LAW OF AGENCY LAW OF AGENCY

(Introduction)(Introduction)

A person who has capacity to A person who has capacity to contract may enter with another contract may enter with another (third party)(third party)

(1)(1) Either by himself.Either by himself.

(2)(2) Or, through another person (agent)Or, through another person (agent)

when he adopts the latter course, he is when he adopts the latter course, he is said to be acting through an agent said to be acting through an agent and the relationship between them is and the relationship between them is a contract under Agency.a contract under Agency.

Meaning & Definition of Meaning & Definition of AgencyAgency

Section 182, Section 182,

“ “ An agent is a person employed to do An agent is a person employed to do any act for another or to represent any act for another or to represent another in dealing with third persons. another in dealing with third persons. The person for whom such act is The person for whom such act is done or who is so represented, is done or who is so represented, is called the principal”called the principal”

The person who delegates the The person who delegates the authority is known as principal.authority is known as principal.

To whom the power is delegated is To whom the power is delegated is known as agent.known as agent.

The relationship that is created is The relationship that is created is known as agency.known as agency.

A person who act in place of another A person who act in place of another – Agent– Agent

The person on whose behalf he acts - The person on whose behalf he acts - PrincipalPrincipal

Essentials of relationship of Essentials of relationship of agencyagency

1.1. Agreement between the principal Agreement between the principal and the agent.and the agent.

2.2. Intention of the agent to act on Intention of the agent to act on behalf of the principal.behalf of the principal.

ExampleExample

X (a dealer) appoints Y to sell 200 Kg X (a dealer) appoints Y to sell 200 Kg of wheat at a price range between of wheat at a price range between (10-12 Rs) per Kg. Y accepted the (10-12 Rs) per Kg. Y accepted the task assigned by X. Here, the task assigned by X. Here, the relationship of principal and agent relationship of principal and agent has been created by Mr X and Y has been created by Mr X and Y through an agreement.through an agreement.

Features of the contract of Features of the contract of agencyagency

Principal is answerable to third parties Principal is answerable to third parties for the acts of agent .for the acts of agent .

Consideration not necessary – Section Consideration not necessary – Section 185 of the act clearly lays down , “ No 185 of the act clearly lays down , “ No consideration is necessary to create consideration is necessary to create an agency”an agency”

Principal must be competent to Principal must be competent to employ an agent – Only a person who employ an agent – Only a person who is competent to contract can employ is competent to contract can employ an agent. ( Major, Sound Mind )an agent. ( Major, Sound Mind )

Agent may not have contractual Agent may not have contractual capacity –capacity –

A minor or a person of unsound mind A minor or a person of unsound mind may act as an agent & bind the may act as an agent & bind the principal to the third persons. principal to the third persons.

E.g- X hands over to Y (a Minor), a T.V E.g- X hands over to Y (a Minor), a T.V set worth Rs 18500 and instructs him set worth Rs 18500 and instructs him not to sell below 19000. Y sells the not to sell below 19000. Y sells the same to Z for Rs 18,000. Now, X will same to Z for Rs 18,000. Now, X will be responsible to Z for the act of Y.be responsible to Z for the act of Y.

Test Of Agency Test Of Agency

A person does not become an agent on A person does not become an agent on behalf of another merely because he behalf of another merely because he gives him advice in matters of business. gives him advice in matters of business.

Every person who acts for another Every person who acts for another cannot be agent. Cobbler mending shoes cannot be agent. Cobbler mending shoes of a man ,servant rendering services for of a man ,servant rendering services for us – are not agents. (Parties are just us – are not agents. (Parties are just providing their Services, Existence of providing their Services, Existence of third party is not there)third party is not there)

Classification of agents Classification of agents

Special AgentsSpecial Agents – who is employed to do – who is employed to do some particular act or represent his some particular act or represent his principal in some particular transaction. principal in some particular transaction. As soon as the act is performed the As soon as the act is performed the authority of agent comes to an end. authority of agent comes to an end. E.g. An agent engaged to sell a house. E.g. An agent engaged to sell a house.

General AgentGeneral Agent – who is employed to do – who is employed to do all such acts which are connected with all such acts which are connected with the business of trade of his employer. the business of trade of his employer.

Cont….Cont….

E.g- A mercantile agent appointed by E.g- A mercantile agent appointed by a company can buy and sell the a company can buy and sell the goods under the normal course of goods under the normal course of business until or unless it is not business until or unless it is not terminated by principal.terminated by principal.

Universal AgentUniversal Agent – is one who is – is one who is employed to all such act which a employed to all such act which a principal can lawfully do & can principal can lawfully do & can delegate. Agent has unlimited delegate. Agent has unlimited authority. (Exclusive Rights)authority. (Exclusive Rights)

FROM THE POINT OF VIEW OF NATURE FROM THE POINT OF VIEW OF NATURE OF WORK TO BE PERFORMED:OF WORK TO BE PERFORMED:

1. 1. FactorsFactors – is a mercantile agent to – is a mercantile agent to whom the possession of goods are whom the possession of goods are given for the purpose of selling them. given for the purpose of selling them. He usually sells the goods in own He usually sells the goods in own name. He can exercise a general right name. He can exercise a general right of lien on the goods delivered to him of lien on the goods delivered to him for balance of payment if any. for balance of payment if any.

2. 2. AuctioneerAuctioneer – is an agent who is – is an agent who is appointed by the principal to sell the appointed by the principal to sell the goods on his behalf at a public auction goods on his behalf at a public auction for a reward in form of commission. for a reward in form of commission.

3. 3. BrokerBroker – is an agent appointed by the – is an agent appointed by the principal for the purpose of selling or principal for the purpose of selling or buying goods on his behalf. He do not buying goods on his behalf. He do not have possession of goods nor he can have possession of goods nor he can contract in his own name. He bring contract in his own name. He bring seller & buyer together to bargain. He seller & buyer together to bargain. He gets commission ( brokerage ).gets commission ( brokerage ).

4. 4. Del credere AgentDel credere Agent – is one who – is one who guarantees to his principal, the guarantees to his principal, the performance of the financial obligation performance of the financial obligation by party with whom he enters into a by party with whom he enters into a contract on principal behalf, in contract on principal behalf, in consideration of an extra commission. consideration of an extra commission. He becomes surety & become liable on He becomes surety & become liable on the default of third party. the default of third party.

5. 5. BankerBanker – act as a mercantile agent on – act as a mercantile agent on behalf of his customer when he collects behalf of his customer when he collects cheques, drafts, bills & pay insurance cheques, drafts, bills & pay insurance premium & buy or sell securities.premium & buy or sell securities.

Creation of AgencyCreation of Agency

By express agreementBy express agreement – authority is given – authority is given to agent in written or by words of mouth. to agent in written or by words of mouth. He can bind the principal to the third He can bind the principal to the third parties by his acts parties by his acts to the extent he is to the extent he is delegated with the authoritydelegated with the authority

E.g X who owns a shop, appoints Y to E.g X who owns a shop, appoints Y to manage his shop by executing a power of manage his shop by executing a power of attorney in Y’s favour. Here, relationship attorney in Y’s favour. Here, relationship has been created between X and Y by an has been created between X and Y by an express authority.express authority.

By implied agreementBy implied agreement

1. 1. Agency by EstoppelAgency by Estoppel – Agency by – Agency by estoppel arises where a person by estoppel arises where a person by his words or conduct induces third his words or conduct induces third person to believe that a certain person to believe that a certain person is, His/her agent. The person person is, His/her agent. The person who induces as such is estopped to who induces as such is estopped to denying the truth later on.denying the truth later on.

E.g. A tell B in the presence of P that A is E.g. A tell B in the presence of P that A is the agent of P. P does not contradict the agent of P. P does not contradict the statement. B enter into the the statement. B enter into the contract with P on the belief that A is contract with P on the belief that A is P’s agent. In such case P would be P’s agent. In such case P would be bound by the contract.bound by the contract.

2. 2. Agency by holding outAgency by holding out – Some – Some positive conduct of the principal positive conduct of the principal indicates that a particular person is his indicates that a particular person is his agent. agent.

P sends A to buy goods on credit from C.P sends A to buy goods on credit from C.A buys goods on credit for himself & A buys goods on credit for himself &

refuses to pay. C sue P. P cannot plead refuses to pay. C sue P. P cannot plead that A had no authority. that A had no authority.

3. 3. Agency by necessityAgency by necessity – When an agency – When an agency is created by the circumstances. The is created by the circumstances. The impossibility of getting the instructions impossibility of getting the instructions from the principal is the basis of from the principal is the basis of creation of agency by necessity. creation of agency by necessity.

E.G. X sent some horses to Y through a E.G. X sent some horses to Y through a railway company. But Y did not take the railway company. But Y did not take the delivery of the horses at the destination delivery of the horses at the destination with the result the railway company had with the result the railway company had to feed the horses. Held, the railway co. to feed the horses. Held, the railway co. was an agent of necessity & could was an agent of necessity & could recover the amount spent on feeding recover the amount spent on feeding the horses.the horses.

4. 4. Agency by ratificationAgency by ratification – Ratification – Ratification

means subsequent adoption or means subsequent adoption or acceptanceacceptance by a person of an by a person of an unauthorized act done by another on unauthorized act done by another on his behalf without any authority. his behalf without any authority.

X buys 5 bags of wheat on behalf of Y X buys 5 bags of wheat on behalf of Y without his knowledge or authority. Y without his knowledge or authority. Y would be bound by the contract, if he would be bound by the contract, if he ratify or accept the same. ratify or accept the same.

Essentials of a valid Essentials of a valid ratificationratification

1. 1. Act must have been done as agent on Act must have been done as agent on behalf of principal identifiable behalf of principal identifiable – Only the – Only the person on whose behalf the act is done can person on whose behalf the act is done can ratify it. If the agent act in his own name, ratify it. If the agent act in his own name, his act cannot be ratified by any other his act cannot be ratified by any other person.person.

Case: Keighley maxeted & co. Duarnt – X was Case: Keighley maxeted & co. Duarnt – X was authorised by Y to buy wheat at certain authorised by Y to buy wheat at certain price. X exceeded his authority & price. X exceeded his authority & purchased wheat from Z at a higher price purchased wheat from Z at a higher price in his own name. He did not profess to buy in his own name. He did not profess to buy wheat on behalf of Y. Subsequently Y wheat on behalf of Y. Subsequently Y ratified the act of X but later refused to ratified the act of X but later refused to take delivery of the wheat. Z sue Y. Held, take delivery of the wheat. Z sue Y. Held, the contract could not be ratified because X the contract could not be ratified because X did not expressed to act as an agent of Y. did not expressed to act as an agent of Y.

2. The principal must be in existence. 2. The principal must be in existence. (company)(company)

3. The principal must be competent to 3. The principal must be competent to ratify the act – must have contractual ratify the act – must have contractual capacity. A minor cannot ratify the capacity. A minor cannot ratify the contract a contract on attaining the age contract a contract on attaining the age of majority. of majority.

4. The principal must have the full 4. The principal must have the full knowledge of all the material facts – X knowledge of all the material facts – X bought certain goods from Y at the bought certain goods from Y at the price greater than the market value in price greater than the market value in the name of Y. Y ratified the transaction the name of Y. Y ratified the transaction without knowing the same ( high price ) without knowing the same ( high price ) . The ratification is invalid. . The ratification is invalid.

5. The principal must ratify the whole 5. The principal must ratify the whole transaction.transaction.

6. Ratification must be made within 6. Ratification must be made within reasonable time.reasonable time.

7. Act to be ratified must not be void 7. Act to be ratified must not be void or illegal.or illegal.

8. Ratification must be communicated.8. Ratification must be communicated.

Duties of an agentDuties of an agent To follow principal’s directions – An agent To follow principal’s directions – An agent

must act within the scope of the authority must act within the scope of the authority conferred on him. An agent was instructed conferred on him. An agent was instructed to insure goods. He failed to do so. The to insure goods. He failed to do so. The goods were destroyed. He was held liable to goods were destroyed. He was held liable to the extent of loss. the extent of loss.

To follow the customs in the absence of To follow the customs in the absence of instructions – B, a broker, in whose business, instructions – B, a broker, in whose business, it is it is not the custom to sell on creditnot the custom to sell on credit, sell , sell goods of A on credit to C, whose credit at goods of A on credit to C, whose credit at the time was very high. C, before payment, the time was very high. C, before payment, becomes insolvent. B must make good the becomes insolvent. B must make good the loss to A.loss to A.

To conduct business To conduct business with reasonable with reasonable care skill & diligencecare skill & diligence – A, an agent for – A, an agent for the sale of goods, having authority to the sale of goods, having authority to sell on credit, sells to B on credit, sell on credit, sells to B on credit, without making the proper & usual without making the proper & usual enquires as to the solvencyenquires as to the solvency of B. B at of B. B at the time of such sale, is insolvent. A the time of such sale, is insolvent. A must make compensation of his must make compensation of his principal in respect of any loss thereby principal in respect of any loss thereby sustained. sustained.

To keep & render accounts to principal To keep & render accounts to principal when demanded.when demanded.

To communicate with principal.To communicate with principal. Not to deal on his own account – If an Not to deal on his own account – If an

agent wants to deal on his own agent wants to deal on his own account, he must seek the consent of account, he must seek the consent of the principal first & must acquaint the principal first & must acquaint him with all the material facts. him with all the material facts. ( Purchase )( Purchase )

Not to make secret profits ( Bribe )– Not to make secret profits ( Bribe )– Agency is a fudiciary relation.Agency is a fudiciary relation.

To pay sum received – he can deduct To pay sum received – he can deduct his remuneration & all expenses his remuneration & all expenses incurred in conducting business.incurred in conducting business.

Rights of an agent Rights of an agent

Right of retainer – The agent has a right Right of retainer – The agent has a right to retain, out of any sums received to retain, out of any sums received all all money due to himmoney due to him in respect of in respect of remuneration, advance made, remuneration, advance made, expenses incurred in conducting expenses incurred in conducting business.business.

Right to receive remuneration if he has Right to receive remuneration if he has completed his task. He is not entitled to completed his task. He is not entitled to any remuneration for part transaction.any remuneration for part transaction.

Right of lien – he has right to Right of lien – he has right to exercise particular lien over the exercise particular lien over the goods, paper, property until the goods, paper, property until the amount due to him for commission, amount due to him for commission, expenses has been paid. expenses has been paid.

Duties & Rights of the Duties & Rights of the PrincipalPrincipal

To pay remuneration to agentTo pay remuneration to agent To recover compensation for breach of To recover compensation for breach of

duty by the agentduty by the agent To forfeit agent’s remuneration where he To forfeit agent’s remuneration where he

is guilty of misconduct is guilty of misconduct To receive any extra profit made by agent.To receive any extra profit made by agent. To enforce the various duties of the agent.To enforce the various duties of the agent. To receive all sums.To receive all sums.

Termination of Agency Termination of Agency

By act of parties:By act of parties:1.1. By agreement – mutual consentBy agreement – mutual consent2.2. By revocation of authority by the By revocation of authority by the

principal – The principal can revoke principal – The principal can revoke the authority of an agent at any the authority of an agent at any time before the authority has been time before the authority has been exercised as to bind the principal.exercised as to bind the principal.

3.3. By renunciation by the agent – by By renunciation by the agent – by giving reasonable notice.giving reasonable notice.

Termination by operation of law:Termination by operation of law:1.1. By performance of contract of By performance of contract of

agency. agency. 2.2. By death of principal or agent.By death of principal or agent.3.3. By expiry of time – where agency is By expiry of time – where agency is

for fixed time period.for fixed time period.4.4. By insolvency of the principal.By insolvency of the principal.5.5. By destruction of subject matter – By destruction of subject matter –

agency was created to sell a house agency was created to sell a house & house destroys.& house destroys.

6.6. By becoming alien enemy – where By becoming alien enemy – where principal & agent are from different principal & agent are from different countries.countries.

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