In this blog post, Aditi Sampat, Advocate at Nabco Enterprises Pvt Ltd and a student of the Diploma in Entrepreneurship Administration and Business Laws by NUJS, discusses the key covenants of an agency agreement.
Law of Agency under the Indian Contract Act, 1872
The law related to “Agency” as in India, and most other jurisdictions are defined as a relationship where one person, namely the agent, has the authority to act on behalf of another, namely the principal, as in to create legal relationships between the latter and third parties.
The basis of the Law of Agency in India has been coded in the Indian Contract Act 1872 which contains the statutory provisions that govern the rights and obligations of both the principal and the agent.
Formerly, under the Act, “an agent” is a person employed and authorised to do any act for another and to represent the other person in dealings with third parties. Whereas, the person who employs and authorises the agent to do such acts is called the “principal”. The contents of the agreement would describe the nature of agency between the agent and the principal.
It should, however, be noted that not every person who acts on behalf of another can be designated as agent. An employee, as an example, technically is a representative of the employer, but may not be authorised to act on behalf of the employer. The terms of the employment agreement specify the boundaries under which an employee performs and exercises authority in the organisation where he is employed.
The determination of whether a person is an agent can be ascertained by the fact whether he acts for himself or on behalf of the principal. A contract wherein a person undertakes to be personally liable, is not a contract of agency.
The Indian Contract law stipulates that it is not necessary to have a formal written document to create a contract of the agency since the same be inferred from the circumstances and the conduct of the parties. An agency may exist and would be valid even without consideration which is an exception to the rule that agreements without consideration are void. In addition, according to Section 183 of the Indian Contract Act, any person who is a major and is of a sound mind may be employed as an agent.
What are Covenants?
According to Black’s Law Dictionary, particularly whilst referring to Contract Law, a covenant is an agreement or promise made by two or more parties by deed in writing, signed, sealed and delivered wherein either of the parties pledges that something is done or shall ought to be done or stipulates for the truth of certain facts.
A covenant, in its most general and historical sense, is a solemn promise to engage or to refrain from a specified action. The English Common Law distinguished a Covenant from a Contract by the presence of a seal. Hence, under the English Common Law, a covenant could be enforced without consideration. Under the United States Law, in a contract, an implied covenant of good faith is presumed.
In other words, a covenant is a type of contract wherein the covenantor makes a solemn promise to the covenantee to do or not to do some action.
Key covenants of Agency Agreements
Covenants bind the Agent as well as the Principal. Under the Indian Contract Act, the following are the covenants between the agent and the principal –
Powers of the Agent – The authority of the agent is not only limited to the acts that are expressly granted under the agency agreement, but also the agent has the implied authority to perform all the acts incidental to the main act. The Act also provides that the agent has the powers to do all the acts for protecting the principal in all emergencies as would be done by a person of prudence to protect himself in the event, any emergency arises.
Duties of the Agent – The following are the duties of the Agent:-
- Conducting the business of the principal according to the directions given by the principal.
- Conducting the business of the agency competently and to compensate the principal in the event of his own neglect for want of skill or misconduct.
- Rendering proper and correct accounts to the principal.
- Using all reasonable diligence in communication with the principal and seeking to obtain his instructions.
- To pay to the principal, all sums received by any work done on the latter’s account done in the course of the business and without the previous consent of the principal.
It should be noted that the above duties are not subject to any contract.
Rights of the Agent – The following are the rights of the Agent:-
- The agent has the right to claim from the principal, any expenditure incurred in the course of the agency business.
- The agent has a lien on the goods for the dues payable by the principal.
- The agent can adjust his commission against the amount payable to the principal.
The above rights are subject to a contract to the contrary containing different provisions stipulating the rights of the agent.
Duties of the Principal – The following are the duties of the Principal:-
- Indemnification of the agent by the Principal against any consequences of all lawful acts done by the agent in the exercise of the authority conferred on him.
- Compensation to be made to the agent by the Principal in respect of any injury caused to the agent by the principal’s neglect or want of skill.
The above duties cannot be avoided by agreement.
Sources
- http://lawquestinternational.com/agency-law-india
- http://www.netlawman.co.in/ia/agency-finer-details-in-the-indian-context
- https://www.scribd.com/doc/20874146/Agency-Indian-Contract-Act-1872
- http://thelawdictionary.org/covenant/
- https://en.wikipedia.org/wiki/Covenant_(law)
