AGENCY
Meaning
In legal terms, agency is a relationship between two parties in which one party (the agent) acts on behalf of the other party (the principal) and binds the principal to certain legal obligations. The agent performs certain tasks or makes decisions on behalf of the principal and is authorized to act within the scope of the agency relationship.
The person who acts on the behalf of another or who has been delegated the authority is called an “agent”. The person who authorises another to act is called a “principal”. The contract which creates the relationship of the principal and agent is called as ‘agency’.
Essentials of agency
1. Agreement: An agency relationship must be established through an agreement between the principal and the agent, either expressly or impliedly.
2. Capacity: Both the principal and the agent must have the capacity to enter into the agency relationship, which means they must have legal competence to do so.
3. Consent: Both the principal and the agent must give their consent to enter into the agency relationship, and the consent must be free and voluntary.
4. Fiduciary relationship: An agency relationship is a fiduciary relationship, which means that the agent is expected to act in good faith and in the best interests of the principal.
5. Authority: The agent must have the authority to act on behalf of the principal, either express or implied, and must act within the scope of that authority.
6. Consideration: The principal must provide consideration to the agent in exchange for their services, which can be in the form of payment or some other benefit.
Definition of agent
An agent is a person or entity who is authorized by another person or entity (the principal) to act on their behalf and make decisions that affect their legal rights and obligations. The agent is authorized to perform certain tasks or make decisions on behalf of the principal and is accountable to the principal for their actions.
Who may be an agent?
An agent can be an individual or a company, and can be authorized to act in a variety of capacities, such as an attorney-in-fact, a real estate agent, a financial advisor, or a business manager. An agent can act within the scope of their authority granted by the principal, and can enter into contracts, make payments, negotiate deals, and make decisions that affect the principal’s legal rights and obligations.
Who may be the principal
The principal is the person or entity who authorizes an agent to act on their behalf. Any person or entity who has the capacity to contract and is of legal age can be a principal.
Kinds of agent
The important ones are classified as under:
(I) Express or implied agents: An express agent is an agent who is appointed or authorized by the principal through a written or spoken agreement.An implied agent is an agent who is not appointed or authorized by the principal through a written or spoken agreement, but rather through the principal’s conduct or behavior.
(II) General, Special, or Universal agents: A general agent is authorized to act on behalf of the principal for a specific type of transaction or business. A special agent is authorized to perform a specific task or transaction on behalf of the principal. Once the task is completed, the authority of the special agent ends.A universal agent is authorized to perform all acts on behalf of the principal. The authority of a universal agent is very broad and can include making legal, financial, and business decisions.
(III) Sub-agent: A sub-agent is an agent who is appointed by an agent to perform a specific task or transaction on behalf of the principal. The sub-agent acts on behalf of the principal through the primary agent.
(IV) Mercantile agents: A mercantile agent is a specialized type of agent who is authorized to act on behalf of the principal in commercial transactions involving goods or merchandise. Types of mercantile agents are:-
- Del Credere agent: A Del Credere agent is a mercantile agent who guarantees the creditworthiness of the buyer in a transaction. In other words, the agent guarantees the payment of the purchase price to the principal, even if the buyer defaults.
- Commission agent: A commission agent is a mercantile agent who acts as an intermediary between the buyer and seller in a transaction. The commission agent does not take ownership of the goods but facilitates the sale or purchase of the goods for a commission. The commission agent is responsible for ensuring that the transaction is completed according to the terms agreed upon by the buyer and seller.
- Factors: A factor is a mercantile agent who is authorized by the principal to sell or purchase goods on credit on their behalf. Factors are commonly used in the textile and garment industry. The factor takes possession of the goods and sells them on credit to the buyers.
- Auctioneer: An auctioneer is a mercantile agent who conducts auctions on behalf of the principal. The auctioneer is responsible for advertising the auction, accepting bids, and completing the sale of the goods to the highest bidder.
- Brokers: Brokers are mercantile agents who act as intermediaries in transactions involving the sale or purchase of goods. Unlike commission agents, brokers do not take possession of the goods.Instead, they connect the buyer and seller and negotiate the terms of the transaction.
- Banker: A banker is a mercantile agent who provides various financial services to the principal, such as providing loans, accepting deposits, and processing payments.
(V) Non-mercantile agents: Non-mercantile agents are individuals or entities who act on behalf of a principal in various capacities outside of the commercial or business context.
Creation of agency
The creation of agency can occur in several ways, including:
i. Express agreement: The most common way of creating an agency relationship is by express agreement between the principal and the agent. This agreement can be in writing or oral and can specify the scope of the agency relationship, the duties and responsibilities of the agent, and the compensation to be paid.
ii. Implied agreement: An agency relationship can also be created by the actions of the parties, even if there is no express agreement in place. For example, if a person consistently acts on behalf of another person in a particular matter, the law may presume that an agency relationship exists.
iii. Estoppel: If a principal leads a third party to believe that a person is their agent, even if no actual agency relationship exists, the law may prevent the principal from denying the agency relationship. This is known as estoppel.
iv. Necessity: In certain situations, an agency relationship can arise out of necessity. For example, if a person is unable to manage their affairs due to illness or incapacity, a family member or friend may step in and act as their agent.
v. Ratification: Sometimes, a person may act on behalf of another person without their prior authorization. In such cases, the principal can ratify the actions of the agent after the fact, thereby creating an agency relationship retroactively.
Agent’s duty to principal
1. Duty of loyalty: The agent must act in the best interests of the principal and must not engage in any conduct that is adverse to the principal’s interests. This duty requires the agent to avoid conflicts of interest and to disclose any conflicts that may arise.
2. Duty of obedience: The agent must obey the principal’s instructions, provided they are lawful and within the scope of the agency relationship.
3. Duty of care: The agent must exercise reasonable care and skill in carrying out their duties. This duty requires the agent to use their expertise and knowledge to make informed decisions on behalf of the principal.
4. Duty to account: The agent must keep accurate records of all transactions entered into on behalf of the principal and must provide an accounting of these transactions upon request.
5. Duty to inform: The agent must keep the principal informed of all material facts and information related to the agency relationship. This duty requires the agent to communicate openly and honestly with the principal.
6. Duty to maintain confidentiality: The agent must maintain the confidentiality of all information related to the agency relationship and must not disclose this information to third parties without the principal’s consent.
Rights of an agent
- Right to compensation: An agent is entitled to receive compensation for their services, unless they have agreed to work for free or on a commission basis. The amount of compensation is usually agreed upon at the time the agency relationship is formed.
- Right to indemnification: An agent is entitled to be indemnified by the principal for any expenses or losses incurred while carrying out their duties, provided these expenses or losses were necessary and authorized by the principal.
- Right to lien: An agent may have a right to retain possession of the principal’s property until they are paid for their services or reimbursed for expenses incurred on the principal’s behalf.
- Right to reimbursement: An agent is entitled to be reimbursed for any expenses incurred while carrying out their duties, provided these expenses were necessary and authorized by the principal.
- Right to terminate the agency relationship: An agent has the right to terminate the agency relationship at any time, provided they give reasonable notice to the principal.
Rights of principal
- Right to control the agent: The principal has the right to control the agent’s actions within the scope of the agency relationship. This means that the principal can dictate how the agent carries out their duties and can set limits on the agent’s authority.
- Right to receive a duty of loyalty: The agent owes a duty of loyalty to the principal, which means that the agent must act in the principal’s best interests and avoid conflicts of interest.
- Right to receive an accounting: The principal has the right to receive an accounting of the agent’s activities and expenses on a regular basis.
- Right to revoke authority: The principal has the right to revoke the agent’s authority at any time, provided they give reasonable notice to the agent.
Termination of agency
The agency relationship can be terminated in various ways, including:
I. By agreement: The agency relationship can be terminated by mutual agreement between the principal and the agent. This can be done through a written contract or a verbal agreement.
II. By operation of law: The agency relationship can be terminated by operation of law in certain circumstances, such as the death or incapacity of the principal or agent, or by a change in the law that renders the agency relationship illegal.
III. By breach of contract: If either the principal or the agent breaches the terms of the agency agreement, the other party may have the right to terminate the agency relationship.
IV. By performance: The agency relationship may terminate when the agent has completed the task they were hired to perform, or when the term of the agency agreement has expired.
V. By revocation: The principal may revoke the agent’s authority at any time, provided they give reasonable notice to the agent.
VI. By renunciation: The agent may renounce their authority at any time, provided they give reasonable notice to the principal.
VII. By agreement with a third party: If the agent has been appointed by the principal to act on their behalf in a particular transaction with a third party, the agency relationship may terminate once that transaction is completed.
