Agency Service: Definition of Agent and Agency, Objectives, Test and Importance of Agents and Agency

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We would definitely need the help of some one specialised to guide you in different matters of business and to solve your problems. For example, when we go to buy or hire a room for our trading business in a particular locality, we need to contact a Property Agent who will explain in detail about availability of room and the procedure to get it. When we start a business the point of safety and security will be raised. Then we would definitely think of getting our shop insured against all the possible hazards like fire and theft! For this, we will seek the guidance of an insurance agent. So, we will need people who are helping us in getting things done in a smooth manner. These people like the property agent and the insurance agent who give you specialised services are known as Agents.

Definition of Agent and Agency

  • An agent is a person employed to do any act on behalf of another or to represent another in dealing with any third person. The person for whom such work is done or who is represented is called the principal. The relationship between the agent and the principal is called agency. In other words, an agent is a person who is engaged to act on behalf of another person and deals with other parties as a representative of some person or persons. Thus, when Mohit appoints Banit to buy 1,000 bags of cement on his behalf, Mohit becomes the ‘Principal’ and Banit becomes the ‘Agent’ and the contract between them is called as ‘Agency’.

  • All such activities done on behalf of others are included in agency services. Under agency service, an agent works as a link between the principal and the other parties. An agent is fully authorised 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/herself who is responsible for all legal actions of the agent in this regard.

  • For example, Gopal engages Gobind as his agent and asks a particular shopkeeper to supply him goods on his behalf. Gobind continues to purchase goods from the shopkeeper on behalf of Gopal. After some time Gopal dismisses Gobind but does not inform the shopkeeper about this. If later on, Gobind continues to purchase goods from the shopkeeper, the shopkeeper is entitled to claim money from Gopal. Remember that a person is liable only for the lawful acts of his agent. For example, if an agent on directions of his principal beats a person and is fined as a result, then he cannot make his principal liable to reimburse the amount of fine because beating a person is an unlawful act.

  • An agent is not a servant of the principal. He/she is a person who binds the principal and the third party by his/her actions. The principal is responsible for risks resulting from the agent’s action. The agent is not a servant as he/she can sell the goods in his/her own name also. An agent can do agency for several persons, i.e., he/she can act on behalf of several persons. An agent is completely free to work for more than one principal. The purpose of appointing the agent is to establish the contractual relationship between the principal and the third party.


After studying this lesson, you will be able to:



Test of Agency

Agency exists whenever a person (the agent) can bind another (the principal) by acts done on his/her behalf and to create contractual relations between principal and a third party. 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.

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.

Who May be an Agent?

No minimum qualification is required to be 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/her old car for not less than one lakh, and the car is sold for Rs. 80,000, the owner of the car will be bound by the transaction. He/she will have no right against the agent for compensation.

Importance of Agents and Agency

  • In ancient times people were satisfied with bare necessities. Therefore, the pace of development was slow, and the production was small. With the increase in demand, there was an increase in production too. There is demand for specialisation in each area of production. The trade has become international. With this, specialists in each field are required. On account of special work and experience, the specialists are working as a link between the producers and consumers, buyers and sellers, creditors and debtors and employers and employees. They are called as Agents and the service provided by them are called Agency Services. In modern times, agency business is an important means of providing employment. You can become agent in every field of day-to-day business, such as purchase and sale of all commodities like food, clothing, property, automobile, investment, employment, insurance etc.

  • More and more people are adopting agency services as an occupation and are doing very well. The Government has also acknowledged its importance and has given them legal recognition and regularised their activities. The relation between the Principal and the Agent is recognised in law under the Indian Contract Act.

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