Agency ‘A Hermes Needed by All’
By Siddharth Sharma Shubham Arun
In our life time every one of us has to contact an agency so that they can help us meet ends, similar to the Greek God of Messages ‘Hermes’ who enables communication by crossing the boundary and guides the two realms of Gods and humanity. Similarly an agency performs a function of guiding two different parties to meet their needs, for example: In an Indian house hold we obtain a LPG cylinder for cooking via an agency, the agency procures the LPG cylinders from a Petroleum company or as the case may be and then the distributes it to the end user that is the household, the money the agency obtains from the end user is given to the company as per their contract and some commission is given to the agency as consideration for assisting the trade between the company and the end user; similarly a travel agency , advertisement agency etc. also function on the same parameters. Hence, agency is a very important part of our life, so it becomes important for us to understand it from a legal point of view to understand the liabilities of each parties and the effect of the decision made by one party on the other party.
1.2 Essentials of Agency
A person who is employed to do any act of another, or to represent or to provide services to someone is called an “agent”. The person who is being represented, or the person for whom such act is done is called the “principal”. An important point to note is that there exists a difference between a person who is appointed to do an act from an agent. An agent not only has the representative capacity but also has the power to affect the legal relation of the principal with third persons in other words an agency implies an authority vested in a person to create a legal relation between a principal and third party [i].Similar observation has been made by the Supreme Court in Syed Abdul Khader v. Rami Reddy[ii].
1.3 Test of Determining Existence of Agency Relationship
The perimeter established by Dhawan J of the Allahabad High Court for the determination of agency relationship has been set with reference to American case wherein a demarcation is drawn between an ‘agency agreement’ and an ‘agent’. The law in India is the same. It has been held in several decisions that the fact that the parties have called their relationship an agency is not conclusive, if the incident of the relationship, as disclosed by evidence does not justify a finding of agency[iii]. The court must examine the true nature of the relationship and the functions and responsibilities of the alleged agent.
In cases where there are more than one agent and the authority given to the agent is collective, they would be bound to work together and only then the principal would be liable and where the power vested in the agents is collective and several, any one of them would have the authority to act for the principal[iv] and the act of any one agent would bind the principal. Where an agent acts for more than one principal in the same transaction, his liability is not extinguished until he satisfies his duties against all the principals in the transactions, unless otherwise agreed[v].
1.4 Eligibility to Employ Agent and become Agent
According to Section 183 of the Indian Contract Act any person who is of sound mind and has attained the age of majority is eligible to employ an agent which employs that a minor cannot appointed as an agent, However, as per section 184 of the act:
Any person can be an agent who has attained the age of majority and is of sound mind. However, an important point to note is that in ordinary circumstance an agent doesn’t incur any personal liability while contracting for his principal, therefore it is not necessary for the agent to be competent to contract[vi]. Therefore, if a minor is an agent, the minor will not be liable to his principal.[vii]
Also, as per Section 185 of Indian Contract Act no consideration is necessary for the formation of agency, an agency is generally remunerated in the in the form of commission or as per contract for the services provided. Therefore, agency acts as one of the few exceptions to the principle of “No consideration, No Contract”. A contract of agency is absolutely legal without a consideration and perfectly binding on both the parties.
1.5 Kinds of Agents
There are two kinds of agents:
An agent that is entrusted with the possession of goods is known as a factor. For Example: The LPG agency talked about in the beginning of the article is a factor agent wherein he is entrusted with the cylinders at his premises and sells the cylinders from his premise. He therefore sells the goods in his possession but such goods are actually procured from the principal[viii].
A “broker” is also a mercantile agent. He is appointed to negotiate and make contracts for the sale or purchase of property on behalf of the principal. A real estate broker is one of the most common example of this type of agent wherein the broker enters into an agreement to sell the immovable property on behalf of his principal.
Del Credere Agent
When an agent undertakes responsibility of the third party, he is known as a del credere agent. This means that the agent voluntary gives guarantee to the principal to make good the loss in case the third party with whom the contract is entered into makes a default in performing the contract. However, as such transactions bear greater risk for the agent, he charges a commission over and above the normal rate of commission known as the del credere commission[ix].
2.1 Duties of Agent
There are some duties of general nature imposed on every agent dictated by law, unless any changes are specifically mentioned in the contract:
2.2 Duty to Execute Mandate
The first duty of every agent is to carry out the order of his principal. Any loss incurred by the agent as a result of not abiding by the orders of the principal shall be borne by the agent. Such loss shall be made good to the principal by the agent. An example of this would be, if a principal directs an agent to insure the goods with the agent, and the agent fails to do so, and the goods are destroyed or damaged, the agent shall be treated as the insurer and shall make good the loss incurred[x].
2.2 Duty to Follow Instruction or Customs
As per Section 211 of Indian Contract act an agent is bound to follow the procedure as directed by the principal in executing the business and in absence of any such directions, according to the customs which prevail in doing business of the same kind at the place where the agent conducts the business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and if any profit accrues, he must account for it[xi].
2.3 Duty of Reasonable Care and Skill
Section 212 limits the agent’s liability to “direct consequences”[xii]. It provides that the agent must make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct, but not in respect of loss or damage which are indirectly caused by such neglect, want of skill or misconduct. The agent will be liable in all cases unless the principal has notice of his want of skill. Also, in case of difficulty to perform an act directed by the principal, it is the duty of an agent to use all the means possible to a prudent man to communicate with the principal and explain the difficulty in performance and ask for his guidance.
2.4 Duty not to Make Secret Profit
Any profit obtained by the agent besides his agreed remuneration shall be regarded as breach of his agency contract. An agent is also not allowed to indirectly make profit by using his position as an agent. Acceptance of bribe is one such example[xiii].Under this provision it is important to note that if the agent in the course of business of agency, converts an opportunity to his advantage, he is not required to inform the principal if the agent honestly shares the profit of such advantage with the principal in the agreed ratio[xiv].
2.5 When Can an agent delegate his Responsibility:
An agent cannot pass his responsibility to another if he has undertaken to perform an act personally. Although there are few exceptions to this provision depending upon the circumstances such as-
· Nature of Work-Where the nature of work is such that it requires the agent to appoint a sub-agent. For Example: An agent undertakes a construction project, he would then require to appoint sub agents to look after different aspects of the project.
· Trade Custom-Secondly if there is a custom by which the agent needs another person to help him out, the agent won’t be liable. For example, an architect generally appoints surveyor.[xv]
· Ministerial Action-Any work which requires an agent’s personal skill cannot be executed by anyone else but in case the work is ministerial in nature the agent may delegate it to someone else. An example of this would be the signing authority given to clerks or workers of an administrative office wherein due to the non-availability of the person in charge or huge amount of workload, the agents signing responsibility is delegated[xvi].
· Principal’s Consent- Where the principal has allowed the agent to appoint a sub-agent in written or by conduct or the principal has ratified his agent’s unauthorized action.
3.1 Remedies of Principal for Breach of Duty
“A principal has the following rights against an agent who fails to perform his duty: