Agency: Concept and Definition

By | December 4, 2019
agency concept and definition

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Agency is defined as a relationship which exists between one person who authorises and another who is authorised to act on the former’s behalf and the latter agrees to do so.[1] It is a fiduciary relationship which arises between persons where one of them expressly or impliedly consents that the other should act on his behalf so as to affect his relations with third parties, and the other person consents so as to act or so acts.[2]

Fiduciary element though is a key to much of the law governing the relationship of principal and agent, but it is not an essential element in the relationship because the same may vary with the level of confidence each principal responses in the agent he or she chooses.[3] The distinguishing factor of this relationship is that the agency remains in vogue till the contract remains and the services have to be rendered by the agent as a continuing obligation until the contract remains in force.[4]

Courts have also held that agency is a legal concept which is employed when it becomes necessary to explain and resolve the problems created by certain fact situations. In other words, when the existence of an agency relationship would help to decide an individual problem, and the facts permit a court to conclude that such a relationship existed at a material time, then whether or not any express or implied consent to the creation of an agency may have been given by one party to another, the Court is entitled to conclude that such relationship was in existence at the time, and for the purpose in question.[5]

In English law, “every person who is sui juris has a right to appoint an agent for any purpose whatsoever, and he can do so when he is exercising statutory right no less than when he is exercising any other right”.[6]

In India, this principle is not applicable where the act to be performed is personal in character, or when it is annexed to a public office or to an office involving any fiduciary obligation.[7]

Examples

Justice BP Jeevan Reddy has held in one of the cases that-

8. The advocate is the agent of the party. His acts and statements, made within the limits of authority given to him, are the acts and statements of the principal i.e. the party who engaged him”[8]

The post office is also held to be an agent of the person to whom the cheque is posted if there be an express or implied authority to send it by post.[9] Justice Hidaytullah found the authority to act even in the person who was arranging the purchase of coal from colliery for the consumer and was charging commission thus was held as an agent.[10] Even, the colliery supplying coal to the company in pursuance of the order of the coal commissioner was held to be an agent for the company.[11]

But performing mere ministerial acts like signing letters on behalf of the ex-military secretary of ex- Ruler could not constitute to be an agency.[12] A distributor appointed merely for distributing Vespa Scooters and Vespa Autorickshaws was not considered an agent due to the essentials of the agency being absent.[13]

Provisions under the Indian Contract Act, 1872

Chapter X in the said act contains the provisions governing the relation of the agency. The relevant provisions from the said chapter are reproduced herein below:

  • 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 who is so represented, is called the “principal”.
  • 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 of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained. §185. Consideration, not necessary.—No consideration is necessary to create an agency. 186. Agent’s authority may be expressed or implied.—The authority of an agent may be expressed 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 are spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.
  • 188. The extent of agent’s authority.—An agent, having an authority to do an act, has the authority to do every lawful thing which is necessary in order to do such an act. An agent having an authority to carry on a business has the authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.

Agency in other laws

  1. Agent Includes a person or persons engaged by the appropriate Government, directly or by outsourcing, for collection of statistics.[14]
  2. Means any agency, other than a local authority, which may undertake sanitation facilities in an area and includes a contractor or a firm or a company which engages in the development and maintenance of the real estate.[15]
  3. Even the National Investigation Agency constituted under Section 3 of the National Investigation Agency Act, 2008.[16]

Essentials of agency

  1. Authority or capacity to create legal relation between a person occupying the position of principal and third persons is essential for the agency to exist.[17]
  2. The acts of principal are binding upon the Principal and the latter is made answerable to the third persons for the acts of the agent.[18] Hence through the acts of the agent, the Principal gets enabled to sue the third parties or is rendered liable to be sued by the third parties.[19]
  3. One person (Agent) is purporting to enter into transactions on behalf of another person (Principal).[20] The agent can create, modify or terminate contractual obligation between his principal, whom he represents, and some third person.[21]
  4. Consent must be given by each of the party involved in the relationship
  5. Formal Agreement is not necessary.[22]

In the Garnac case[23]  Lord Pearson, with the concurrence of the House of Lords, held:

“The relationship between principal and agent can only be established by the consent of the principal and the agent. They will be held to have consented if they have agreed to what amounts in law to such a relationship, even if they do not recognise it themselves and even if they have professed to disclaim it…. The consent must, however, have been given by each of them, either expressly or by implication from their words and conduct.”[24]

Functions of Agent

  1. An agent acts within the limits of his authority and acts at the discretion and judgment of the Principal.[25]
  2. An agent is not subject to the direct control or supervision of the Principal.[26]
  3. Agency is not transferrable or assignable.[27] Agency is personal is character depending on the terms of the contract between the principal and agent.[28] An agent is different from a buyer because the former is indemnified for any loss suffered whereas the latter isn’t and also, the former can sell the goods only as goods of Principal, not as his own.[29]

‘Agency’ word is not important because in common parlance “agent” word is used but they may not really have the power of changing the relations of the Principal with the third parties.[30] Some persons who describe themselves or are described by others as agents are not really such in any legal sense of the word, but rather independent merchants, dealers, consultants or intermediaries.[31]

For example, a distributor or a franchisee actually acts as principal dealing with own name with each other, as they are really purchasers for resale.[32] There can be “independent merchants”, or “dealers”, or consultants or intermediaries.[33] Hence the substance of the contract becomes important to be ascertained.[34]

Creation of Agency

It is created either by express appointment by the Principal or by implication of law or by subsequent ratification.[35] Therefore, the agency can be inferred from circumstances and the conduct of the parties.[36] It can be inferred from the correspondence of the parties.[37]

Agency is a question of intention which is to be gathered from the terms of the contract and surrounding circumstances.[38] It is a mixed question of law and fact.[39]

Express Agency

It is put to effect in a formal document like a power of attorney or a specific letter of appointment.[40]

Implied Agency

It arises from:-

  1. Conduct of parties
  2. Situation
  3. Parties
  4. Operation of Law, viz, out of necessity.[41]

The implied agency does not extend to acts outside the ordinary course of business and which are neither necessary nor incidental to his authority.[42] It arises where the persons authorized to act as an agent for another without any regard to the consent of the principal act in certain circumstances and the law creates an agency of necessity.[43]

The circumstances have a crucial role to play since in the case of an express statutory provision under the Rules/ Regulation published in the Gazette prohibiting the insurance agent from collecting premium, it was not found permissible to infer any implied authority by LIC.[44]

The substance of the contract has to be studied, for example in the case of commission agents, the express terms of the contract have to be considered since no single pattern is followed and there may not be an exact nature of agency being created.[45]

Necessary implication does give rise to agency, for example, in the case of an employer deducting the premium amount from the employee’s salary as per the Salary Saving Scheme of LIC, since an authority to collect the premium could bind the insurer (LIC), the employer was held to be an agent for the LIC.[46] The reason for the same is that if the employer does a default in remitting premium to LIC, the latter would be liable to pay the sum due under the insurance policy.[47]

Examples- Goods purchased by a person were received by another and dealt with by another and dealt with by him, it was sufficient to infer an agency.[48] Members of a family elder affirming the act of the brother, who was managing the property, selling the land.[49] Co-owners filing a suit of eviction on behalf of other co-owners as an agent.[50]

Ratification

A principal may subsequently ratify the acts of the agent done on his behalf.[51]

Estoppel

The Principal allows another to transact with third parties on his behalf and makes them believe that the other is so transacting, doing so on his behalf, will be bound by the acts, transactions entered into by such ostensible agent.[52]

The House of Lords has also authoritatively explained the concept of ostensible authority in the following way-

“Ostensible authority comes about where the principal, by words or conduct, has represented that the agent has the requisite actual authority, and the party dealing with the agent has entered into a contract with him in reliance on that representation.

The principal in these circumstances is estopped from denying that actual authority existed. In the commonly encountered case, the ostensible authority is general in character, arising when the principal has placed the agent in a position which in the outside world is generally regarded as carrying authority to enter into transactions of the kind in question.

Ostensible general authority may also arise where the agent has had a course of dealing with a particular contractor and the principal has acquiesced in this course of dealing and honoured transactions arising out of it.[53]

The crucial aspect is that of the conduct of the Principal to make such representation to the third party so as to envisage an apparent authority for the agent.[54]


[1] Anson’s Law of Contract, 30th edition, p.715.

[2] Bowstead and Reynolds on Agency, 17th edition, p. 1.

[3] Southern Roadways Ltd. v. S.M. Krishnan, (1989) 4 SCC 603.

[4] Hari Chand Madan Gopal v. State of Punjab, (1973) 1 SCC 204.

[5] See Establishing Agency by GHL Fridman — 1968 (84) Law Quarterly Review 224 at p. 231.

[6] See Jackson & Co. v. Napper (1886) 35 Ch D 162, 172: 55 LT 836 Ch D, p. 172.

[7] See Ravulu Subba Rao v. CIT, AIR 1956 SC 604 : (1956) 30 ITR 163; See also T.C. Mathai v. District & Sessions Judge, Thiruvananthapuram, (1999) 3 SCC 614: 1999 SCC (Cri) 455.

[8] Salil Dutta v. T.M. and M.C. (P) Ltd., (1993) 2 SCC 185.

[9] CIT v. Ogale Glass Works Ltd, (1955) 1 SCR 185. See also Indore Malwa United Mills Ltd. v. CIT, (1966) 2 SCR 651: AIR 1966 SC 1466 : (1966) 59 ITR 738.

[10] State of Bombay v. Ratilal Vadilal and Bros., (1961) 2 SCR 367: AIR 1961 SC 1106 : (1961) 12 STC 18.

[11] Kuchwar Lime and Stone Co. v. Dehri Rohtas Light Railway and Co. Ltd., (1969) 1 SCR 359: AIR 1969 SC 193.

[12] Mohanlal Jain v. Maharaja Sawai Man Singhji, (1962) 1 SCR 702: AIR 1962 SC 73. [5J]

[13] Vijay Traders v. Bajaj Auto Ltd., (1995) 6 SCC 566.

[14] Section 2(a), Collection of Statistics Act, 2008 (India).

[15] Section 2(a), Prohibition of Employment as Manual Scavengers and their Rehabilitation Act, 2013 (India).

[16] Section 2(a), Anti-Hijacking Act, 2016 (India).

[17] Halsbury’s Law of England, “Agency”, Vol. I, 5th edition, 1 March 2008, AGENCY, para 1; International Harvester Co. of Australia Pty. Ltd. v. Carrigan’s Hazeldene Pastoral Co., (1958) 100 CLR 644 (652-653).

[18] Varsha Engg Pvt Ltd v. Vijay Traders, AIR 1983 Guj 166.

[19] Id.

[20] State of Bihar v. Dukhulal Das, AIR 1962 Pat 140.

[21] P Krishna Bhatta v. Mundila Ganapathi Bhatta, AIR 1955 Mad 648.

[22] Babulal Swaroopchand Shah v. South Satara (Fixed Delivery) Merchants Association Ltd., AIR 1960 Bom 48; Laxmi Ginning and Oil Mills v. Amrit Banaspati Co. Ltd., AIR 1962 Punj 56.

[23] Garnac Grain Co. v. Faure (H.M.F.) & Fairclough Ltd., (1967) 2 All ER 353 : (1967) 3 WLR 143.

[24] See also Branwhite v. Worcester Works Finance Ltd. [(1969) 1 AC 552 : (1968) 3 All ER 104 : (1968) 3 WLR 760 (HL).

[25] State of Madras v. Jayalakshmi Rice Mill Contractors Co., AIR 1959 AP 352; Laxminarayan Ram Gopal v. Government of Hydrabad, AIR 1954 SC 364.

[26] Laxminarayan Ram Gopal v. Government of Hydrabad, AIR 1954 SC 364; Qamar Shaffi Tyabji v. Commissioner Excess Profits Tax, AIR 1960 SC 1269; Chandi Prasad Singh v. State of Uttar Pradesh, AIR 1956 SC 149.

[27] Premji Damodar v. Firm LV Govindji and Co., AIR 1943 Sind 197.

[28] Id.

[29] Bhopal Sugar Industries Ltd. v. STO, (1977) 3 SCC 147 : 1977 SCC (Tax) 401.

[30] Pollock and Mulla, The Indian Contract Act, 1872, 15th edition, R Yashod Vardhan, Lexis Nexis, 2018, Gurgaon, p. 1535.

[31] Chitty on Contracts, (26th edn.) in paragraph 2502 at page 4.

[32] Chitty on Contracts, 28th edition, Vol. 2, P. 3, paras 32-003; Daruwala Bros Pvt Ltd v. CIT, (1971) 80 ITR 213 (Bom).

[33] Chitty on Contracts, 28th edition, Vol. 2, P. 3, paras 32-008.

[34] CESC Ltd. v. Subhash Chandra Bose, (1992) 1 SCC 441: 1992 SCC (L&S) 313; Khedut Sahakari Ginning & Pressing Society Ltd. v. the State of Gujarat, (1971) 3 SCC 480.

[35] Kamlesh v. Jasbir Singh, AIR 2004 P&H 216.

[36] Morarji Premji Gokuldas v. Mulji Ranchhod Ved & Co., AIR 1924 Bom 232; Khub Chand v. Chittar Mal, AIR 1931 All 372; Shaw Ahmed Mohiuddin Kadri v. Shah Yehiya Alum Kadri, AIR 1950 Hyd 52; Laxmi Ginning and Oil Mills v. Amrit Banaspati Co. Ltd., AIR 1962 Punj 56.

[37] Ammaly Kutty Amma v. Vasudevan Nair, AIR 1957 Tr&Coch 179; SS Dhundhsi & Co. v. Bailur Ramaraya Manjunath Shavbag, AIR 1973 Mys 195.

[38] Jagrup Singh v. Ram Kishan Das, AIR 1920 Oudh 105.

[39] Khub Chand v. Chittar Mal, AIR 1931 All 372.

[40] Pollock and Mulla, The Indian Contract Act, 1872, 15th edition, R Yashod Vardhan, Lexis Nexis, 2018, Gurgaon, p. 1537.

[41] Gaya Sugar Mills Ltd. v. Nand Kishore Bajoria, AIR 1955 SC 441.

[42] Phuljari Devi v. Mithai Lal, AIR 1971 All 494 (498).

[43] Mohd. Serajuddin v. the State of Orissa, (1975) 2 SCC 47, AIR 1975 SC 1564.

[44] Harshad J. Shah & Anr. v. LIC of India & Ors., (1997) 5 SCC 64.

[45] Abdulla Ahmed v. Animendra Kissen Mitter, 1950 SCR 30: AIR 1950 SC 15.

[46] Chairman, Life Insurance Corporation v. Rajiv Kumar Bhasker, (2005) 6 SCC 188.

[47] Delhi Electricity Supply Undertaking v. Basanti Devi, (1999) 8 SCC 229.

[48] Pulin Behary Saha v. Mathura Nath Saha Biswas, AIR 1928 Cal 863.

[49] Foujdar Kameshwar Dutt Singh v. Ghanshyamdas, (1987) Supp SCC 689.

[50] India Umbrella Manufacturing Co. v. Bhagbandei Agarwalla, (2004) 3 SCC 178.

[51] SN Aarick v. State of West Bengal, AIR 1963 Cal 79; Bowstead and Reynolds on Agency, 17th edition, p. 33.

[52] Moosa Bhoy v. Kristiah, AIR 1952 Hyd 79.

[53] Armagas Ltd. v. Mundogas S.A. [1986 AC 717 : (1986) 2 All ER 385 : (1986) 2 WLR 1063 (HL).

[54] Gurtner v. Beaton, (1993) 2 Lloyd’s Rep 369 (CA); Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd., (1964) 2 QB 480 : (1964) 1 All ER 630 : (1964) 2 WLR 618 (CA).


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