In India, the relationship between Agent and principal is primarily contractual in nature and is governed by the terms of contract entered into between them”-Discuss
This question has basically two parts. The first or foremost part of the question derives from the statutory base of the “Law of Agency”. In chapter X of Indian Contract Act 1872 quote that “ In India, the relationship between Agent and principal is primarily contractual in nature and is governed by the terms of contract entered into between them (agency contract)“ This statement assures us that the relationship between an agent and principal is a contractual one.
We would examine this essay in two parts; firstly, the nature of the relationship or contract between the principal and an agent according to law of agency. Secondly, the reasons or methods of termination of such relationship and its validity in case of lack of knowledge of the agent after the recession of contract.
2. THE KEY CONCEPT OF AGENT & PRINCIPAL RELATIONSHIP
· Agent is a person who works for another person, party, organization etc. According to Indian contract Act 1872- “An `Agent’ is a person employed to do any act for another or to represent another in dealings with third persons.”-Sec.182.
· An agent exercises his authority in accordance with the principal’s instructions; but he is not subject to the principal’s direct control or supervision.
· An agent is appointed and employed to bring the principal into contractual relationship with third parties
· An agent can bind the principal to the third parties
· The mode of remuneration of an agent may vary, including a commission on the basis of the work done. A servant is generally paid through wages
· An agent is liable for wrong done within the scope of his authority
· An agent may work for several principals
- b. Principal
· For whom agent is employed to do any sort of communication and dealing act to the third party is the principal; according to section 182
· Any person of sound mind and age of majority can employ an agent; according to section 183
· Again a guardian of a minor (insane, mental disorder, death etc) can appoint an agent to minor principals; who has legal capacity, non-profit organizations, partnerships, corporations and government agencies.
· According to Bowstead agency is “the relationship that exists between two persons, one of whom expressly consents that the other should impliedly act on his behalf.” According to Cheshire & Fifoot “Agency is the relationship that arises when one man is appointed to act as the representative of another.”
· If a person, by his acts can create a contractual relationship between a principal and the third party to bind the relationship of principal, only then the relationship of agency exists; according to section 185
· No consideration is necessary to create an agency which is an exception to the general rule of section 25
3. General Principles of Agency:
Agency is governed by the general principles of the law of contract. The Agent establishes privity of contract between himself, his Principal and a third party. The result is:-
· An obligation between Principal and Agent, which in itself is a special kind of contract, under any agency contract.
· There sets no privity of contract between the agent and the third party. The agent steps aside and has no more to do with the principal contract.
4. Contract of Agency
· Only the principal and the agent to the agency contract and provide consideration.
· An agent exercises sales expertise on behalf of the principal in exchange for a commission.
· An agent is limited in what he is permitted to do by the scope of his authority.
· An agent negotiates the terms and conditions of sales and supply contracts.
5. Classification of agent
Agents can be classified of the basis of extent of authority and nature of work.
· On the basis of extent of authority agents can be four types–
· Universal Agent; someone appointed to handle all the affairs of his principal and such an agent has unlimited authority, in any capacity. It must be created by deed, ie a Power of Attorney. It may be used for example if a person is ill, or incapacitated.
· General Agent; a general agent has authority to represent his principal in all business of a certain kind, for example, the manager of a pub owned by a brewery is a general agent of the brewery. The agent binds his principal if he acts within his apparent authority.
· Special Agent; someone who has authority to act only on a particular occasion or for a particular purpose, eg signing a cheque on the principal’s account. A special agent can only bind his principal if he acts within the express instructions of the principal.
· Professional agents; such as solicitors, estate agents and auctioneers should be distinguished from agents at law.
· On the basis of nature of work, agent can be classified in two broad types–
· Mercantile Agent
· Broker: who makes a contract between a buyer and a seller by bringing them together, who has no lien on goods
· Factor: has general lien on goods
· Commission Agent: can act both like a broker and factor in return of commission
· Auctioneer: who sells goods by auction
· Del Credere agent: A del credere agent is one who guarantees to his principal that the third party will perform his contractual obligations to the principal. It gives guarantee for extra remuneration in case of the failure of the 3rd parties
· Banker: acts as the agent of a customer, when he collects cheque/drafts or buys& sells securities on behalf of his customer
· Insurance Agents
· Election Agents
6. The Formation of Agency
· By agreement: The Agent has types according to authority :
· Expressed authority: if the authority actually conferred on an agent by agreement, and the extent of the express actual authority will depend on the construction of the words of appointment. One exception is; the authority of an agent can execute a deed on behalf of the principal requires a power of attorney and must be in writing. Express authority arises from the express instructions given by the Principal. The only problem here is if the express instructions are ambiguous.
According to section 186&187- an agency can be created by express authority either spoke or written.
In Ireland v Livingstone an agent was authorised to buy 500 tons of sugar in Mauritius. Does it mean 500 tons exactly or to buy as close to 500 tons as possible? The court held that the agent acted bona fide in purchasing as near to 500 tons as possible and the principal couldn’t get rid of the contract.
· Implied authority: This is the authority that an agent has to do everything that is necessary for or reasonably incidental to the effective execution of his duties. Implied actual authority may be implied from the conduct of the parties or from their relationship. Express authority already exists but the agent may have implied authority to carry out those things normally incidental to the express instructions.
According to section 187, an implied agency can be understood by the conduct of behaviour of the two parties involved in a contract.
· Usual Authority: Those acts that are not within express or implied actual authority, but are within the class of acts usually associated with agents of that character. It is the authority to do whatever an agent of the type in question or employee in a particular post would usually have the authority to do.
In Watteau v Fenwick the court held that it was within the usual authority of the manager of a public house to buy cigars for resale to customers. The manager had been forbidden by the brewery from doing so, but since the seller was unaware of the restriction then usual authority applied.
In Panorama Ltd. v Furnishing Fabrics Ltd.the Secretary of Furnishing Fabrics Ltd in his capacity as company secretary hired some cars from Panorama Ltd. He had no Express Actual Authority to do that.
· Agency by Estopped
Slade J stated that “Apparent authority was really a form of estoppels”. The principal represents to the third party by words or conduct that the agent has authority, and so the principal is later estopped from denying that authority. This was defined in Hely-Hutchinson v Brayhead as ?the authority of an agent as it appears to others.
· Necessity: In a particular certain circumstances a person is bound to act on behalf of his principal, without his consent; such types of agents are called necessity of agent. It can be created into three conditions:
i. There is an actual or necessity for acting on behalf on any principal.
ii. It is almost impossible to communicate with the principal and obtain its consent
iii. The act must have been done in the best interest of the principal
A disclosed principal can choose to adopt and ratify transactions which were made without his authority. Agency of ratification arises where a principal subsequently ratifies i.e. affirms an unauthorised act, done on his behalf by someone who purports to be his agent.
According to section 197 , ratification may be expressed or implied by words or by conducts. It is also known as ex-post facto agency. This kind of agency is the complete antithesis of agency by agreement since the agent is not empowered to act for the principal at the time that the agent purported to act for the principal.
The operation of the doctrine is illustrated by Bolton Partners v Lamberthe 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 his offer but after this attempted revocation Bolton ratified his agent’s act. Court held that Lambert was bound by the contract, because Bolton’s ratification related back to the agent’s acceptance and thus revocation was too late. There are numerous exceptions to this rule and conditions that must be fulfilled.
7. The relationship between the Principal and the Agent:
This is a fiduciary relationship analogous with that of trustee and beneficiary. The general rule is: “delegatus non potest delegare” an agent cannot delegate.
§ There are exceptions-
· if the agent is a minor
· if the agent has authority from the principal to delegate.
In the case of an unauthorised delegation the Agent will have to pay the subagent commission and the Agent will be liable to the Principal if the appointment of the sub-agent damages the Principal in any way.
· c) An agent or other fiduciary cannot exclude liability for fraud or other wilful defaults.
8. Statutory26 Explanation :
It determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. All of us enter into a number of contracts everyday knowingly or unknowingly. Each contract creates some right and duties upon the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties.
· Under section 201 to 210 an agency may come to an end in a variety of ways:
(i) By the principal revoking the agency: nevertheless, principal cannot revoke an agency coupledwith interest to the injustice of such interest. An agency is coupled with interest when the agent himself has an concern in the subject-matter of the agency, e.g., where the goods are consigned by an upcountry citizen to a commission agent for sale, with poor to recover himself from the sale proceeds, the advances made by him to the principal against the security of the goods; in such a case, the principal cannot revoke the agent’s authority till the goods are actually sold, nor is the agency terminated by death or insanity; Illustrations to section 201
(ii) By the agent renouncing the business of agency;
(iii) By the business of agency being completed;
(iv) By the principal being adjudicated insolvent; Section 201 of The Indian Contract Act. 1872
The principal also cannot revoke the agent’s authority after it has been fairly exercised, so as to bind the principal; Section 204, though he can always do so, before such authority has been so exercised; Sec. 203
In section 205, if the agency is for a preset period, the principal cannot terminate the agency before the time expired, except for adequate cause. If he does, he is liable to recompense the agent for the loss caused to him thereby. The same rules are applied where the agent, refuses an agency for a set period. A notice in this connection in want of skill continuous defiance of lawful orders and offensive behavior has been held to be sufficient cause for dismissal of an agent. Further, rational notice has to be given by one party to the other; otherwise, damage resulting from want of such notice, will have to be paid Section 206
As per section 207, the revocation or renunciation of an agency may be made expressly or impliedly by conduct. The termination does not take effect as regards the agent, till it becomes known to him and as regards third party, till the termination is known to them Section 208
When an agent’s authority is terminated, it operates as a termination of subagent also.(Section 210)
9. TERMINATION OF CONTRACTS
Once the relationship is terminated, the agent no longer has the authority to act for the principal. The principal is required to inform third parties or agent; that the agency relationship has been terminated. Ways to terminate an agency relationship include:
- Lapse of time: If the parties agree to set a time period for the agency relationship, the agency relationship terminates when the time period passes. For example, X hire a person to be X’s agent for one year. After one year passes, the agency relationship automatically terminates unless you extend it.
- Purpose achieved: Some agents are hired to achieve a certain purpose. Once that purpose is achieved, the agency relationship is automatically terminated unless one extends it. A prime example is when professional sports players hire an agent to only negotiate contracts.
- Mutual agreement: Both parties can agree to terminate the relationship. If both parties agree to part ways, the reason for the termination does not matter. According to section 62; if the parties to a contract agree to substitute a new contract for it or to or rescind or alter to, the original contract need not be performed.
- Remission: According to section 63 remissions may refer to “remit” or give up a part of promise or claim of what was contracted earlier. It may be extension of time or less than before.
- Certain events: An agency relationship will automatically terminate upon the occurrence of certain events. Such events include death, insanity, or bankruptcy of either the principal or agent. A court of law will usually terminate the agency relationship if one of the parties refuses to do so. Again both parties may also specify particular events that can cause termination.
- Accord and Satisfaction: These are in English law, it’s an exception where part of payment or act is performed and accepted by the promise.
- Rescission: Is the cancellation of either some or the entire contract. This can occure in few ways-
According to sec. 62 all the parties should give mutual consent.
If one party remains unable to fulfill the obligations that other party has the right to rescind it and getting compensation.
As it is a voidable contract so any of the parties can rescind it.
In section 35 it is mentioned about suite for recession. The court will grant recession in case of void or termination of contract by plaintiff. In case of unlawful contract and the defender is to be blamed more than the plaint full.
· Termination by Breach of Contract: By breaking a contract, one party frees another from the obligations of being in contract. This can occur either by anticipatory breach or by actual breach
10. The effect of Agent’s acts in relation to Third Parties:
Ø The common rule is that the agent drops out as soon as the contract is made. The agent sustains no liability nor can he create liabilities on the third party towards him either. Even where an Agent has authority and known to be an agent and the principal is named, the general rule above can be expelled by express or implied agreement. The Agent is then made responsible personally on the contract or in addition to the principal. The principal will also be responsible as well.
Ø Regarding implied liability Brandon J stated in The Swan that the court looks for an objective intention of both parties, based on what two businessmen making a contract of that nature in those terms and those surrounding circumstances must be taken to have intended.
· Where the principal is not named the general rule is that the agent drops out. Basically it is a question of intention of the parties or trade usage as to whether or not he sustains personal responsibility.
With all these terminologies and rules of law 1872 it could be define that termination of relationship between agent and principal is also a process of contract and it is a must. But when two parties are bind in a contract, they cannot overlap or go against law or their promises. But almost every contract has a time limitation, and after that it is recession period. And if the principal wish to take any necessary step without informing the agent; especially after the recession of contract it will not be an invalid act. Because if the contract has passed limited time period and in recession, it is more like there is no contractual bind between two parties and the principal is the power holder, he can do anything he wish to do. That would be a proper valid act.
Lapse of time could be a good example of this answer; that after the assigned time is over, there is no contract left between two parties.
· Roy Goode, (2004) COMMERCIAL LAW, Third Edition, Penguin
· C.H. Spurin , 2004 contract : Part V: Agency, Nationwide Mediation Academy for NADR UK Ltd 1
· THE LAW OF INTERNATIONAL TRADE AND CARRIAGE OF GOODS, C.H.Spurin 2004 Contract : Part V : Agency Nationwide Mediation Academy for NADR UK Ltd 5
 See Bowstead and Reynolds, paras 1-035,1-038-039
 Panorama Ltd. v Furnishing Fabrics Ltd.  2 Q.B. 711. CHAPTER TWO © C.H.Spurin
 Agency coupled: An agency relationship in which the agent is given an estate or interest in the property that is the subject of the agency. When an agent has possession or control of the property of his principal and possesses a legal rights against interference by third parties
 anticipatory breach: occurs when a party repudiates his ability under the contract before the time for the performance is due or when a party by his own act