1. Agency Service
Introduction
You have already learnt that goods and services are made available to consumers by the producers
either directly, or through retail stores, or through some intermediaries such as wholesalers and
retailers. You have studied about the services provided by these intermediaries — wholesalers and
retailers in one of your previous lessons. Besides these intermediaries, you may also utilize the services
of some other intermediaries in your day to day life. For example, when you want to raise a loan, you
seek the advice of someone who knows the procedure to be followed for raising loan; when you want to
buy a house, you take the help of some property agent. In the same way, when you want to invest your
savings, you take the advice of a person who knows the pros and cons of different avenues of
investment. These intermediaries from whom you may seek specialized services are known as agents
and their business as agency. In this lesson, you will study about agents and their activities.
Objectives
After studying this lesson, you will be able to :
• define the terms ‘agent’ and ‘agency’;
• state the importance of agents and agency in to-day’s business world;
• differentiate between an agent and servant/contractor;
• identify the legal maxims that form the basis of law relating to agents;
• indicate the person who can appoint an agent and who can be appointed as an agent;
• identify the key activities involved in rendering various agency services; and
• discuss the rights and duties of an agent.
Definition of agent and agency
An agent is a person employed to do any act for another, or to represent another in dealings with any
third person. The person for whom such act is done, or who is so represented is called the principal. The
relationship between the agent and the principal is called ‘agency’. In simple words, we can say that an
agent is a person who is engaged to act on behalf of anotherperson and deals with other parties as a
representative of some person or persons. Thus, for example, when Shrey asks Sameer to represent him
in dealing with Sanjay, then Shrey is the principal, Sameer, the agent and Sanjay, the third party. All such
activities done on behalf of others are included in agency service. Under Agency Service, an agent works
as a link between the principal and other parties. An agent is fully authorized to work on behalf of the
principal. The work done by an agent for his principal will be legally deemed to have been done by the
principal himself who is responsible for all his actions. For example, a person engages a servant and asks

2. the shopkeeper to supply him goods. The servant continues to purchase goods from the shopkeeper.
After some time, the person discharges the servant but does not inform the shopkeeper of this. If later
on, the servant continues to purchase goods from the shopkeeper, the shopkeeper is entitled to claim
money from the person. Remember that a principal is liable only for the lawful acts of his agent. If for
example, an agent, on directions of his principal, beats up a person and is fined as a result, then he
cannot make his principal liable to reimburse the amount of fine. We have now known about the
principal and the agent.
Test of Agency:
Agency exists whenever a person (the agent) can bind another (the principal) by acts done on his behalf.
Where this power does not exist, the relationship is not one of agency. Thus, a wife is not an agent of
the husband except under special circumstances and for special purposes. But, if a person appoints a
broker to sell his car on his behalf, the broker is an agent. Now let us see who can appoint an agent and
who can be an agent. Who can appoint an agent? Any person who is an adult, of sound mind, having an
ability to enter into a contract, can appoint a representative or an agent. Only a capable adult can
appoint a representative or an agent.
Who can be an Agent?
Under the law, no qualifications have been prescribed for an agent; any person who has the full
confidence of the principal can work as an agent. A minor or a person of unsound mind may also be
appointed as an agent, but he cannot be held liable by the principal for any negligence in performing the
work. Thus, if a person appoints a minor to sell his old car for not less than Rs.40,000, and the car is sold
for Rs.35,000, the owner of the car will be bound by the transaction, and he will have no right against
the agent for compensation.
Difference between an Agent and a Servant
After studying the definition of an agent, you may be under the wrong impression that an agent is a
servant of the principal. This is, however, not true. The difference between an agent and a servant may
be clearly understood from the following table: see last page
Difference between a Contractor and an Agent
Perhaps you might have heard about contractors. The contractors work on contracts to construct
buildings, dams, roads, bridges etc; and work according o the plans and maps of the architects and
engineers. They also arrange for labour and materials. The contractor’s remuneration is either a fixed
amount or a certain percentage of the total construction cost. Work must be completed within a fixed
period. Although the contractor works for the principal, he is not the representative of the principal. As
such he is different from an agent. He works independently and runs the risks involved in the contract
work.

3. Importance of Agents and Agency
Human necessities were limited in ancient times. Production was limited and it was only for satisfaction
of individual requirements. As the requirements increased, producers started producing goods keeping
future demand in view. There was development of specialization in each area of production; trade
crossed the local boundaries and became international. Situations such as these gave birth to agents. In
modern times, agents play an important role. On account of their special ability and experience, they
work as an important link between the producer and consumer, buyer and seller, creditor and debtor
and employer and employee. Their business is called Agency Business. In modern times, agency business
is an important means of providing employment. Unparalelled development may be seen in the role
played by the agents in various areas of industry, purchase and sale, investment, employment and even
in life. Now a days the agency work is looked at with respect and pride. It is on account of this reason
that more and more people are adopting agency work as a profession. The Government, having realized
the importance of agents, gave them legal recognition and regularized their activities. The relation
between the Principal and the Agent is recognised in law under the Indian Contract Act.
Characteristics of Agency Service.
You have already studied the relationship between an agent and a principal.
You also know that an agent is not a servant. Let us now learn about the
main characteristics of an Agency. These are given below:-
1. Basis : Mutual relations between the principal and the agent are based
on good behaviour and full faith. By good behaviour we mean that
the agent should work honestly and diligently. By full faith we mean
that the principal must have full faith in the agent. A person cannot
be said to be another person’s agent simply because he is working as
an agent. It is essential that the principal must be fully responsible for
the activities of the agent with regard to the Agency.
2. Consideration: Unlike other contracts, it is not necessary to have a
clause for consideration in the contract of agency. But on completion
of the contracted work, remuneration is paid under the terms of the
contract.
3. Liability: The main characteristic of the relation between the principal
and the agent is that the principal is liable for each lawful activity
performed by the agent. Agent is not personally liable for anything.
Even if an agent while performing any act carefully and honestly,
takes any wrong decision in ignorance which results in some loss,
only the principal will be liable for that wrong decision and the loss.
4. Qualification: A capable adult person may appoint any other person
as an agent. No qualification is prescribed for an agent. A minor can
make the principal liable for his legal activities but he is himself not liable.

4. Whether an individual or an organization is an Agent or not can be verified
from the answer to the question whether or not the agent can make the
principal liable for his action. If the answer is in the affirmative, the person
or organization is an agent, otherwise not. The relation between the agent
and the principal is based on either oral or written agreement or it may be
based on implied agreement. We shall study about this later.
41.6 Legal Maxims forming the basis of law relating to agency
There are a number of legal maxims which form the basis of law relating to
agency. These are mentioned below:
1) What an agent does within the scope of instructions given to him
binds the principal as if he had done it himself. Thus, a basic maxim
or principle of agency is “He, who does through another does by
himself”. (Qui facit per alium facit per se)
2) When a person has by his conduct or statements induced others to
believe that a certain person is his agent, he cannot subsequently deny
it. This is the rule of agency by estoppel.
3) Where an agent does an act for his principal but without his knowledge
or authority, or where he exceeds the given authority, the principal is
not bound by the transaction. But if he so desires he may later on
agree to abide by the act of the agent. This is known as agency by
ratification. After ratification, agency is taken to have come into
existence from the point of time when the agent first acted, not from
the date of principal’s ratification.
4) The general rule of law is that an agent cannot appoint an agent,
(Delegatus non-protest delegare). The principle underlying this rule is
that an agent is normally engaged by the principal on the basis of his
confidence in the agent and he may not have the same confidence in
the person appointed by the agent. However, an agent may appoint an
agent (or sub-agent) under certain circumstances, for instance, where
the principal permits it, or it is customary in any trade, or the work
of the agent cannot be performed otherwise.
Key Activities involved in agency services
Any person or firm rendering agency services is required to undertake certain
key activities, which depend upon the nature of services. Let us list the key
activities involved in the case of different agency services.
(1) Insurance agency: It involves educating people about the benefit of
insurance and informing them about the terms and conditions of

5. insurance like premium payable, etc.; helping people (Clients) to fill
up the form of application for insurance; collecting premium on behalf
of the insurance company; help the insured people to settle any claim
that they may have to realize from the insurance company.
2) Saving and investment agency: It involves educating people about
the benefits of saving; inform them about alternative channels of
investment with safe and stable income; collecting the savings at
intervals on behalf of the organization; helping the investors in getting
loans against the investment, if needed
3) Advertising agency: It involves preparing advertisement copies;
selecting the most suitable medium of advertisement for the client;
securing space for printed advertisement and time for radio and TV
advertising.
4) Tours and Travel agency: It involves selecting places of tourist
attraction; drawing up itinerary of tours; getting reservation for travel;
booking hotel accommodation; ensuring that the date, time and place
of departure and arrival on return are decided in advance and intimated
to the tourists concerned.
5) Property agency: It involves keeping the people informed about land
and house property on sale or available on rent; arranging the clients’
visit to the site of property; acting as a link between the property
owner and the client when the sale or hiring is finalized.
6) Courier Service: It involves keeping users (clients) informed about
the availability of service; collecting letters, parcels or other articles
from the senders; arranging despatch of the articles by messenger,
roadways, railways or air transport; sending proof of delivery to the
senders concerned.
Duties and Rights of an Agent
You are aware that the principal is liable for the acts of the agent. You have
studied about the meaning and importance of agent and his activities; about
the characteristics of agency and about the methods of establishment of agency.
Now we shall study about the duties of an agent towards his principal and
about the rights of the agent. The main duties of an agent towards his
principal are given below.

6. Duties of an Agent.
(i) To act according to principal’s directions: It is the duty of the
agent to act in accordance with the order and directions of the principal.
In the absence of clear cut directions, the agent should follow the
prevalent trade practices. If the agent does not act according to the
directions of the principal, he has to compensate the principal for the
losses, if any, incurred by him. For example, if the principal directs
the agent to insure the goods, but the agent forgets to do so and the
goods are destroyed by fire, the agent will have to compensate the
principal for his loss.
(ii) To act with reasonable diligence: The agent should carry out the
work of the principal with due diligence. If some work is not done
efficiently and with reasonable diligence, the agent has to compensate
for the losses. For example, A an agent, sells goods on credit to C
without making proper enquiries about C’s solvency. At the time of
sale, C was bankrupt. In this case A will have to compensate the
principal for the loss.
(iii) To render accounts: It is the duty of the agent to render correct
account of all the transactions to the principal from time to time.
(iv) To communicate with the Principal during emergency: In case of
difficulty while doing some work, the agent should contact his principal
and get instructions from him.
v) No delegation of authority: No agent can appoint a sub-agent to
complete the work assigned by the principal. But in certain
circumstances sub-agents can be appointed. For example in emergency,
when the work is clerical or according to prevalent market practices,
a sub-agent can be appointed. The nature of business may also
necessitate appointment of sub-agents, for example, travel agents of
Indian Airlines carry on business through their sub-agents in different
areas.
vi) Not to misuse authority: It is the duty of the agent not to misuse
the information obtained by him from his principal and from other
sources and he should not try to make any personal gain, for example,
purchasing goods of his principal at low prices himself and earning
profits.
vii) Payment of dues: It is the duty of the agent to deduct expenses
incurred and the fixed amount of commission from the total sale
proceeds and to pay the balance to the principal immediately.

7. viii) Not to deal in his own name: It is the duty of the agent to ensure
that no competitor makes personal money out of the agency work. If
an agent does some such work and earns profit out of it, it is his duty
to submit its accounts to the principal. For example, an agent sells 25
sacks of his own sugar alongwith 50 sacks of his principal and earns
personal gains. Under this situation, the agent is required to render
full accounts to his principal.
ix) To protect the interest of his principal: In case of untimely death
of the principal, or in case he becomes insane or is insolvent, it is the
duty of the agent to safeguard the interest of the principal.
x) Not to set up an adverse title: It is the duty of the agent not to set
up an adverse title to the goods received by him as an agent from the
principal. Whatever he does should be in accordance with the directions
of the principal and in the interest of the principal.
Rights of the Agent
Rights and duties are supplementary to each other. We have discussed above
the various duties of the agent. Let us now study the various rights of the
agent. The rights of the agent are given below:
i) Right to receive remuneration: The agent has the right to receive
from the principal reasonable remuneration for the work done by him
in accordance with the agreement. As soon as the agent finishes his
work, he has the right to receive remuneration. For example, a producer
appoints an agent to procure orders for his goods. He is eligible to
receive remuneration after he procures orders. It does not matter
whether the producer fulfils those orders or not.
ii) Right to adjust his dues: The agent can deduct advances given by
him to the principal, the expenses incurred by him and the remuneration
to be received from the sale proceeds of goods.
iii) Right of lien: If the principal does not clear the account of the agent,
the latter has the right of lien on the goods of the principal, that is,
the agent can keep the goods in his possession for realizing his dues.
iv) Right of indemnification: If an agent suffers any loss on account of
the carelessness or inefficiency of the principal, the agent has the right
to receive compensation. The principal can be made responsible for all
legal actions taken by the agent to protect the interests of the principal.

8. Personal Liabilities of the Agent
Though the principal is responsible for all legal actions taken by an agent,
the agent can be held responsible by other parties in the following
circumstances:
i) When the agreement itself provides for the personal liability of the
agent;
ii) When the agent acts for any foreign Principal;
ii) When the agent works for some secret or undeclared Principal;
iv) When the agent works for an incapable Principal (e.g. minor, person
of unsound mind, etc. against whom no case can be filed in the court);
v) When the agent enters into an agreement in his own name
vi) When the agent works outside the limits of his rights;
vi) When the agent earns personal profit by fraudulent means;
viii) When the agent compromises with false statements or fraudulent
actions;
ix) When the agent is held personally responsible according to trade
practices;
x) When the interest of the agent is also included in the agency agreement.
What You Have Learnt
A person who works on behalf of another person and represents that person
while dealing with others, is called an Agent. The person on whose behalf
the work is done is called Principal. Any person may become an agent.
Duties of the Agent
To act according to the direction of the principal
To act with diligence

9. To render accounts
To communicate with the Principal during emergency
Not to misuse authority
No delegation of authority
Payment of dues
No transaction for personal interest
To protect the interest of Principal
Not to set up adverse title
Rights of the agent
Right to receive remuneration
Right to adjust his dues from sale proceeds
Right of lien
Right of indemnification
Right of compensation
Terminal Exercise
1. What is meant by 'Principal' and 'Agent'?
2. What are the main characteristics of an agency?
3. Under what circumstances can the agent be personally held responsible?
4. What are the rights and duties of an agent?
5. Vinod directs his representative Pramod to purchase house No.999.
Pramod likes that house and he purchases it for his own self. On the
other hand he tells Vinod that the house could not be purchased. In
the above circumstances, what are the rights and duties of Vinod and
Pramod?
6. Ajay purchases goods for Ram Narain without his authority and sells
the same to Sangeeta on the liability of Ram Narain. Can the above
actions of Ajay be ratified by Ram Narain?
7. What is the test of agency?
8. Is Agent a servant? Distinguish between a servant and an agent.
9. Discuss the following:
a) Agent is a special servant. b) One who makes an agent work, acts himself.