When someone acts in the name of or on behalf of another, he or she is professionally known as an agent representing the main authority. In most cases, they have some degree of authority to perform specific tasks. Most of the organized human activity of Indian Contract Act 1872 – classes of agents and almost all commercial prospectuses run through an agency. No corporation is possible without the concept of agents. If we say, for example, Extensive Motors is manufacturing vehicles in Russia, we can’t shake hands with Extensive Motors. Therefore, Extensive Motors works and exists under agents.
Similarly, business organizations and partnerships rely on agents for conducting their businesses. It is not an overstatement to say that agency is the base of any enterprise organization. This is the reason, understanding the concept of classification of agents is crucial.
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What is an Agent in Business?
To make it simpler, let us consider the roles in a business partnership. When it comes to partnership, each partner plays the role of a general agent. Similarly, if we consider a corporation law, all the officers and employees are agents of the corporation. There are different types of agents, but we will cover this part later. The agent’s existence is based on a new set of contracts that depends on the situation or business type. In terms of an agent negotiation, a tort is no less harmful, and a contract is no less binding.
What are the Types of Agents?
There are different kinds of agents. However, to know this clearly, one needs to understand the functions of agents in business. An agent is intermediary acting on behalf of a principal. He or she will be an authorized person to make connecting agreements between the principal and the customers. Therefore, the types of agents are as follows.
Selling Agents
Selling agents are types of agents who are responsible for having contractual authority for selling a service or product of the principal. They are usually appointed when the principal is not that keen to approach customers directly due to a lack of qualification or resource. Selling agents are kinds of agents who together form a powerful source for making sales as they know the market standards better than the principal. They are responsible for influencing pricing and terms & conditions of sales.
Mercantile Agents
There are different types of agents, and mercantile is one of them. Mercantile agents play an important role when it comes to the transfer of goods from the producer to the consumer. They are kinds of agents who stand responsible for taking the goods directly from the producers and delivering them to the consumer end. Sometimes, a producer fails to reach the consumer, and thus, the requirement of such agents arises. This process of transferring goods requires efficient and skilled hands to be formal.
Mercantiles are kinds of agents who are appointed on behalf of a business and represent the same when dealing with the services and products to other people. Here, the business is a principal, and the mercantile is an agent. Some of the important characteristics of the mercantile agents are as follows.
They have the authority of buying and selling goods on behalf of the principal or consign them for sale.
They are not indulged in personal business, but certainly represent the business for all the dealings.
Auctioneer
Auctioneer is the kind of agent who is mainly appointed by sellers to sell the goods (not services in most cases) in the form of an auction. The auctions are held for a reward in the form of a commission. Therefore, an auctioneer is an agent on behalf of the seller. However, there is a twist when the items are sold; the auctioneer becomes the agent of the purchaser when the item is sold. When discerning the facts of classification of agents, make sure to pay special attention to the part of auctioneers as most students become prone to mistakes while answering.
An auctioneer has the right to keep possession of the items for the charges. He or she has the right to claim for the commission from both sides. Auctioneers also have the right to sue the price to own the name on the instructions of the principal. However, in this case, the principal becomes liable to the third parties when auctioneers act staying within the scope of the apparent authority.
FAQs on Indian Contract Act: Classes of Agents
1. What is the definition of an 'agent' under the Indian Contract Act, 1872?
As per the Indian Contract Act, 1872, 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 an act is done, or who is so represented, is called the principal. The primary role of an agent is to create a contractual relationship between the principal and a third party.
2. How are agents classified under the Indian Contract Act?
Agents can be broadly classified from two main perspectives: the extent of their authority and the nature of their work.
- Based on the Extent of Authority:
- General Agent: Authorised to perform all acts connected with a particular business or trade. For example, the manager of a store.
- Special Agent: Appointed to perform a single, specific act or transaction. For example, an agent hired to sell a particular house.
- Universal Agent: Has unlimited authority to transact on behalf of the principal and can bind them to any act. This is very rare in practice.
- Based on the Nature of Work (Mercantile Agents):
- Factor: A mercantile agent who has possession of the goods and can sell them in their own name.
- Broker: An agent who negotiates contracts of sale between a buyer and a seller but does not have possession of the goods.
- Auctioneer: An agent appointed to sell goods at a public auction. They act for the seller but become the agent for the buyer after the sale.
- Commission Agent: Buys and sells goods on behalf of the principal and receives a commission for their efforts.
3. What are the essential elements required to create a valid contract of agency?
A valid contract of agency must have the following essential elements:
- Agreement: There must be an agreement, either express or implied, between the principal and the agent.
- Competency of the Principal: The principal must be of the age of majority and of sound mind, as they are the one authorising the agent.
- Competency of the Agent: An agent does not need to be competent to contract. Even a minor can be an agent, but they will not be personally liable for their acts.
- Intention: The agent must intend to act on behalf of the principal to create a legal relationship with third parties.
- Consideration is Not Necessary: Section 185 of the Act specifies that no consideration is required to create an agency.
4. What is the key difference between a 'factor' and a 'broker' as mercantile agents?
The key difference lies in the possession of goods. A factor is entrusted with the possession of the goods and has the authority to sell them in their own name upon a lien. In contrast, a broker is merely a negotiator who brings a buyer and seller together. A broker does not have possession of the goods and cannot contract in their own name.
5. Why is an auctioneer considered an agent for both the seller and the buyer?
An auctioneer has a unique dual role. Initially, when they are appointed by the seller, their primary duty is to the seller to secure the best possible price for the goods. However, once the hammer falls and a bid is accepted, the auctioneer becomes an agent for the buyer as well. In this capacity, they have the authority to sign a memorandum of the sale on the buyer's behalf, which legally binds the buyer to the purchase.
6. Can you provide a real-world example of a principal-agent relationship?
A very common example is hiring a real estate agent to sell your property. In this scenario:
- The Principal is the property owner who wants to sell the house.
- The Agent is the real estate professional hired to find a buyer and negotiate the sale.
- The Third Party is any potential buyer the agent interacts with.
When the agent finalises a deal with a buyer on terms agreed upon by the owner, they create a legal contract between the owner (principal) and the buyer (third party).
7. How is an agent different from an employee or a servant?
The fundamental difference relates to legal authority and representation. An agent is primarily appointed to represent the principal in dealings with third parties and has the authority to create, modify, or terminate contractual relations between the principal and a third party. An employee or servant, on the other hand, works under the direct control and supervision of the employer and does not typically have the authority to bind the employer in legal contracts with others. The agent has more discretion, while the employee's work is directed by the employer.
8. Why is it important to understand the different classes of agents in business law?
Understanding the classification of agents is crucial because it directly impacts liability and authority. The type of agent determines:
- The scope of their authority to act on behalf of the principal.
- The extent to which the principal is bound by the agent's actions.
- The rights and obligations of the third party who is dealing with the agent.
Correctly identifying an agent's class helps prevent disputes and clarifies the legal responsibilities of all parties involved in a transaction.
