Contract of Agency | Business Laws for CA Foundation PDF Download

Introduction

"Agency is a relationship that arises when one person (referred to as the principal) authorizes another individual (the agent) to act on their behalf, and the agent agrees to do so."

While the concept of an agency contract has been consistently explained within section 10 (sections 182-238) of the Indian Contract Act, 1872 and through various decisions by the Honorable courts; In essence, a contract of agency represents a fiduciary connection between two parties, in which one party (the principal) enters into an agreement and empowers (either explicitly or implicitly) another person (the agent) to act in their stead and grants them the authority to establish legal relationships between the principal and third parties.

Meaning

Agency is an agreement that establishes a relationship based on explicit or implicit consent. In this arrangement, there is one person, known as the agent, who is authorized to act on behalf of and in the interest of another individual, referred to as the principal, particularly in negotiating and entering into contracts with a third party.

As per the Indian Contract Act of 1872:
A contract of agency is a contractual agreement in which one person employs another to perform an action on their behalf or to represent them in dealings with a third party.

In Nepal, the Contract Act of 2056 is applicable, while in India, the Contract Act of 1872 is in force. The person who engages or appoints another individual to act on their behalf is recognized as the principal. It is essential for the principal to be eligible, meaning they must meet certain criteria, such as being of a legal age, to appoint an agent because the principal holds responsibility for all actions undertaken by the agent. In Nepal, the principal should be over 16 years old, while in India, the principal should be over 18 years old.

According to Black Law's Dictionary: 

Agency is a fiduciary relationship established through an explicit or implicit contract or as stipulated by law. In this relationship, one party is empowered to act on behalf of another party and has the authority to bind the other party through spoken or acted-out words.

The principal holds responsibility only within the scope of the authority delegated to the agent. Beyond this limit, the principal is not liable, but the agent becomes independently responsible. When forming a contract, there may or may not be consideration involved.

Agency is the process of granting authority by a principal to an agent to act and represent on their behalf. The actions taken and representations made by an agent are not considered the actions of the agent but are regarded as actions of the principal. Consequently, the rights and obligations created by the agent are the rights and obligations of the principal. However, certain actions related to personal capacity cannot be carried out through agency.

Following act should be possible through Agency:

• To do at for himself.
• To show business transaction to agent.
• To do transaction with third individual.
• To set up lawful connection with principal and third individual.

Characteristics of the Agency

• Legally Binding: The fundamental aspect of an agency contract is that the principal is legally bound by the actions carried out by the agent.
• Not Mandatory for Consideration: There is no legal requirement for consideration to support the relationship between the principal and agent.
• Principal's Capacity: Any individual who is legally capable of entering into a contract is eligible to employ an agent, meaning they should have reached the age of 18 and be of sound mind.
• Capacity to Contract: The fundamental requirement to become an agent is the capacity to contract. Consequently, even a minor can serve as an agent, though they lack the legal capacity, they can still possess the authority to act as an agent.

This is because the agent initiates a contractual relationship between the principal and a third party, rendering the contractual capacity of the agent unnecessary.

Methods of Creating Agency

Modes mean the way and techniques. There are different ways or modes by which the relationship of principal and agent might emerge.

• By Express Agreement: Ordinarily the position given by principal to his agent is an express expert in such case; the agent might be selected either by the words expressed or composed or direct of activities. For example, general legal authority.
• By Implied Agreement: Suggested arrangements are unexpressed understanding. Suggested arrangements/agency emerges from the direct, circumstance or relationship of the gatherings. It could be surmised from conditions of the case; and things spoken or composed or the normal course of managing might be accounted as situation of the case. Suggests agency might come from various cases.

 Agency by Estoppel

In the event that an individual address by words or leads that someone else is his agent and third party sensibly accepts on such portrayal and goes into an understanding, the individual who addresses so is limited by the act of other this is known as the agency by estoppel. For this situation of agency by estoppel, the outsider should act in sincerely and should depend on a portrayal of the agents' power to act as an agent.

Spouse as an agent:

When a legitimately several coexistences, the wife should have the authority of his better half to promise his credit, to bear the cost of the fundamental necessities of life, as indicated by their way of life. In any case, it has specific exemptions, if the spouse demonstrates that:
He has expressly cautioned the vendor not to give the products on layaway to his better half, or, He has expressly taboo his life partner to vow his credit, or He has effectively provided the referenced stuff in adequate amount to his better half or He is giving adequate recompense to his better half.

Agency by Holding Out

This might emerge from the connection of manager and worker. An administrator is an agent of the organization. The agency that is held because of any sort of business relationship is known as agency by waiting.

Agency by Necessity

In specific dire situation the law gives an expert on an individual to act as an agent to serve one more such agency is called an agency of need. In such cases, the agent should act in sincerely and need to secure and safeguard the interest of the principal.

For instance: 'A' a typical interest transporter conveys dairy result of 'B' from Kathmandu to Narayanghat as a result of avalanche, the transporter sold all dairy item coming (travel) in any case there was chance of harm, all things considered. In such case 'B' can't sue against 'A' in view of no power. Here 'A' is treated as an agent of 'B' by need.

Agency of Ratification (Later Acceptance)

Regardless of whether the agent goes into a contract without the authority of the principal, the principal may hence approve for example embrace the advantages and liabilities of a contact made for the principal's benefit. It might happen in two ways:

• when an individual acts one benefit of one more without power of the principal and principal take on the transaction.
• when an individual is an agent of another however he surpasses his power and acts for principal and principal embraces the transaction.

In either cases in case act is done for another (principal) and later principal embraces or amends the transaction there is an agency connection between the gatherings. (if one individual accomplishes something without the authorizations or authority of someone else and someone else makes great reaction for that work then it is known as Agency of confirmation.
For this situation individual is known as 'Agent' and someone else is 'Principal'. However, someone else (principal) gives positive reaction to individual (agent) the date at the point when individual 'agent' begins the work for someone else (principal) ought to be called the agency)

Requisites for Valid Ratification

• The principal should be named
• Confirmation should be finished by the individual to whom act is finished
• Sanction should be finished by an individual with full information on material facts or with aim to face the challenge of any inconsistency
• Confirmation should be by an individual equipped to have approved the transactions
• Void or unlawful contract can't be endorsed by the principal Freedoms of Agent

Rights of Agent

There are number of freedoms which an agent hosts against his principal and third gatherings. These are as follows:

• Right to get compensation: In case it is given in the contract of agent has right to get sensibly compensation for his work for principal.
• Right of Lien: In case agent isn't paid legal charges compensations or costs by his principal and of products of principal are influenced quite a bit by he can hold the merchandise until the legitimate charges is paid by principal. This right last till the legal charges are completely fulfilled.
• Right to get reimbursement: On the off chance that principal eliminates the agent without substantial explanation agent has right to claim pay from his principal. Hence, agent has likewise right to proceed with business execution until everything seems OK done by agent.
• Right of retainer: An agent has the option to hold any compensation or then again expenses brought about by him while directing the Principal's business.
• Right to be Indemnified: The agent has the privilege to be reimburse against every one of the legitimate acts done by him throughout leading the Principal's business. 

Duties of Agent

An agent owes various obligations to his principal who shifts in degree as indicated by the nature of agency and conditions of a case.
These obligations are as per the following:

• Duty to adhere to guidelines/bearings: The first and foremast obligation of an agent is to act stringently inside the degree to the authority gave upon him and to complete the guidelines of the principal.
• To act under the particulars of the contract: An agent is obliged to play out every single term referenced in the contract towards his principal.
• Duty to correspondence: In instances of trouble, it will be likewise the agent's obligation to impart the principal and acquire his guidelines while conveying the business agency.

Not to assign his position:

An agent should not designate his power to appoint authority agent should have the consent of principal. However much as could be expected agent himself performs for the benefit of principal.

Duty not to create secret gain from agency:

An agent's obligation is to be faithful to his principal. It an agent creates secret gain from its agency, the principal can request all the benefits from the agent.

Duty to follow customs:

• Where, but the principal has not given any directions it is the obligation of agent to follow the traditions winning in a similar sort of business at the place where the agent directs his business.
• Duty to do the work with sensible consideration, expertise and determination: Agent is consistently bound to act with sensible consideration, expertise and perseverance as he has and to make remuneration to his principal in regard of direct results of his disregard or need of ability or unfortunate behaviour.

Duty to keep and deliver independent and right records:

An agent should keep the cash also, property of the principal independent. He should keep valid, right and appropriate records of his all transactions o0n sake of his principal and to be arranged all occasions to deliver them to his principal.

Duty to act with great confidence:

An agent should act in sincerely while addressing the principal. Agent ought not have any aim to make hurt the principal.

Not unveil classified data:

Though the agent might have authority from his principal to bargain on his records, agents are not permitted to reveal or release the classified data of the principal. It is the obligation of agent to keep up with security and secrecy of such classified data of the principal.

Types of Agent

The agent inside the constraint of power, acts for the principal and ties him or brings the principal in a contractual connection with third individual. The principal is obligated for the act of agent to the third people.

Agent can be arranged into various kinds of premise which are as follows:

1. On the Basis of Limit of Authority

• Specific Agent: A particular agent is one who is designated to play out a specific act or to address in some specific transactions. For instance, an agent named available to be purchased of specific house.
• General Agent: An individual recruited to carry on a progression of transaction identifying with specific business, he is the person who has position to do all acts associated with a specific exchange, business or work. For instance, A chief of a firm.
• Universal Agent: This agent is delegated to do all acts and whose authority is limitless and can do everything which the principal legitimately do.

2. On the Basis of Nature of Act/Business

Mercantile Agent: He is the agent selected for trade or business activities. The business activities comprise of both exchange activities and trade activities. There are various sorts of commercial agent. They are as per the following:

• Factor: The agent to whom products are endowed with the end goal of selling them. He can sell the products in his own name and can do such things as are normal and essential over the span of such organizations.
• Intermediary: A specialist is an agent who is utilized to purchase or sell merchandise on sake of another. He is a go between for buy or offer of products however he isn't depended with the ownership of products and he doesn't sell or buy the merchandise himself. He is designated to achieve a contractual connection among principal and outsiders.
• Commission Agent: Agents who act for the benefit of one more for commission of his act or administration. For the most part this sort of agent purchases or sells merchandise in the unfamiliar market in the interest of his principal.
• Barker: A salesperson is an agent delegated by a merchant to sell his merchandise by open closeout for commission. He deals great by sale to the most elevated bidder in open contest.
• Del-Credence Agent: An agent who in extra commission ensures his principal the individual with whom he enters into contract for the benefit of the principal will play out their commitments in any case he (agent) will be obligated. He is guarantee (condition of being certain) too.
• Financiers: Bank and Bankers is the agent of the clients on the grounds that the connection among financier and client is for the most part bank and indebted individuals. The brokers gather check, draft or charges or purchases and deals securities for benefit and get commissions from the client as contemplations for administrations.

 Non-Mercantile Agent:

The agent who is inconsequential with business activities. It incorporates home agent, house agent, political race agent, advertiser, protection agents, specialists, clearing and sending agent and so forth These incorporate lawyers.

Termination of Agency

The gatherings by an understanding can make a contract of agency. Additionally, by an understanding they can end it. In case agency is made for some particular reason and for a decent time frame period the agency ends when designs are accomplished or time is slip by.

There are different modes in which the agency can be ended:

• By the act of the gatherings
  • Mutual Agreement
  • Revocation by the principal
  • Renunciation by the agent
  • Rescinding the authority by the principal
•  By activity of law

By execution:

If agency is made for specific reason on the consummation of accomplishments of direction the agency is ended.

By expiry of time fixed:

If time is fixed for the agency, whether or not purposes are satisfied, and the agency is ended after expiry of time fixed.

Insanity of principal:

If the principal become crazy the contract can be ended. Not just principal it additionally applies if there should arise an occurrence of agent as well.

Death of one or the other party:

The demise of the principal or agent ends the contract of agency.

Insolvency of principal:

After the indebtedness or chapter 11 of principal if agent acts for the benefit of principal he personally will be obligated for that not the principal. So after the bankruptcy the contract of agency ends.

Destruction of the topic:

If the topic for which agency was made, obliterated it ends the contract of agency.

By disintegration of organization:

If the organization breaks down the agent will have no greater authority given by the organization or principal, and afterward contract of agency ends.

By the incident of any occasion delivering the agency unlawful:
If ensuing to the contract, law change in such way which negated the transaction, then, at that point, the agency likewise ends. Resulting to the contract, if principal and agent became outsider adversary the contract of agency likewise ended.

Revocation of Agent's power

There are sure guidelines in regards to the disavowal of an agent's power.

• It very well may be repudiated any time before the authority has been worked out.
• If as per the details of the contract between the two, the agency needs to proceed upto a specific time, any earlier renouncement by the Principal will be made up for, to the agent.
• The end doesn't produce results before it has been conveyed to the agent.
• End of the authority of an agent ends the authority of all the sub-agents under him

Principal and Agent

• The terms Principal and agent have been characterized under Sec. 182 of the Indian Contract Act, 1872. The act characterizes an agent as a been utilized person by one more to act/bargain for the benefit of him and the individual who utilizes the agent, i.e., the individual whom the agent addresses is known as the principal.
• An agent in its embodiment is a person who, acting at his caution and judgment, can make the principal straightforwardly responsible to outsiders, i.e., empower the principal to sue or be sued by any outsider straightforwardly.
• The agent could possibly consistently be straightforwardly utilized by the principal himself, i.e., the connection between the principal and the agent may not generally emerge out of a contractual relationship, there may be various circumstances that bring about the contract of agency, circumstances like a need, through a commitment ascribed upon an individual by law or in any case.

Competency of the Principal

• The prerequisite for the ability of the principal has been rehashed (as Sec.10 of the "act" additionally needs for "parties skilled to contract") and set down in the Indian Contract Act under sec. 183, where the prerequisites for a skilled principal have been recorded down to;
• Greater part, for example the principal more likely than not accomplished the time of greater part, under the pertinent laws.
• Sound brain, for example the principal should be of sound brain, essentially right now of delegating the agent.
• The fundamental guideline here is that the principal ought to be equipped for playing out the assignments (in law), which he needs his agent to accomplish for him.
• Hence any arrangement of an agent by a minor or an individual of shaky brain is unequivocally announced to be void.

Competency of the Agent

• The necessities in regards to the ability of the agent have been recorded down in Sec. 184 of ICA, 1872, where it has been expressly referenced that anybody between the principal and the outsider might turn into an agent, paying little heed to its age or sufficiency of his psyche. It endorses that any individual, including a minor and a shaky individual, may turn into an agent. Nonetheless, they (the agent) may not be obligated to the principal except if they have accomplished the period of greater part and are of sound psyche.
• From the overall portrayal gave under the section, it tends to be deciphered that, any individual, including ones who themselves probably won't be sufficiently skillful to contract (minors and people of shaky brain included), have the ability to address and tie their principals into immediate and legitimate contractual connections.

Consideration not needed

• According to the perspective on the Indian Contract Act, even thought is definitely not a fundamental component for the production of an Agency; subsequently no thought is needed to be introduced while the development of an agency.
• Nonetheless, these arrangements don't deny the agent of his legitimate and advocated compensations except if demonstrated to be determined in any case in the contract.
• These standards of the contract act depend on the belief systems of Common Law, which indicate that no thought is needed to provide a person with the authority of an agent, neither does it bar any of the gatherings from suing one another, possibly it be for the carelessness on piece of the agent or for the recuperation of due pay from the principal.

Conclusion

As has been obviously settled at this point, any individual who will address some other individual, in his position, with the ability to tie that individual into a limiting lawful relationship, is qualified for be called an agent, with the individual who he addresses viewed as the principal.

Characterized and constrained by the Indian Contract Act, 1872, the contract of agency is, if not entirely yet significantly controlled by the rules gave under section 10 of the Act. With a couple of augmentations to a great extent, as per the prerequisites of the circumstance.

While having its odds and ends, the Contract act covers the contract of agency, adequately enough to proclaim the privileges and obligations of the gatherings of the contract; yet leaves the assignment of recognizing various types of organizations to the offices of law and the overall population.