LAWS OF AGENCY

1. DEFINITIONS OF AGENT & PRINCIPAL

Section 182 of the Contract Act defines ‘agent’ & ‘principal’.

“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 is called the principal”.

The contract which creates the relationship of ‘principal’ & ‘agent’ is called an agency.

Thus where A appoints B to buy 10 bags of sugar on his behalf, A is the principal & B is
the agent & the contract between the two is ‘agency’.

GENERAL RULES OF AGENCY

There are two important general rules regarding agency, viz,

1) Whatever a person competent to contract may do by himself, he may do through an

agent, except for acts involving personal skill and qualifications. In fact, where the
work to be done is obviously personal, no agent can be employed. For example, a
person cannot marry through an agent, cannot paint a picture through an agent, and
so on.

2) “He who does through another, does by himself.” In other words, ‘the acts of the
agent are, for all legal purposes, the acts of the principal.’

Section 226 provides to the same effect: “Contracts entered into through an agent, and
obligations arising from acts done by an agent, may be enforced in the same manner, and
will have the same legal consequences, as if the contracts had been entered into and the acts
done by the principal in person.”

ILLUSTRATIONS (appended to Sec. 226). (a) A buys good from B, knowing that he is an
agent for their sale, but not knowing who is the principal. B`s principal is the person entitled
to claim from A the price of the goods and A cannot, in a suit by the principal, set off
against that claim a debt due to himself from B.

(b) A being B`s agent, with authority to receive money on his behalf, receives from
C a sum of money due to B. C is discharged of his obligation to pay the sum in question to
B.

TEST OF AGENCY
Agency exists only when one acts as a representative of the other in business dealings so as
to create contractual relations between that other & third persons, that he is an agent & there
is an agency.

WHO MAY EMPLOY AN AGENT?

According to Section 183, “any person who is of the age of majority according to the law to
which he is subject, & who is of sound mind, may employ an agent.” As such any person
competent to contract may employ an agent & a minor, lunatic or a drunken person cannot
employ an agent.

WHO MAY BE AN AGENT?

According to Section 184, any person may become an agent. A minor or a person of
unsound mind may also become an agent. The principal is liable to third parties for the acts
of a minor agent.

Usually an agent is paid remuneration for his services.

2. KINDS OF AGENTS

From the point of view of the extent of their authority, agents may be classified into:

1) General Agent: A general agent is one who is employed to do all acts connected
with a particular business or employment, e.g. a manager of a firm. He can bind the
principal by doing any thing which falls within the ordinary scope of that business,
whether he is actually authorized for any particular act or not, is immaterial,
provided the third party acts bonafide. Third parties may assume that such an agent
has power to do all that which is usual for a general agent to do in the business
concerned.

2) Special Agent: A special agent is one who is employed to do some particular act or
represent his principal his principal in some particular transaction, e.g., an agent
employed to sell a motor car. As soon as the act is performed, the authority of such
an agent comes to an end. If a special agent does any thing outside his authority, the
principal is not bound by it, and third parties are not entitled to assume that the agent
 has unlimited powers They should, therefore, make proper enquiry as to the extent
of his authority before entering into any contract with him.

3) Universal Agent: A universal agent is said to be the one whose authority is

unlimited i.e., who is authorized to do all the acts which the principal can lawfully
do and can delegate. He enjoys extensive powers to transact every kind of business
on behalf of his principal.

ANOTHER CLASSIFICATION:

From the point of view of the nature of work performed by them, agents may be classified
into:

1) Mercantile Agents: A mercantile agent is one who has authority to sell goods or to
buy goods or to raise money on the security of the goods [Sec. 2(9) of the Sale of
Goods Act]. The various kind of mercantile agents are as follows:

(a) Factor: A factor is a mercantile agent to whom goods are entrusted for sale. He
enjoys wide discretionary powers in relation to the sale of goods. He sells the
goods in his own name upon such terms as he thinks fit. He may pledge the
goods as well.

(b) Commission Agent: A commission agent is a mercantile agent who buys or

sells goods for his principal on the best possible terms in his own name and who
receives commission for his labours. He may have possession of goods or not.

(c) Del credere Agent: He is one who in consideration of an extra commission,

guarantees his principal that the third persons with whom he enters into contracts
on behalf of the principal shall perform their financial obligations, that is, if the
 buyer does not pay, he will pay. Thus, he occupies the position of surety as well
as of an agent.

(d) Broker: He is the one who is employed to make contracts for the purchase and
sale of goods. He is not entrusted with the possession of goods. He simply acts
as a connecting link and brings the two parties together to bargain and if the
transaction materializes, he becomes entitled to his commission called
brokerage. He makes contracts in the name of the principal.

2) Non-mercantile Agents: They include advocates, attorneys, insurance agent, wife,

etc.