AGENCY

Agent : Oxford dictionary : A person who does something especially on behalf of another.

182. “Agent” and “principal” defined

An “agent” is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or represented, is called the “principal”.

…. The emphasis is on the power of the agent to represent his principle in dealings with third person.

Concise Law Dictionary :  Agency : An agent, acts on behalf of his principal and often uses his name and his acts in that capacity are attributable to the principal.

The concept of “agency” has been explained by RAMASWAMI, J of the Madras HC in Krishna v. Ganapathi.

In legal phraseology, every person who acts for another is not an agent. It is only when he acts as a representative of the other in business negotiations, that is to say, in the creation, modification or termination of contractual obligations, between that other and third persons, that he is an agent…… Representative character and derivative authority may briefly be said to be distinguishing feature of an agent.

State of Madras v. Jaya Lakshmi Rice Mills : A ‘procurement agent’ has been held to be not an agent, as he is only a person directed to do an act on a commission and not to represent another.

G. Alluraiah v. State of A.P. : A person who was described under the MADRAS Foodgrains Procurement Order, 1947, as a “wholesale dealer” has been held to be an agent. He was to purchase and sale at a price fixed by the State and he was also responsible for safety. Thus he was a channel through which the State was operating and became an agent of the State.

In summary, we can say that, “Agency is the legal relationship between an agent and Principal; to bring the principal into legal relationship with the third person”.

Who can employ an agent & who can became an agent ?

Essentials of agency

An agency being a contract with a person appointed to bring the principal into legal relations with a third party the first requisite is that, the principal should be competent to contract. (Refer section 11 : Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.). But,

Minor can be beneficiary- Any agreement which provides some benefit to the minor and under which he is required to bear no obligation, is valid. As per the law, the minor is not incompetent for accepting a benefit. So can a minor become an agent ?

183. Who may employ Agent

Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent.

184. Who may be an Agent

As between the principal and third persons, any person may become an agent,

but…. no person who is not of the age of majority and sound mind can become an agent, so as to be responsible to the principal according to the provisions in that behalf herein contained.

Ordinarily, an agent incurs no personal liability while contracting his principal while contracting for his principal and therefore, it is not necessary that, he should be competent to contract. Thus, a person may contract through a minor agent, but the minor will not be responsible to his principal.

185. Consideration not necessary

No consideration is necessary to create an agency;

No consideration is necessary to create an agency. Generally, an agent is remunerated by waay of commission for services rendered, but no consideration is immediately necessary at the time of appointment.

Agent and servant : An agent occupies a position which in many respects is similar to that occupied by a servant & bailee.

The distinction betwenn an agent and a servant has been underlined by the SC in Lakshminarayan Ram Gopal  Sons Ltd. v. Govt of Hyderabad.

The main points of distinction which have been emphasised are as follo :

1. An agent has the authority to act on behalf of his principal and to crete contractual relations between the principal and a third party. This kind of power is not generally enjoyed by a servant.
2. A principal has the right to direct what the agent has to do; but a master has not only that right, but also the right to say how it is to be done. But an agent, though bound to exercise his authority in accordance with all lawful instructions….is not subject in its exercise to the direct control or supervision of the principal.
3. The mode of remuneration is generally different.
4. A master is liable for the wrong of his servant it it occurs in the course of employment. A principal is liable for his agent’s wrong done within the scope of authority.
5. A servant usually serves only one master, but an agent my work for several principlas at the same time.

Popular Shoe Mart v. Srinivasa Rao The Court is not bound to go by the terminology of the parties, but by the substance of the relation.

Agent and Bailee : An agent differs from bailee in certain respects. Firstly, the relationship of bailor and bailee subsists only so long as the bailee holds some goods belonging to bailor, but this is not necessary for the subsistence of agency relationship. Sometimes, an agent may be in possession of his principal’s property and to that extent he may also be a bailee. And sometimes an ordinary bailee may become an agent when he is authorised to dispose of the bailor’s property according to his directions.

Secondly, an agent is a representative with a power to contract on behalf of his principal. A bailee does not have that power.

Agent and Buyer : The Supreme Court pointed out in Gordon Woodroffe & Co(Madras) Ltd v. Sk. M.A. Majid that even an agent can become a purchaser when he pays the price to his principal and discloses to him that fact.

Agents’s authority (S 186 to S 189)

186. Agent’s authority may be express or implied

The authority of an agent may be express or implied.

187. Definitions of express and implied authority :

An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.

Illustration :

A owns a shop in Serampur, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purposes of the shop, and of paying for them out of A’s funds with A’s knowledge. B has an implied authority from A to order goods from C in the name of A for the purpose of the shop.

Express Authority : Where the authority is conferred by words, spoken or written, it is called ‘express authority’. A power of attorney, for example, which is akind of deed and authorises the agent to do certain acts, is an illustration of express authority.

Implied Authority : Implied authority is an instance of real or actual authority, for it is conferred upon the agent by the conduct of the principl as interpreted in the circumstances of the case.

An illustration of implied authority is to be found in Ryan v. Pilkington. An agent was appointed to find a purchaser for certain property. He accepted a deposit from a prospective customer and misappropriated it. The principal was held liable, because an estate agent has an implied authority to take a deposit. In Foujdar Kameshwar v. Ghanshyamdas :

He cannot, however, receive payment or give any warranty unless actually authorised.

Harshad Shah v. LIC of India (SC 1997)  : An insurance agent does not have the authority to collect premium on behalf of life insurance corporation. In this case policy lapsed because insurance agent who collected money did not deposit it. The principal was held liable to pay back with interest.

Scope of authority : This is the essence of section 188 which defines the extent of the agent’s authority in the following words :

188. Extent of agent’s authority

An agent, having an authority to do an act, has authority to do every lawful thing which is necessary in order to do such act.

An agent having an authority to carry on a business, has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.

Illustrations

(a) A is employed by B, residing in London, to recover at Bombay a debt due to B. A may adopt any legal process necessary for the purpose of recovering the debt, and may give a valid discharge for the same.

(b) A constitutes B his agent to carry on his business of a shipbuilder. B may purchase timber and other materials, and hire workmen, for the purpose of carrying on the business.

Scott & Harton v. Godfrey : Every agent has the implied authority to act according to the customs and usage of a particular market or trade. The principal is bound by such usages even if he is unaware of them or even if they conflict with his instructions. But the custom or usage must not be unlawful or unreasonable.

Agent’s authority in emergency (S 189)

189. Agent’s authority in an emergency

An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss and would be done by a person or ordinary prudence, in his own case, under similar circumstances.

Illustrations

(a) An agent for sale may have goods repaired if it be necessary.

(b) A consigns provision to be at Calcutta, with direction to send them immediately to C, at Cuttack. B may sell the provision at Calcutta, if they will not bear the journey to Cuttack without spoiling.

Thus the extent of an agent’s authority, whether express or implied, depends upon :

1. The nature of the act or business he is appointed to do
2. Things which are incidental to the business or are usually done in carrying it out.
3. The usual customs and usage of the trade.

Sub-agents

When agent cannot delegate (S 190)

Delegatus non potest delegare is a well known maxim of the law of agency. The principal chooses a particular agent because he has lot of trust and confidence in his integrity and competence. Ordinarily, therefore, the agent cannot further delegate the work which has been delegated to him by his principal. But there are exceptions. In the following cases the agent may delegate the work to another.

(a) Nature of work : Sometimes the very nature of work makes it necessary for the agent to appoint sub-agent

(b) Trade custom : If there is ordinary custom of trade of appointing   sub-agent.

(c) Ministerial action : An agent can not of course, delegate acts which he has expressly or impliedly undertaken to perform personally. But the agent may delegate acts which are purely ministerial in nature,(eg authority to sign.)

(d) Principal’s consent : The principal may expressly allow his agent to appoint a sub-agent. His consent my also be implied from the conduct of the parties. The principal may ratify his agent’s unauthorised delegation.

190. When agent cannot delegate

An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature of agency, a sub-agent must, be employed.

Effect of delegation : section 191

191. “Sub-agent” defined

A “sub-agent” is a person employed by, and acting under the control of, the original agent in the business of the agency.

When a sub-agent is appointed, what relationship is constituted between the principal and the sub-agent ?

 The answer depends upon whether the sub-agent has been properly or improperly appointed.

Proper delegation : sec 192

Sec 192. Representation of principal by sub-agent properly appointed

Where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal.

Agent’s responsibility for sub-agents: The agent is responsible to the principal for the acts of the sub-agent.

Sub-agent’s responsibility: The sub-agent is responsible for his acts to the agent, but not to the principal, except in case of fraud or willful wrong.

Principal represented by sub-agent : In the first place, so far as regards third persons, the principal is represented by the sub-agent. He is bound by and responsible for his acts as if he were an agent originally appointed by the principal (ref : Raghunath Prasad v. Sewa Ram)

Agent’s responsibility for sub-agent : Secondly, the agent is responsible for the acts of the sub-agent. For eg if sub-agent misappropriated the principal’s property, agent is responsible.

Sub-agents liability to principal : The sub-gent is not directly liable to the principal, except for fraud and wilful wrong.

Improper delegation : sec 193

193. Agent’s responsibility for sub-agent appointed without authority

Where an agent, without having authority to do so, has appointed a person to act as a sub-agent, the agent stands towards such person in the relation of a principal to an agent, and is responsible for his acts both to the principal and to third persons; the principal is not represented, by or responsible for the acts of the person so employed, nor is that person responsible to the principal.

Delegation is improper when it is not authorised, that is, when it is not within any of the recognised exceptions. The effect is that the principal is not bound by the appointment. He is not represented by that person, nor bound by his acts. That person is also not responsible  to the principal. But the agent will be responsible to the principal for any act of that person. The agent stands in the position of principal towards the person and is as such responsible for his acts to third parties.

A appoints C to conduct the sell of estate by auction, based on the suggestion given by B.

C is not a sub-agent, but is A’s agent for the conduct of the sale.

Now, in this case what is the duty of B ?

….  It is the duty of the B to sugguest the name with reasonable care as if he is appointing the auctioneer for his own cause. He should exercise the same amount of discretion as a man of ordinary prudent.

194. Relation between principal and person duly appointed by agent to act in business of agency

When an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.

Illustrations

(a) A directs B, his solicitor, to sell his estate by auction , and to employ an auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C is not a sub-agent, but is A’s agent for the conduct of the sale.

(b) A authorizes B, a merchant in Calcutta, to recover the moneys due to A from C & Co. B instructs D, a solicitor, to take legal proceedings against C & Co. For the recovery of the money.

D is not a sub-agent, but is a solicitor for A.

195. Agent’s duty in naming such person

In selecting such agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case; and, if he does this, he is not responsible to the principal for the acts of negligence of the agent so selected.

Illustrations

(a) A instructs B, a merchant, to buy a ship for him. B employs a ship-surveyor of good reputation to choose a ship for A. The surveyor makes the choice negligently and the ship turns out to be unseaworthy and is lost. B is not, but the surveyor is, responsible to A.

(b) A consigns goods to B, a merchant, for sale. B, in due course, employees an auctioneer in good credit to sell the goods of A, and allows the auctioneer to receive the proceeds of the sale. The auctioneer afterwards becomes insolvent without having accounted for the proceeds. B is not responsible to A for the proceeds.