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Project report submitted in partial fulfillment of the requirement of South Asia University for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION 2011
NAME : ANDREW CHARA CHANZERA ENROLMENT NUMBER : SAA04M138ELB1HA3
Under the guidance of
Miss. RAMYA RAMACHANDRAN., BA.,LLB.,PGFL..
SOUTH ASIA UNIVERSITY LONDON
GEMS B SCHOOL PONDICHERRY
This is to certify that project entitled ³ A DETAILED STUDY ON AGENCY ´ is submitted by ANDREW CHARA CHANZERA (ENROLMENT NUMBER SAA04M138ELB1HA3 ),GEMS B SCHOOL, PONDICHERRY in partial
fulfillment of the third trimester, requirement in Business Law for the award of the degree of Master of Business Administration and is certified to be an original and bonafide work.
PLACE : DATE :
ACKNOWLEDGEMENT EXECUTIVE SUMMARY
4 5 6 7-8 9 - 10 11 - 12 13 - 14 15 - 16 17 - 18 19 - 20 21 - 22 22 - 30 30 - 34 35 - 37
CHAPTER ± 1 1.1.
INTRODUCTION MEANING OF BUSINESS LAW y SCOPE OF AGENCY 1.2. 1.3. 1.4. 1.5. NEED OF THE STUDY OBJECTIVES OF THE STUDY PERIOD OF THE STUDY RESEARCH METHODOLOGY LIMITATIONS OF THE STUDY AGENCY y THE AGENT y THE PRINCIPAL y TERMINATION OF AGENCY
1.6. CHAPTER ± 2
CHAPTER ± 3
IMPORTANCE OF AGENCY IN BUSINESS LAW
38 - 40
CHAPTER ± 4
41 - 42 43 - 44
I am indebted to all powerful almighty God for all the blessings he showered on me and for being with me throughout the study. I also express with great pleasure and sincerity to record my thanks, gratitude and honour to Mr. L. Alphonse Liguori - Managing Director and Mr. M. TamijuddinDirector academics,for their valuable advice and for timely help concerning various aspects that helped me in doing my project work. I place on record my sincere gratitude and appreciation to my project guide Miss. RAMYA RAMACHANDRAN for her kind co-operation and guidance which enabled me to complete this project. I take this opportunity to dedicate my project to our loving faculty Miss. RAMYA RAMACHANDRAN who was a constant source of motivation and I express my deep gratitude for her never ending support and encouragement during this project. Finally I thank each and every one who helped me to complete this project.
PLACE : DATE :
ANDREW C. CHANZERA
5 . Secondary data was collected through internet and other sources.agent relationship) without any ambiguity. after the collection of the secondary data. The law of agency covers various concepts of an agent and a principal relationship and helps to enter into such relationship( principal . It is vital that someone understands who is an agent and his capacity to operate as far as his jurisdiction is concerned and allowed by the law. as far as Business Law is concerned. As a crucial area in business law. as it will help you operate your business without the hindrances of ignorance.EXECUTIVE SUMMARY The study aims at studying Agency. a proper compilation was made to highlight the data and form certain conclusions.it is so essential to comprehend the rights. duties and liabilities of an agent and his principal. Accordingly the research design was prepared and adequate literature survey was made.
4 PERIOD OF THE STUDY 1.1 MEANING OF BUSINESS LAW y SCOPE OF AGENCY 1.5 RESEARCH METHODOLOGY 1.6 LIMITATIONS OF THE STUDY 6 .3 OBJECTIVES OF THE STUDY 1.2 NEED OF THE STUDY 1.CHAPTER ± 1 INTRODUCTION 1.
1. MEANING OF BUSINESS LAW 7 .1.
property. dealing with employees. Sales.In this project. 8 . managing a business. y y y y y y The law governing Contracts. Business law may include issues such as starting. MEANING OF BUSINESS LAW Business law also known as mercantile law is the branch of law which comprises laws concerning trade. or dealing with contracts.1. business structures.or it encompasses. Agency. and business transactions.1.Agency. and consumer and creditor protection. wills and estate planning.or buying a small business.much attention is given to the topic of. among others. Commercial paper. selling . Business organizations. and bailments.It¶s also the general field of law relating to business organizations. Business law has a wider scope of items to be studied. and Employment law.industry and commerce. Other popular areas include insurance.
the agent is given authority to do certain things in his principal's place. and acquire property on her or his behalf as if the employer were present and acting in person. sell her or his goods.SCOPE OF AGENCY Agency is the capacity to act on behalf of someone(the principal). The principal may authorize the agent to perform a variety of tasks or may restrict the agent to specific functions. Agents are not employees. on the other hand. The agent is. An employer. the agent represents the principal and is subject to the principal's control. required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. of authority given to the agent. Agents and the third parties with whom they deal on their principals' behalf. Succinctly. Under the Agency Contract.in order to create a legal relationship with a third party. This branch of law separates and regulates the relationships between: y y y Agents and principals. it may be referred to as the relationship between a principal and an agent whereby the principal. The distinction between an agent and an employee is the degree of control and method of remuneration.thus. In exchange for the service provided by the agent to act on his principal's behalf. but regardless of the amount.An agents authority can be revoked by the principal. authorizes the agent to work under his control and on his behalf. or scope. The relationship between an agent and his principal is created by contract. The law of agency allows one person to employ another to do her or his work. A principal tells the agent what he wants and leaves it to the agent how to bring about the result. expressly or impliedly. 9 . and Principals and the third parties when the agents purport to deal on their behalf. tells the employee what to do and how to do it. the principal is liable for the consequences of acts that the agent has been directed to perform. the principal pays the agent a fee or commission. More important.
A real estate agent acts on behalf of his principal. An employee. but can also act on behalf of a Buyer and can. Real Estate Agents are a particular kind of agents. may employ an agent. Therefore. expects to be remunerated for the number of hours he works regardless of whether or not the result is accomplished. According to sec. 184. 10 . so as to reasonable to his principal according to provisions in that behalf herein contained. 183. almost always the Seller. in fact. act on behalf of both Seller and Buyer at the same time subject to certain restrictions. the name changes to Buyer's Agency Agreement. y y Not of the age of majority. According to Sec. and who is of sound mind.But no person who is."As between the principal and third person.and Of sound mind can become an agent."Any person who is of the age of majority according to the law to which is subject. instead. With the Buyer. The contract that spells out the terms and conditions of the authority confered by a Seller to the real estate agent is called the Listing Agreement. any person may become an agent.The agent is usually paid by way of a commission that becomes payable only when he brings in the result.
2. NEED OF THE STUDY 11 .1.
and a principal. NEED OF THE STUDY The law of agency being an important area of commercial law that deals with contractual and non-contractual set of relationships. one gets to understand the inner concept of agency as it is used in both philosophy and sociology 12 . In this context.2.At the end.1.perusal of some secondary data was done so as to study the various laws of an agent. The need of study has also emerged so as to understand the various avenues an agent is allowed to operate as per the laws of agency.there is a need for a detailed study and proper understanding of the various concepts that forms it and make it operative.
OBJECTIVES OF THE STUDY 13 .1.3.
c). d).To study and understand the inner concepts of agency as far as business law is concerned.To study and get to know the rights. 14 .To study the various laws of agency. OBJECTIVES OF THE STUDY The objectives of the study are as follows.3. b). a).1.To know the importance of agency in various aspects.liabilities and duties of both an agent and a principal.
4.1. PERIOD OF THE STUDY 15 .
as from 4th March 2011.4. PERIOD OF THE STUDY The period of the study is limited for a span of one and half months.1. 16 .
5. RESEARCH METHODOLOGY 17 .1.
Literature survey.after the compilation of the data conclusions have been made on this project.e through the internet and some text books. RESEARCH METHODOLOGY Research methodology is a very important aspect of any research work.i. 18 .The research design of this project is as follows.5. a). The secondary data has been assiduously collected.Compilation of data. b).1.
LIMITATIONS OF THE STUDY 19 .1.6.
6. LIMITATIONS OF THE STUDY Insufficient time is found to be the major drawback in the course of doing this project.1. 20 .
CHAPTER ± 2 AGENCY 21 .
It is not always cost effective to check whether someone who is represented as having the authority to act for another actually has such authority. is authorized to act on behalf of another (called the principal) to create a legal relationship with a third party. 22 . called the agent. In India. it may be referred to as the relationship between a principal and an agent whereby the principal. If it is subsequently found that the alleged agent was acting without necessary authority. A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. or non-contractual set of relationships when a person.AGENCY The law of agency is an area of commercial law dealing with a contractual or quasicontractual. expressly or impliedly. Succinctly.The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. it can only act through human agents. acts in his or her own interests and it is a parallel concept to vicarious liability and strict liability in which one person is held liable in criminal law or tort for the acts or omissions of another. section 182 of the Contract Act 1872 defines Agent as ³a person employed to do any act for another or to represent another in dealings with third persons´. authorizes the agent to work under his control and on his behalf. facit per se. thus. required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. qui facit per alium. the agent will generally be held liable. so long as the agent performs within the scope of the agency. since a corporation is a fictitious legal person. In the case of a corporation. A business owner often relies on an employee or another person to conduct a business. The principal is bound by the contract entered into by the agent. The agent is. THE AGENT Concepts. the one who acts through another. The common law principle in operation is usually represented in the Latin phrase. i.e.
Brief statement of legal principles of an Agent There are three broad classes of agent 1. also called "usual authority". Either the principal may have expressly conferred authority on the agent. it can be inferred by 23 . as lawyer and client. and may be in breach of contract. as a general rule. and whether it exists is a question of fact. There are essentially two kinds of authority recognized in the law. Special agents are authorized to conduct either only a single transaction or a specified series of transactions over a limited period of time. say. Authority arises by consensual agreement. e. Express actual authority means an agent has been expressly told she may act on behalf of a principal. Universal agents hold broad authority to act on behalf of the principal. 1. they may hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a professional relationship. is authority an agent has by virtue of being reasonably necessary to carry out his express authority. y y Actual authority (whether express or implied). and 3.g. is only entitled to indemnity from the principal if she has acted within the scope of her actual authority. and liable to a third party for breach of the implied warranty of authority. and Apparent authority. General agents hold a more limited authority to conduct a series of transactions over a continuous period of time. or authority may be implied. Authority An agent who acts within the scope of authority conferred by her principal binds the principal in the obligations she creates against third parties. An agent. Implied actual authority. 2. As such.Actual authority Actual authority can be of two kinds.
and in a corporation. Usual Authority Usual authority arises when an agent is engaged by the principal to act in a particular transaction and such transaction is governed by 'customs of the trade' . Authority by Ratification Sometimes an authority can be created retroactively. he has ratified the contract. 24 . For example.virtue of a position held by an agent. partners have authority to bind the other partners in the firm. For example. as long as they are lawful and reasonable and the principal has not indicated otherwise. In such case the principal is considered to have consented to the agent acting in accordance with such customs. The end result is. If the principal consents after the fact to be bound by the unauthorized acts of his agent. he can be given authority in the past. This is done by ratification. third parties are protected so long as they have acted reasonably. even if the principal and the purported agent had never discussed such a relationship. If a principal creates the impression that an agent is authorized but there is no actual authority. therefore. where an agent enters into a contract on behalf of his principal but the contract is beyond the agent's express authority. their liability being joint and several. that the principal is bound by the contract just as if the agent had been so authorized in the first place. all executives and senior employees with decision-making authority by virtue of their position have authority to bind the corporation. For example. those who know of the appointment are entitled to assume that there is apparent authority to do the things ordinarily entrusted to one occupying such a position. where one person appoints a person to a position which carries with it agency-like powers.Apparent authority Apparent authority (also called "ostensible authority") exists where the principal's words or conduct would lead a reasonable person in the third party's position to believe that the agent was authorized to act. 2.
if the agent has purported to act in a number of situations and the principal has knowingly acquiesced. all executives and senior employees with decision-making authority by virtue of their declared position have apparent authority to bind the corporation. Authority by virtue of a position held to deter:fraud and other harms that may befall individuals dealing with agents. the failure to notify all concerned of the agent's lack of authority is an implied ratification to those transactions and an implied grant of authority for future transactions of a similar nature. A simple case Watteau v Fenwick In the case of Watteau v Fenwick." This decision is heavily criticised and doubted. as between the principal and the agent. which is power derived solely by virtue of the agency relation. 25 .This is sometimes termed "agency by estoppel" or the "doctrine of holding out". the principal may ratify the transaction and accept liability on the transactions as negotiated. there is a concept of Inherent Agency power. This may be express or implied from the principal's behavior. Wills J held that "the principal is liable for all the acts of the agent which are within the authority usually confided to an agent of that character. or "inherent agency power. e. where the principal will be estopped from denying the grant of authority if third parties have changed their positions to their detriment in reliance on the representations made.g. Even if the agent does act without authority. and in a corporation.Lord Coleridge CJ on the Queen's Bench concurred with an opinion by Wills J that a third party could hold personally liable a principal who he did know about when he sold cigars to an agent that was acting outside of its authority. notwithstanding limitations. though not entirely overruled in the UK. It is sometimes referred to as "usual authority" (though not in the sense used by Lord Denning MR in Hely-Hutchinson. put upon that authority. their liability being joint and several (see below). For example. where it is synonymous with "implied actual authority"). partners have apparent authority to bind the other partners in the firm. It has been explained as a form of apparent authority.
and had formed a valid contract with the agent. A known agent is not liable for the debts of its disclosed principal. Liability of agent to principal If the agent has acted without actual authority. both the agent and the principal are liable. the principal must indemnify the agent for payments made during the course of the relationship whether the expenditure was expressly authorized or merely necessary in promoting the principal's business. When the agency is undisclosed or partially disclosed.Liabilities of an Agent Liability of an agent to third party If the agent has actual or apparent authority. 26 . the third party must establish that the third party was aware of the agency. but the principal is nevertheless bound because the agent had apparent authority. the agent becomes an accountable party to the sales contract. the agent is liable to indemnify the principal for any resulting loss or damage. Under the partially disclosed principal theory of an agent's liability to a third party for actions the agent has taken on behalf of a principal. was without knowledge of the principal's identity.however. the purported agent is liable to the third party for breach of the implied warranty of authority. the agent will not be liable for acts performed within the scope of such authority. Liability of principal to agent If the agent has acted within the scope of the actual authority given. so long as the relationship of the agency and the identity of the principal have been disclosed. When a seller conditions his agreement to sell goods on an agent's proffer of his own creditworthiness on behalf of that agent's principal. Where the principal is not bound because the agent has no actual or apparent authority.
even if the contract never materializes on account of breach. But. he is entitled or liable to compensate the principal for any such loss.Rights Of an Agent Right to Receive Remuneration : The agent is entitled to receive an agreed remuneration or reasonable remuneration unless otherwise agreed upon. until the amount of commission due to him is received. which may fall due as part of his remuneration. if an agent is found guilty of misconduct or fraud. he has no right over remuneration. received by him on behalf of his principal from the third parties. or advances or expenses incurred in the general conduct of business. etc. An agent has a right to claim his remuneration on completion of his work. This right of the agent is obvious for the simple reason that an agent is a representative of his principal. This kind of a lien is a. Right of Lien: An agent has the right to retain any movable or immovable property. Right of Retainer: An agent has the right to retain any sum. However. In addition. However.Particular lien which will end as soon as the possession is cost. Right to be Indemnified Against Consequences of Lawful Acts: An agent has also the right to be indemnified against the consequences of all lawful acts done by him in exercise of authority conferred upon him. papers or goods of the principal received by him. Right to Compensation: The agent has a right to be compensated for injuries sustained by him due to the principals neglect or want of skill. Right to be Indemnified Against Consequences of Acts Done in Good Faith: An agent has the right to be indemnified against all acts done by him in utmost good faith . the principal is not liable for any compensation for the injuries caused by the own neglect of the agent.where one person employs another to do an act and the agent does the act in good faith. Right of Stopping of Goods in Transit: An agent has a right to stop the goods in transit if :- 27 . the employer or principal is liable to indemnify the agent. by a special contract such a lien can be extended to a µGeneral Lien¶.
g. Duties of an Agent An agent owes the principal a number of duties. 28 . in a similar situation. Agent¶s Right To do All Lawful Things: A person who is appointed as an agent has the right to do all lawful things which fall under the usual course of business. y y The principal has become insolvent of / and When an agent. Right to Appoint Sub-Agent & Substitute Agent: An original agent has a right appointed would be responsible to the original agent. except in case of fraud. Right to Renounce His Agency: An agent is in full right to renounce his agency by giving a reasonable notice to his principal. That is. he can exercise the unpaid seller¶s right and stop the goods in transit on the unsolvency of the buyer. Right in Emergency: An agent has a right to do all such acts which could protect his principal from loss in case of emergency as would have been done in his own case. e. del Credere agent is personally liable to his principal to his principal for the price of the goods sold.y He has bought goods either with his own money or by incurring a personal liability for the price on behalf of the principal. These include: a).Duty to undertake the task or tasks specified by the terms of the agency. Where an agent has an express or implied authority he may name another person as substitute agent to act for his principal. the agent would have a right to compensation in such a case. Right to Receive Compensation for Remature Revocation: If there is an express or implied conduct on the part of the agency that the agency would continue for a specified period and if there is previous revocation without any reasonable cause. etc. the agent must not do things that he has not been authorised by the principal to do.
Duty to Communicate. c).e. Selecting an agent for his principal. g). if due to certain reasons he is unable to communicate the difficulty. an agent is bound to put in same amount of discretion.Duty in Naming an Agent for his Principal. etc. That is. before taking any steps in facing the difficulty. It is the duty of the agent to maintain proper accounts of his principal¶s property and render it to him on demanded. it is the duty of the agent not to set up on adverse title i. If he does so. he can be held liable. as he would do in his own case.Duty to avoid conflict of interest between the interests of the principal and his own. It is the duty of the agent to pay all such sums to his principal which he may have received for him. It is the duty of the agent not to use the information obtained in the course of business against his principal. It is the duty of the agent to communicate to the principal with full diligence any difficulty that may arise from time to time.Duty to Pay Sums Received for the Principal.Duty to Render Accounts.b). h). If he does so. When an agent receives goods from his principal or other sources. or periodically if so agreed upon. on behalf of the principal. d). his own title or title of third parties to it. the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal. he has full authority to take all reasonable steps to prevent loss.Duty not to use the Information Obtained in the course of the Agency Against his Principal. But.Duty not to set up an Advance Adverse Title. He should obtain proper instructions from the principals. f). he must compensate the loss incurred by his principal. under similar circumstances.Duty to discharge his duties with care and due diligence. He has the right to deduct any amount which may be outstanding in this account like remuneration. i). 29 . e).
and. only after full disclosure and consent of the principal. is capable of being a principal. and when it is requisite that one should be appointed. they may make such appointments. not sui juris. it may be said. As a general rule. Infants and married women are generally. the chief person in some inns of chancery is called principal of the house.Married women. an infant may make an attorney. An agent can represent the interests of more than one principal. or on his own account. Principal is also used to designate the best of many things as. An agent also must not engage in self-dealing. One who. when it is for his benefit. A married woman cannot. use was unauthorized and contrary to written policies and directives governing private use of government vehicles. In return. under special circumstances. that every person. as idiots. or in his own right to do anything. In the English law. the best table. appoint an agent or attorney. for in all cases where a man has power as owner. For instance. and he was clearly on a frolic of his own. the hushand generally 30 . the best bed. being competent to contract. the principal must make a full disclosure of all information relevant to the transactions that the agent is authorized to negotiate and pay the agent either a prearranged commission. lunatics. and persons who are deprived of understanding. and the like. employs another to do any act for his own benefit. in general. sui juris. consequently. THE PRINCIPAL A person who designates another to act as their attorney in fact or agent. are wholly incapable of entering into any contract. and others. cannot appoint an agent. incapable but. An agent must not usurp an opportunity from the principal by taking it for himself or passing it on to a third party.An agent must not accept any new obligations that are inconsistent with the duties owed to the principal. and who is sui juris. but lie cannot enter into any contract which is to Iiis prejudice. conflicting or potentially conflicting. or a reasonable fee established after the fact. he may do it by another. or otherwise unduly enrich himself from the agency.
in relation to the business of their agency. or any other crime. accomplices. improperly. he must be an actor in the commission of the crime and. the incitor. It is not requisite that each of the principals should be present at the entire transaction. for that reason. For example. with her hushand. Rights of Principal A principal has rights which he can enforce. The rights against their agents. 31 . such a presence as would make him an eye or ear witness of what passes. It must be such as may be sufficient to afford aid and assistance to the principal in the first degree. appoint an agent or attorney but this seems to be doubted. when the crime was committed. where several persons agree to forge an instrument. ex necessitate. are. or a person non compos. and is liable to obligations which he must perform. Principals are of two kinds. Principals in the second degree. Perhaps for her separate property she may. immediate presence. as an example of the latter kind. to the commission of murder. The presence which is required in order to make a man principal in the second degree. It is evident from the definition that to make a man a principal. he will not.appoints for both. a).To call them to an account at all times. and sometimes. They are generally termed aiders and abettors. need not be a strict actual. although one may be away when it is signed. may be mentioned the case of a person who incites a child wanting discretion.are those who have actually with their own hands committed the fact. liable for the acts of his agent and is a principal in the first degree.are those who were present aiding and abetting the commission of the fact.namely. though absent. but may be a constructive presence. is. be considered a principal. if a man happen merely to be present when a felony is committed without taking any part in it-or aiding those who do. and each performs some part of the forgery in pursuance of the common plan. Principals in the first degree. or have committed it through an innocent agent incapable himself. of doing so. therefore. each is principal in the forgery.
the latter will be entitled to full indemnity. although he may have authorized it. when it equals or exceeds the amount of its value. is an example of this kind: he is treated as between himself and the other party.The principal's rights against third persons. The case of a foreign factor. d). and the real principal cannot sue or be sued on the contract. e).The principal has a right to supersede his agent. This.b). When the agent. has a lien or claim upon the property bought or sold. When an exclusive credit is given to and by the agent.The principal has the right to demand from the broker his best efforts. and from such relationship spring the rules governing the conduct of persons standing in similar positions. as the sole contractor. and he may. suspend. and it is strictly adhered to for the safety and convenience of foreign commerce. But to this rule there are some exceptions 1st. buying or selling goods. c). in such case he may avail himself of the agreement. and it has been exclusively made between the agent and the third person. a charter party or bottomry bond iii this case the principal cannot sue on it. or in any other manner. by his own intervention. is a general rule of commercial law. The relationship of principal and broker is one of trust and confidence. by suing in his own name. or upon its proceeds. or by mere negligence or omissions in the discharge of the functions of his agency. and exert every possible means and make the best possible efforts to serve his principal most advantageously. When the instrument is under seal. founded upon the known usage of trade. where each may maintain a suit against a third person. Contracts are not unfrequently made without mentioning the name of the principal. the latter may enforce it by action. for the contract will be treated as that of the 32 . and be entitled to all the benefits arising from it.When a contract is made by the agent with a third person in the name of his principal. either by exceeding his authority. or extinguish the right of the agent under the contract. as. intercept. for example. and therefore the principal cannot be considered in any manner a party to the contract. and any loss or damage falls on his principal. it has been well observed.When the agent violates his obligations to his principal. and that he should be faithful and true to his employer. or by positive misconduct.
principal. To indemnify the agent when he has sustained damages in consequence of the principal's conduct.To reimburse him all expenses he may have lawfully incurred about the agency. as well as of the agent. a). except in cases of gratuitous agency. or omission of duty of his agent. b). or according to the usage of trade. Third persons are also liable to the principal for any tort or injury done to his property or rights in the course of the agency. For example. his authority will be presumed. a). and a third person recovers damages against the agent. for or in the name of the principal. To pay him his commissions as agreed upon. Liabilities Of Principal Liabilities of principal to agent The liabilities of the principal to his agent. when the agent has innocently sold the goods of a third person. and which come within the scope of his authority. 33 . when the injury has occurred in consequence of his misconduct or culpable neglect but the principal is not liable for torts committed by the agent without authority. Liabilities of the principal to third persons They include. A principal is also liable for the misconduct of a subagent. When a man stands by and permits another to do an act in his name. under the direction or authority of his principal.The principal is liable to third persons for the misfeasance. when retained by his direction.To fulfil all the engagements made by the agent. c). but he has a remedy over against the agent. either express or implied. b). the latter will be entitled to reimbursement from the principal. are. negligence.
The employer of an independent contractor is generally not liable for physical harm done by the contractor or the contractor's employees. however. The relationship of master and servant is a species of agency in which the principal may be liable for the torts of the agent. accountants. 34 . Under doctrine of respondeat superior. admits of one exception.One who delegates his affairs to lawyers. liable where his deputy wrongfully executes a writ or where he takes illegal fees. The sheriff is. Employer/bailee is also contractually liable for the negligence of his employees in executing the bailment. Inherent in the power of agency. to be so liable. cannot escape liability to a third party by claiming that the documents are not binding on him because he did not read or understand them. A party who conducts a transaction with an agent is liable to a disclosed principal to the same extent as if the principal had conducted the transaction. even under a penal statute. therefore. that a principal cannot be charged with injuries committed by his agent without his assent. since he cannot receive money for performing a duty and at the same time escape liability for violating such duty by shifting the responsibility to an employee. in the ordinary course of doing the work in a usual or prescribed manner. and who signs the documents his own agents have prepared for him. is the power of the agent to subject the principal to liability for unauthorized conduct. when charged and deputed by him to execute the law. A garageman who had possession of a vehicle in order to repair it and who was outside the direction or control of the owner was an "independent contractor" for whose negligence the owner could not be held liable under a theory of agency or master/servant liability. wilful or negligent. the work is likely to result in trespass. when he has agreed. The general rule. colore officii. done by his appointed officers. for all injurious acts. either expressly or by implication. a bailee employer is vicariously liable for loss or injury with respect to the bailed property which results from the negligence or wrongful acts or omissions of his employees in executing the bailment within the course and scope of their employment.But the principal may be liable for his agent's misconduct. and others. Between Principal and Independent Contractor. an employer is liable when he knows or has reason to know that. for reasons of policy. A sheriff is liable.Between Principal and Third Person.
nor is the agency terminated by death or insanity (illustrations to section 201). Further. As per sections 201 to 210 of the Indian Contract Act 1872. The same rules apply where the agent. Further. an agency may come to an end in a variety of ways: 1. By the business of agency being completed. with poor to recoup himself from the sale proceeds. it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice. the revocation or renunciation of an agency may be made expressly or impliedly by 35 . As per section 207. the principal cannot terminate the agency before the time expired. in such a case. The principal also cannot revoke the agent¶s authority after it has been partly exercised. if the agency is for a fixed period. e.g. By the agent renouncing the business of agency.TERMINATION OF AGENCY An agent's authority can be terminated at any time. 2. the principal cannot revoke an agency coupled with interest to the prejudice of such interest. as per section 205.. renounces an agency for a fixed period. If he does. and rude or insulting behavior has been held to be sufficient cause for dismissal of an agent. though he can always do so. where the goods are consigned by an upcountry constituent to a commission agent for sale. otherwise. 4. the principal cannot revoke the agent¶s authority till the goods are actually sold. By the principal being adjudicated insolvent (section 201). Withdrawal by the agent. so as to bind the principal (section 204). the advances made by him to the principal against the security of the goods. reasonable notice has to be given by one party to the other. Notice in this connection that want of skill continuous disobedience of lawful orders. 3. except for sufficient cause. However. before such authority has been so exercised (section 203). damage resulting from want of such notice. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency. will have to be paid (section 206). he is liable to compensate the agent for the loss caused to him thereby. If the trust between the agent and principal has broken down.
Hence. the knowledge of the partner acting will be imputed to the other partners or the firm if a separate personality. there would be little substantive difference if English law was amended:partners will bind the partnership rather than their fellow partners individually. Some states opt for the partnership as no more than an aggregate of the natural persons who have joined the firm. The English Partnership Act 1890 provides that a partner who acts within the scope of his actual authority (express or implied) will bind the partnership when he does anything in the ordinary course of carrying on partnership business. This has become a more difficult area as states are not consistent on the nature of a partnership. The termination does not take effect as regards the agent. the partner will have apparent authority unless the third party knows that the authority has been compromised. For these purposes. even if only as an aspect of the standard provisions of vicarious liability. Hence. in Scots law where there is a separate personality. there is no imputation if the partner is acting against the interests of the firm as a fraud. Whether the injured party wishes to 36 . if the partnership wishes to limit any partner's authority. This form of agency is inherent in the status of a partner and does not arise out of a contract of agency with a principal. till the termination is known to them (section 208). like a corporation. Others treat the partnership as a business entity and. The other partners or the firm are the principal and third parties are entitled to assume that the principal has been informed of all relevant information. for example. vest the partnership with a separate legal personality. it must give express notice of the limitation to the world. Even if that implied authority has been revoked or limited. However. This causes problems when one partner acts fraudulently or negligently and causes loss to clients of the firm. it operates as a termination of subagent also (section 210). a distinction is drawn between knowledge of the firm's general business activities and the confidential affairs as they affect one client. a partner is the agent of the partnership. till it becomes known to him and as regards third party. a partner is the agent of the other partners whereas. There is more likely to be liability in tort if the partnership benefited by receiving fee income for the work negligently performed. When an agent¶s authority is terminated. in English law. In most states.conduct. Thus.
their liability is joint and several. 37 . in most jurisdictions.sue the partnership or the individual partners is usually a matter for the plaintiff since.
CHAPTER ± 3 IMPORTANCE OF AGENCY IN BUSINESS LAW 38 .
sue and be sued. conduct business transactions. The board members must act based on reliable information and any actions taken must generally be in the best interests of the corporation. but ultimately poor. non-director shareholders are not at risk for the actions of the agents. the board members owe both a duty of care and loyalty to the organization. decisions unless it can be shown that the director was motivated by self-dealing or was acting on bad information. Whether or not the actions are law abiding. y Agency principles make corporations accountable for their actions. y Agents have certain duties to the principal." Once properly setup. unless an exception applies. y Agency principles also help protect the shareholders of the corporation. Because agency principles define how a corporation may conduct business through a board of directors. Non-director shareholders cannot generally be personally liable for the actions of the 39 . there is a principal and an agent. A corporation can only act through a board of directors. the board of directors and the officers of the corporation are agents of the corporation." the law favors a strong presumption that the directors are acting reasonably and in the best interests of the corporation as the corporation's agents.It is the principal in the agency relationship. The corporate business entity is a legal "thing. In an agency relationship.IMPORTANCE OF AGENCY IN BUSINESS LAW The various importance of agency law in a business environment and at large include. the entire corporation is on the hook for those actions. The shareholders are the actual owners of a corporation who may not necessarily be directors. In a corporate setting. In an agency relationship. the principal is accountable for the actions of his agents if the agents are acting within the scope of the authority bestowed by the agency relationship. y Agency law principles allow corporations to act. enter into contracts. the brains of the operation. in essence. In general.The business judgment rule helps protect the directors from being sued for reasonable. the corporation can act like an individual in a business setting: it can operate a company. If a director or officer of the corporation acts within his scope of employment. Under the "business judgment rule. the board is. The board can delegate duties to officers or committees.
y Its also crucial and necessary for every management student. or consultant for big budget businesses and trade mechanism. y Business case law studies are also important for those individuals. y Helps the managemnt professionals in realizing the business ethics. the shareholders generally are at risk to lose any investment into the corporation. The other importance include. This provides the individual.whether he want to setup a proper business.since doing a proper business with an authenticated business license and registration gives confidence. who want to run a career in law agencies and consultancy firms.in order to run a proper authenticated business. 40 . y It gives immense confidence in handling day to day business requirements to those who know the legal aspects of business. unless an exception applies.. a person is taught all the major aspects of the business laws and ethics. a chance to start a career as a legal advisor.he or she must follow. Taking the business case law studies.hence this must be in accordance with laws and regulations prevailing in the society. Instead. or willing to join a service as a manager.board.
CHAPTER ± 4 CONCLUSIONS 41 .
so as to avoid any complications and some other misunderstandings in the future. the agent will generally be held liable.the reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. y Its also found that. 42 . y It is essential for an individual to follow the proper procedures/formalities when hiring an agent and also while acting as an agent in any case.Since.CONCLUSIONS The following conclusions are jotted down: y Its found that the law of Agency law plays a vital role in almost all areas of the commercial law. if it is subsequently found that the alleged agent was acting without necessary authority.
BIBLIOGRAPHY 43 .
data downloaded on march 10th 2011 Ezine articles. y y Elements of Mercantile law by N.data downloaded on march 11th 2011 Lectlaw. y y y www.BIBLIOGRAPHY Referred websites include.wikipedia. Kapoor Business Law by M C Kachhal(Fifth Revised Edition) 44 .com.com(the lectric law library).D.data downloaded on march 16th march 2011 Referred text books include.