Explain the meaning of agency. Discuss the various kinds of agents.

What are the

modes of creation of agency? Discuss. 5+7+13=25
Or
Define Agency. Discuss the modes of creation of agency under the Indian Contract Act,
1872.
Or
What do you understand by agency? How is agency created? 10
Or
Explain in brief the various modes of creation of agency. What are the types of agent?

Ans.

An agent is a person employed to do any act for another or to represent another in dealing
with third parties. The person for whom such act is done or who is so represented is called the
principal. Where one person mere gives advice to another in matter of business agency does
not arise because of such advice only does not create an Agency. Sayed Abdul Khader v/s
Rami Reddy,1979.

The following are the various ways in which a relationship of agency is created:-

WHO MAY EMPLOY AGENT:- No person can employ an agent if he does not possess
capacity to contract. So a minor or person of unsound mind cannot become the principal
under section 183 of the Indian Contract Act.

WHO MAY BE AN AGENT:- According to section 184 of the Act any person can be
appointed as an agent but a person who is not of age of majority and of sound mind cannot be
made personally liable for the act done on behalf of the principal. Minor can create
contractual relation but a minor agent cannot be made personally liable to the principal for the
misconduct like an adult agent.

CONSIDERATION: No consideration is required for the creation of an Agency under

section 185 of the Act.A case of Digvijay Cement Co.Ltd. v/s State Trading Corpn., 2006.

Various Methods of Creation of Contract of Agency under Indian Contract Act

Agency by Express Agreement:

This is the most obvious and simple method by which the agency can be created. The express
word implies directly and firmly. Thus, there is a clear categorical statement of intention by
both the parties, Principal as well as the Agent, to enter into the relationship.

This leads to the express authority being vested in the agent. The authority of the agent can be
express and implied. The implied authority would be discussed later. The express authority is
given by words spoken or written. Hence, there come two types in which this express agency
can be created- Oral or Documentary.

Agency by operation of law:

At times contract of agency comes into operation by virtue of law.

For example: According to partnership act, every partner is agent of the firm as well as other
parties. It is implied agency. On account of such implied agency only a partner can bind over
firm as well as other partners, to his activities. In the same way according to companies act
promoters are regarded as agents to the company

Agency by Ratification:

A principal may subsequently ratify an act done by a person who acted on his behalf without
his permission or knowledge. If the act is ratified, a relationship of the agency will come into
existence and it will be as if he had previously authorized the person to act his agent.
Ratification may be express (by speech or writing) or implied (by act or conduct).

Illustration: Z bought apples on behalf of X, without his permission or knowledge. X later

sold those apples to another person. This act of X impliedly ratifies the purchase made by Z.

Ratification is not allowed in the following cases:

When the person’s knowledge of the facts of the case is defective. That is, he only half knows
things that he is ratifying to.

An act done on behalf of another person which would have the effect of injuring or harming
the person or violating any of his rights if the act was done with his authority.

Agency by implied authority:

This type of agency comes into force by virtue of relationship between parties or by conduct
of parties.

For example: A and B are brothers, A has got settled in foreign country without any request
from A, B has handed over A`s agricultural land on these basis to a farmer and B is collecting
and remitting the amount of rent to A. Here automatically A becomes principal and B
becomes his agent. Agency by implied authority is of three types as shown below.

• Agency by Necessity

• Agency by Estoppel  Agency by Holding out.

(I)By Necessity:

At times it may become necessary to a person to act as agent to the other in emergency
situation where the property or interest of another is in danger. The conditions which enable a
person to act as an agent of another in necessity are as follows:

There should be a real necessity for acting on behalf of the principal.

It should be impossible to communicate with the principle within the time available.

The alleged agent should act bonafide in the interest of the principal.

For example: A has handed over 200 bags of butter for transportation, to a road transport
company. Actually, it is bailment contract assume that in the transit all vehicles have got
stopped where it takes one week for further movement. So, the transport company
authorities have sold away the butter in those nearby villages. Here agency by necessity can
be seen.
(ii)By Estoppel:

Where a person, by his conduct or words spoken or written, willfully leads another to believe
that a certain person is acting as his agent, he is estopped later on from denying the truth of
the fact that such a person is dealing as his agent.

Example: In presence of X, Y says to Z that he (Y) is X`s agent though it is not so actually.
X has not restricted Y from making such statement. It is agency by estoppel.

(iii)By Holding out:

The principal is bound by the act of agent if on an earlier occasion he has made others believe
that other person doing some act on his behalf is doing with his authority.

Example: A is B`s servant and A has made B accustomed to bring goods on credit from C.
On one occasion A has given amount to B to bring goods from C on cash. Z bought goods on
credit as usually and runs away with the money. This is agency by holding out and therefore
A is liable to pay amount to C.

Case Law: Kuchwar Lime & Stone Co. vs. Dehri Rohtas Light Railway Co. Ltd. & Anr. [4]

Delegation of Authority by Agent

An agent may sometimes delegate the duty that has been delegated to him by the Principal to
somebody else. Ordinarily, an agent cannot delegate the duty he is supposed to perform
himself to another person (delegatus non potest delegare), except in particular circumstances
where he must, out of necessity, do so. Section 191 of the Indian Contract Act, 1872 defines
a sub-agent to be a person employed by and acting under the control of the original agent in
the business of the agency.

Delegatus non potest delegare:

An agent cannot in ordinary circumstances delegate the duty that was delegated to him. The
principle is based upon the idea that when a Principal appoints an agent, he does so by
placing his confidence and trusts in the agent and might not have similar trust in the work of
another person.

KINDS OF AGENT:- On the basis of provisions available in the Contract Act the following
are kinds of Agent in the business of Agency:-

1. Del-Credere Agent:- Such type of Agent who for extra remuneration undertakes the
liability of guarantee the due performance of the contract by the other party. He is also
responsible for the solvency and performance of their contracts by the other parties.

2. COMMISSION AGENT:- A commission agent is person who purchases and sells goods
in the market on behalf of his employer on the best possible terms and who gets
commission for his labor.

3. FACTOR:- He is such type of agent who is given the possession of the goods for the
purpose of selling them. He is entitled to sell the goods in his own name. A factor has a
right to retain the goods for a general balance of accounts.
4. BROKER:- He is also to be known in the name of Mercantile Agent employed for the
purpose of sale and sale of goods. The main duty of a broker is to establish privity
between two parties for a transaction and he gets commission for his labour. He is not
entrusted with the possession of the goods. He merely brings two parties together and if
the deal is materialized he becomes entitled to the commission.

5. CO-AGENT:- Where several persons are expressly authorized with no stipulation that
anyone or more of them shall be authorized to act in name of the whole body. They have
a joint authority and they are called co-Agents.

6. Sub-Agent:- The sub-agents are usually appointed by the original Agent in the business
of Agency. He works under the control of original Agent.

7. PACCA- AARTIA:- He is also known by this name only and he works in the open
market to sell the goods on commission basis. He only sells the goods.

CONCLUSION:- As regards to determine whether relationship is that of Agent and

Principal or that of Master and servant. Agent has to remain faithful to his principal and has
work in good faith in the business of Agency. There must be relation in between principal and
the agent. Merely giving advice to another person in the matter of business does not arise any
business of agency. The main object of the agency business that the agent makes the principal
answerable to third person.