactions as the other’s agent. That is, a connection of agency between the two can be established by contract, appointment, or ratification. When a husband’s fault causes them to live apart, he is liable for his wife’s need. This creates an agency of need, in which the wife can use her husband’s credit to pay for the things she needs to exist. However, if they are separated for no reason other than the wife’s whims or flaws, the husband is not responsible for the wife’s need.

Termination of Agency

An agency can be terminated or is terminated in 5 different ways:

1. When the Principal revokes the agent’s power.

2. When the agent renounces the agency’s business.

3. When the agency’s business is finished.

4. When one of the parties passes away or becomes mentally ill.

5. If the Principal is declared insolvent.

Revocation of Agent’s authority

  1. It can be revoked at any point prior to the authority being used.
  2. If the agency is required to continue for a particular period of time under the terms of the contract between the two, any prior revocation by the Principal must be reimbursed to the agent.
  3. Before the termination is conveyed to the agent, it does not take effect.
  4. When an agent’s power is revoked, all of his sub-agents’ authority is revoked as well.

Agent’s duties to Principal

An agent has 6 duties towards his Principal:

  1. He must carry out the Principal’s business in accordance with the Principal’s instructions.
  2. An agent is required to operate the business he is responsible for with the same level of skill as someone in a similar position.
  3. When the Principal requests it, an agent is required to show the appropriate accounts to the Principal.
  4. An agent has the duty to communicate any difficulty whatsoever he may come across while doing the Principal’s business. He is supposed to perform due diligence in this regard.
  5. If any material fact is withheld or the business is not carried out as directed by the Principal, the Principal has the right to terminate the contract.
  6. If the agent conducts the business in the manner in which he desires rather than according to the Principal’s instructions, the Principal may seek reimbursement from the agent for any benefits he may have reaped as a result of his actions.

Illustration

Himanshi tells Samira, her agent, to acquire a specific house on her behalf. Samira does not purchase the house and informs Himanshi that it is not for sale for a variety of reasons, but she does eventually purchase it. Himanshi has the legal right to purchase the house from Samira for the same sum she paid for it.

Principal’s duties to Agent

The Principal has 4 duties towards the Agent:

  1. The principal is obligated to indemnify the agent for any legitimate conduct performed by him while acting as an agent.
  2. The Principal is obligated to indemnify the agent for any act performed in good faith that results in a violation of third-party rights.
  3. If the authorised act is illegal in character, the Principal is not accountable to the agent. In addition, the agent will not be compensated for any criminal conduct.
  4. If the Principal injures his agent as a result of his own incompetence or lack of talent, he must compensate him.

CONCLUSION

In company law, contracts creating an agency relationship are fairly common. These can be explicit or oblique. When a person delegated his authority to another person, that is, appointed them to undertake a certain task or a group of jobs in a defined field of work, an agency is formed. The establishment of a Principal-Agent relationship gives both parties rights and responsibilities. Insurance agencies, advertising agencies, travel agencies, factors, brokers, and del credere agents are all examples of such a partnership.

BLIOGRAPHY

  1. https://indiankanoon.org/doc/243525/
  2. https://www.indiacode.nic.in/bitstream/123456789/2187/1/A1872-9.pdf
  3. Twelfth edition of “Contract Act and Specific Relief” by Avtar Singh

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