“An agent is a person who agrees to work on behalf of another person who is known as principal” Explain the various legal aspects of a principle &Agent under the contract law of 1872”
1. Introduction
As a dweller of global village we are connected to the other part of the world. Our volume of work and range of work has increased by significant amount. For this reason at any point in time of present and in past, it is difficult to do run business or any another work by one person or by attending physically. Therefore the concept of agency is developed as one man cannot possibly every type of transaction himself. This is not a new phenomenon. Under this stressful circumstance a fully authorized person is employed by the owner or principal. Through this way a relationship is develop, which is known as agency relationship. This relationship is governed and legalized agency act in contract law 1872. This act protects both of the parties who are engaged in agency relationship through a contract. So that we can say agency relationship is contractual one which is governed by Indian Contract Act 1872.
Agency is relationship between principal-agent. It is a relationship of a person who has legal authority to act for another. Hence he should have opportunity to transact business through another agent. The Principal of contract of agency are – A) Expecting matters of personal nature, what a person can do him, he can also do it through agent B) A person acting through an agent is acting himself, i.e. act of agent is act of Principal.
2. AGENT
An agent is a person who agrees to work on behalf of another person who is known as principal. Agent can only work on behalf of principal on certain issues. An agent is person employed to do any act for another or to represent another in dealings with third party[1]. An agent engaged with the principal to perform principal’s job, such as- selling goods, to manage business or to deal with third party. The principal expressly or impliedly authorizes the agent to work under his or her control or on behalf. An agent acts within the scope of authority which is delegated by the principal. Any person may become an agent[2]. If a principal appoint an agent who is minor or unsound mind can he undoubtedly bring a contract between principal and third party but liability must be taken by principal
3. Principal
The principal is somebody who agrees to employ somebody who can act on behalf of him in certain issues or help principal to get an agreement with third party. Principal instruct the agent whom he/ she appoint but principal cannot directly control or supervise the agent. A principal must have legal capacity (they are not insane or in certain circumstances a minor). “Any person any person who is at the age of majority according to the law to which he is subject and who is of sound mind may employ agent”.[3] Persons, Corporations, Partnerships, Not-for-profit organizations and government can all be principals and appoint agent.
4. Formation of agency
Agency is contractual relationship. There is an agreement between principal and agent. A person does not become an agent on behalf of another merely because he gives him advice in matters of business. Agency is founded on contract, either expresses or implied by which one party confides to the other the management of some business to be transacted in his name or on his account. The spirit of agency is that the principal give authority to the agent to represent him bringing or to aid in bringing, the principal into contractual relation with third party. An agency is the creation of contract entered into mutual consent between a principal and agent. By agency a principal grant authority to an agent to act on behalf and under the control of principal.to create an agency “no consideration is necessary”[4].An agent cannot draw any remuneration, is thus entitled to act on behalf of the as much as one who is paid. “The relation between a principal and an agent is fiduciary and agent action binds by the principal.”[5]
Ø Agency by Agreement
Ø Agency by Estoppel
Ø Agency by Necessity
Ø Agency by Ratification
v Agency by agreement
Agency by agreement is also known as agency by authority. This agreement can be expressed or implied. An authority is said to be express when it is given words spoken or written. An authority is said to imply when it is to be inferred from the circumstances of the case.[6] The actual authority depends on the construction of words of appointment.
This authority that an agent has to do everything that is necessary for or reasonably incidental to the effective execution of his duties as in Hely – Hutchinson v Brayhead[7].
v Agency by Estoppel
This arises when a principal is estopped from repudiating the liability or obligation incurred by his agent acting on his behalf .Indian Contract act lies down thus – “When an agent has, without his authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations if he has by his words or conduct induces such third persons to believe that such acts and obligations were within the scope of the agent’s authority.”[8] In leading case Soanes V L.S.W.R.[9], the plaintiff entrusted to a porter wearing the uniform of defendant Railway Company. The luggage was stolen .The Railway Company wanted to avoid liability for the loss on the ground that the porter was off duty. But it was held that the porter was held out by the Company as agent authorized to receive luggage and as such the company was bound by his acts.
Agency by estoppel arises in three ways[10]:
· A person may hold out another as his agent though that other is not has been his agent.
· A person may hold out another as his agent although that other has ceased to be so. Loder’s agent H used to sell tallow in the form “sold for L”. After some time H ceased to be L’s agent but L did not notify that to his customers. So when H contracted to sell tallow to the plaintiff, Loder was held liable for the contract. (Fruman V. Loder.)[11]
· A person may hold out his agent as having a wider authority than he was actually given. The manger of public house had the authority only to buy mineral and bottle beers but the managers bought some cigars though he had no authority to do so. The owners of the public house was held liable for the cigar as they by their conduct , held to that the manager had authority to do everything connected with the public house(Wattean V. Fenwick)[12]
v Agency by Necessity
An agency of necessity may arise if an agent is compelled by some emergency to exceed his authority due o protect his principal’s property. A parent is an agent of necessity to arrange and prepare a marriage settlement of an infant child. The child need not be separately represented by an independent legal advisor (Tucker V. Bennet)[13] another example can take into account. A seller of goods cannot deliver them due to their war conditions and sell them purporting to act as the original buyer’s agent of necessity ( Prager V. Blatspiel)[14],I.K.B.,566)
v Agency of ratification
This arises when one ratifies or adopts the acts of another done without his knowledge or authority but on his behalf. “Where acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority”.[15] When ratified the principal is bound by the act whether it be for his detriment or for his advantage. The operation of the doctrine is illustrated by Bolton Partners v Lambert.[16]Lambert made an offer to an agent of Bolton. The agent acted without authority and purported to accept the offer on Bolton’s behalf. Lambert then tried to revoke the offer but after this attempted revocation Bolton ratified his agent’s act. The court held Lambert was bound buy the contract, because Bolton’s ratification related back to the agent’s acceptance and therefore revocation was too late.
5. Dissolution of Agency
As contract of agency relationship is contractual one and very precisely it is general contract. Therefore an agency may terminate in the same way as a contract is discharged. But it is not apply for in unique case where the agency is irrevocable. In broad term an agency may terminated either by the act of parties or by the operation of law.
Indian contract act 1872, clearly mentioned different criteria to dissolve agency relationship. If a principal revoke the contract which has been signed between principal and agent must be terminated in accordance with the Indian contract act 1872. No exception can apply to terminate the contact. An agency is terminated by the principal revoking his authority; or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal adjudicated an insolvent under the provision of any Act for the time being in force for the relief of insolvent debtors.[17]
Termination of agency by the act parties in any of the following reasons:
ü By the act of parties
ü By the Operation of Law
By the act of parties:
· By revocation by the principal
Principal may revoke the agency at any point in time before the authority has been exercised and must be for just excuse. Revocation has however to be made subject to the following restriction. This restriction termed as irrevocable agency.
These are mentioned bellow:
· When the agent has an interest in the subject-matter of the contract, his authority cannot be revoked so as to prejudice that interest. Where the agent has himself an interest in the property, which forms the subject matter of the agency, the agency in the absence of an express contract, cannot be terminated to the prejudice of such interest.[18]
· If the agent partially exercised his authority, the principal cannot revoke the authority the acts what agent has already done. The principal cannot revoke the authority given to his agent after the agency has been partly exercised so far as regard such acts and obligations as rise from acts already done in the agency.[19]
· If there is any express or implied contract exist then agency should be continued for any period in time. If any kind of revocation or renunciation of agency takes place then principal or agent must be compensated. In Indian Contract act it is clearly stated that, where three is an express o implied contract that agency should be continued for any period of time, the principal must take compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency for the sufficient cause.[20]
· The agent renounces the business of agency
Reasonable notice of such renunciation must be given. Renunciation can be made only for a just cause. If the renunciation is unwarranted or otherwise amount to a breach of contract, the principal is entitled to compensation.
Operation of Law:
· By death or insanity of principal:
The relation between an agent and a principal is entirely personal. The general rule is that the death or insanity of either the principal or agent automatically and immediately terminates an ordinary agency relationship. Knowledge of the death or insanity is not required. For this reason death or insanity of either terminates the agency subjects to the provision of Sec 202 and 204 of contract law 1872. In case of company, its winding up and in case of a firm, its dissolution has same effect. Agent’s transactions that occur after the death of the principal are not binding on principal’s estate.
· The principal becoming an alien enemy:
If the principal and agent are from different countries and war breaks out between two countries, the contract of agency is terminated.
· By insolvency of the principal or agent:
A person who has been adjudged an insolvent cannot act as a principal because his contractual capacity has thereby lapsed. Hence all contracts of agency which he has made with others also are dissolved. Burt the insolvency of an agent does not terminate the agency.
· Efflux of time:
When the agency is for fixed period of time, it terminates on the expiry of that time. In any agency agreement there is clearly demarcation of time. How long the relationship exists is specify in agreement. If so, agency ends when time expires.
6. Termination of agency contract and effect of recession
It is clearly stated the reasons of dissolution of agency relationship between agent and principal based on expressed or implied contract in previous discussion. No exception will effect to terminate the contract in accordance with the line of Indian Contract Act 1872. If any principal revoke the contract without knowledge of agent it cannot affect the relationship .if we examine all of the sections related to agency relationship we come out with that notion that agency relationship only terminate by two broad ways.
One is by act of parties and another is by the operation of law.
Under the act of party, principal can revoke the agency contract before agent exercise his or her authority. The revocation must be supported by the just and sufficient cause otherwise agent must be compensated.[21] On the other hand before revoke the relationship reasonable notice must be given. If it is not the resulting damage must be -made good to the one by the other.[22] If the principal fails to provide a reasonable notice to the Agent before the revocation of the agency, the principal is liable to pay damages of the Agent for the loss incurred by the Agent due to such termination.
Along with this, operation of law can be the reasons of termination of agency relationship. Death or insanity, efflux of time, insolvency of principal and if principal becoming an alien enemy. Above mentioned reasons are clearly indicating that no principal can terminate the relationship without the knowledge of agent.
According to the, Indian contract Law 1872, revocation of authority cannot be affected before it’s known to agent and also to the third party.[23] An agent can demand his damage for termination of contract but prior to do this he need to “rescind the contract”[24] in right manner.[25]
So we can draw line from above discussion that a principal cannot terminate the relationship without the knowledge of an agent which is mentioned in contract act 1872 sec 208 and dissolution of agency relationship guided a principal to terminate the relationship. But if any principal terminate the relationship without the knowledge of agent it can be effective after the rescission of contract and agent will be compensated after rightful rescission of contract.
7. Conclusion
A principal cannot terminate the relationship at his whim. The relationship is entirely contractual one so it is govern by the Contract Act 1872. But in any case, if principal terminate the relationship then agent can demand compensation and prior to do this agent need to rescind the contract.
When Sound agency relation is very important for running the work of principal. Any distortion may hamper the spirit of agreement between two respective parties. No parties can take benefit from the agreement if they do not move along with the Contract Law 1872. Indian Contract Act-1872 play as pivotal instrument to make the agreement of agency relationship. In contract act, it is clearly mentioned the reason of formation and dissolution. Eventually, it can be concluded by saying that both parties should follow Contract Act-1872 as their safe guard.
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[1] Indian Contract Act, 1872 sec-182
[2] Indian Contract Act,1872 sec-184
[3] Indian Contract Act ,1872 sec-183
[4] Indian Contract Act,1872,sec-185
[5] Andrews V Schram,562N.W.2d50 (Neb1997)
[6] Indian Contract Act 1872 sec187
[7] Hely- Hutchison v Brayhead (1968) 1 Q.B. 549, per Denning
[8] Indian Contract Act 1872 sec 237
[9] Soanes v L.S.W.R. (88,L.T.K.B.’524)
[10] Principles of Commercial Law, by Prof. Mafizul Islam pg-77
[11] Fruman V.Loder(11A & E,589)
[12] Wattean V. Fenwick(I.O.B.,349)
[13] Tucker V Bennet.38 Ch.1.
[14] Prger V. Blastpiel(,I.K.B.,566)
[15] Indian contract act 1872 sec187
[16] Bolton partners v Lambert (1889) 41Ch D 295 , 302
[17] Indian contract Act 1872 sec201
[18] Indian contract Act 1872, sec202
[19] Indian contract Act 1872, sec204
[20] Indian contract Act 1872,sec205
[21] Where there is an expressed or implied contract that the agency should be continued for any period of time ,the principal must make compensation to the agent or to the agent to the principal , as the case may be, for any previous revocation or renunciation of the agency without sufficient cause.-Indian contract act 1872,sec205
[22] Reasonable notice must be given of such revocation or renunciation; otherwise the damage thereby resulting or the principal or the agent, as the case may be, must be good to the one by other.—Indian Contract Act1872sec206
[23] The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes known to him ,or so far as regards third persons ,before it becomes known to them.-Indian Contract Act 1872,sec208
[24] The termination of contract unilaterally by a party for substantive legal reasons, such as the failure of the other party to perform its obligations; with the result that both parties are resorted to the status quo ante; a remedy that one may seek in the court of equity that results In a termination of the contract as though it had never exist.
[25] A person who rightfully rescinds a contract is entitled to consideration for any damage which he has sustained through the no fulfillment of the contract. Indian Contract Act-1872, sec-75