AGENCY Defination

Modern business is becoming more complex day by day. As such it is not possible for an individual to carry out business singly. He must necessarily depend on others for the efficient running of the business.

He must delegate some of the powers to another. The person who acts on behalf of another or who has been delegated the authority is called an agent. The person who authorizes another to act is called the principal. The contract which creates the relationship of principal and agent is called ‘agency”. The law of agency is based on the principle, “what a person does by another, he does by himself”.

SECTION 1. Agency: Definition and key features

Agency is a relationship between two parties created by agreement express or implied. The relationship of agency arises wherever one person called the agent has authority to act on behalf of another called the principal. The concept of agency emphasizes that one person brings two other persons into a legal relationship. It is this power of creation of a relationship between the principal and the third parties that the essential importance of agency lays. It may be noted that an agent is not a mere connecting link between the principal and the third parties. He has the power to make the principal answerable to the third parties for his conduct.

The relationship of agency is based upon a contract. The contract may be either express or implied. The essentials of agency are as follows:

  • There should be the appointment by the principal of an agent
  • The principal should confer authority on the agent to act for him
  • The authority conferred must be such as will make the principle answerable to third parties.
  • The object of the appointment must be to establish relationship between principal and third parties.
  • The relationship of agency, being based on confidence between the principal and the agent, deems that no consideration is necessary.


SECTION 2. Agent

  • Definition

Every person who acts for another is not an agent. A person does not become an agent on behalf of another merely because he gives him advice. A person can be an agent when he is authorized to act for the principal. To be an agent “the person employed must be authorized to do any act for another or to represent in dealings with third parties.” The person for whom such act is done or who is so represented is called the principal.


  • Who may be an agent?

Any person can be an agent. In other words even a minor can be employed as agent and the principal shall be bound by the acts of such 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.

Thus, if an agent is to be held reliable to the principal he must be a major and of sound mind.

 Who may be a principal?

A person who is a major and who is of sound mind can employ another person as an agent. A person who is of the age of majority and is of sound mind can become a principal. Thus a minor cannot become a principal

 Types of agents

The term agent applies to anyone who by authority performs an act of another, and includes a great many classes of persons to who distinctive names are given. There may be various types. The important one are classified as under:

Express or implied agents

An express agent is one who is appointed verbally or by writing. An implied agent is one whose appointment is to be inferred from the conduct of the parties.

General, special or universal agents

A general agent is one who is employed to transact generally all the business of the principal in regard to which he is employed. A special agent has only authority to do some particular act or represent his principal in some particular transaction. A universal agent is one who is authorized to transact all the business of his principal of whatever kind and to do all the acts which the principal can lawfully do and can delegate.

Agent or Sub –Agent

An agent derives his authority directly from the principal .A sub–agent derives his authority from the agent who has been appointed to do the act.

One broad classification of agents is Mercantile or commercial agents and non-Mercantile or non-Commercial agents.

Mercantile Agents: the following are some of the important types of mercantile agents-:

  • Factor; A factor is a mercantile agent to whom possession of goods is given for sale. Generally speaking he is a person to whom the goods are consigned for sale by a merchant residing abroad, or at a distance from the point of sale. He usually sells the goods in his own name. He cannot barter or pledge the goods. He has a general lien for the balance of account as between himself and the principal.
  • Auctioneer: An auctioneer is an agent who is appointed to sell goods at a public auction for remuneration. He may or may not be entrusted with the possession or control of the goods which he sells. He may be agent both for the seller and the buyer. The auctioneer can sue for the purchase price in his own name.
  • Broker: A broker is a mercantile agent who is employed to make contracts for the purchase and sale of goods for a commission called brokerage. A broker unlike a factor is not entrusted with the possession of the goods. Even the documents of title are not made over to him. His business is to find purchasers for those who wish to sell, and sellers for those who wish to buy. His duty is to bring parties together to bargain or to bargain for them in various matters. He makes contracts in the name of his principal and not in his own name. He is a mere negotiator or, in a sense, a middleman.
  • Commission Agent: A commission agent is a mercantile agent who in consideration for a certain commission engages to purchase or sell goods for his principal. He sells and buys goods in the market on the best terms and in his own name. His only interest in the transaction is his commission. All profits and losses accrue to the principal
  • Del credere Agent: A Del credere agent is an agent who in consideration of an extra remuneration guarantees to his principal the performance of the contract by the other party. This Del credere commission is a higher reward than is usually given in the form of commission. He occupies the position of the guarantor as well as of an agent. But his liability is secondary and arises only on the insolvency or failure of the other party. A Del credere agent is appointed generally when the principal deals with persons about whom he knows nothing.
  • Banker: The relationship between a banker and the customer is either that of debtor and creditor or of an agent and principal. When the banker advances money to his customer as a loan, banker is the creditor and the customer is the debtor. But the banker acts as an agent of his customer when he buys or sells securities, collects cheques, dividends , bills etc. on behalf of his customer


  • Non-Mercantile agents

Non–Mercantile agents include counsel, solicitor, guardian, promoter, wife, receiver, insurance agent etc.

SECTION 3. Creation of agency

An agency may arise in different ways. It need not be created expressly and may be inferred from the circumstances and conduct of the parties. Any agency may be constituted in the following ways.

  • By express agreement,
  • By implication in law i.e., from the conduct of the parties or from the necessity of the case; and
  • By ratification


 Agency by express agreement

A contract of agency may be created by an express agreement. When a principal appoints an agent either by words spoken or written to represent and act for him, an express agency is created. No particular form or set of words is required for appointing an agent. When a person gives the power of attorney to another person, an express agency is created.

Agency by implication

The relationship of principal and agent need not be expressly constituted and can arise by implication of law as well. Authority to act as an agent can be inferred from the nature of the business, the circumstances of the case, the conduct of the principal or the course of dealings between the parties. Thus if a person realizes rent and gives it to the landlord, he impliedly acts for the landlord as an agent.

Example: A owns a shop at Remera, living himself in Kabuga and visiting the shop occasionally. The shop is managed by B and he is in the habit of ordering goods from C in A’s name, for the purpose of the shop and of paying for them out of A’s funds with A’s knowledge. B has an implied authority from A to order goods from C in the name of A for the purpose of the shop. Implied agency includes-:

  • Agency by estoppel;
  • Agency by holding out; (c) Agency by necessity.
  • Agency by estoppel: In many case an agency may be implied from the conduct of the parties though no express authority has been given. Thus where the principal knowingly permits to act in a certain business in his name or on his behalf, such a principal is estopped from denying the authority of the supposed agent to bind him.
  • Agency by holding out: Where a person permits the other by a long course of conduct to pledge his credit for certain purposes, he is bound by the act of such person for pledging his credit for similar purposes, though in some cases without the previous permission of his master. This is a case of agency by “holding out “. Similarly where a husband holds out his wife has having his authority by words or conduct and a third party advances to the wife on the faith of such conduct; the husband is liable for the debts.
  • Agency by necessity: Sometimes extraordinary circumstances require that a person who is not a really agent should act as an agent of another. In such a case although there might not have been an express or implied authority to do an act, the law implies such an authority in favour of that person in account the necessity that has arisen.

However before an agency of necessity can be inferred, the following conditions should be fulfilled-:

  • There should be real and definite necessity for the creation of the agency.
  • It should be impossible to obtain the principal’s instructions.
  • The person acting as an agent should act bona fide and in the interest of the parties concerned.

Agency by ratification

All acts of an agent done in the discharge of his duties and within the scope of his authority is binding upon the principal. Acts performed by an agent beyond the scope of his authority are not binding upon the principal. However the principal may in such case either adopt or reject the act of the agent. In case the principal adopts the acts of the agent done without his authority, he is said to have ratified that act. On ratification the act of the agent becomes the act of the principal and he becomes bound by the same whether be to his loss or advantage.

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