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The law of agency is an area of commercial law dealing with a set of contractual, quasi-contractual and non-contractual relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the principal) to create a legal relationship with a third party. Succinctly, it may be referred to as the relationship between a principal and an agent whereby the principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. This branch of law separates and regulates the relationships between:
• • •
Agents and principals; Agents and the third parties with whom they deal on their principals' behalf; and Principals and the third parties when the agents purport to deal on their behalf. Under the law of agency, if a person is injured in a traffic accident with a delivery
truck, the truck driver's employer may be liable to the injured person even if the employer was not directly responsible for the accident. That is because the employer and the driver are in a relationship known as principal-agent, in which the driver, as the agent, is authorized to act on behalf of the employer, who is the principal. The law of agency allows one person to employ another to do her or his work, sell her or his goods, and acquire property on her or his behalf as if the employer were present and acting in person. The principal may authorize the agent to perform a variety of tasks or may restrict the agent to specific functions, but regardless of the amount, or scope, of authority given to the agent, the agent represents the principal and is subject to the principal's control. More important, the principal is liable for the consequences of acts that the agent has been directed to perform.
An agent is a person employed to do any act for another or to represent another in his dealings with third parties. The person for whom such act is done or who is so represented is called the principal. The relationship between agent and principal is called Agency. Agency
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is founded upon a contract, either express or implied, by which one of the parties confides to the other the management of some business to be transacted in his name or on his account and by which the other assumes to do the business and to render an account of it. The essence of agency is that the principal authorizes the agent to represent him in bringing or to aid in bringing the principal into contractual relation with a third party.
Most businesses (and particularly those that wish to trade nationally or internationally) use intermediaries in their dealings with the outside world. ‘Agents’ can provide businesses with, amongst other things, specialist knowledge of a particular market, commodity or area and an immediate presence for negotiating contracts in any geographical location. They can also be used to find and introduce customers to the business and to purchase goods or services on behalf of the business. The purpose of an agency agreement is to set out the terms and conditions of the relationship between the business which wants to sell stuff (the Principal) and the intermediary who agrees to sell it on their behalf (the Agent). When a sale is made by the Agent, the law deems that a contract is formed between the Principal and the end customer. It is important that an agency agreement, like other agreements, deals with each party's expectations and that it details the rights and obligations of each party.
Agent and Servant:
The differences between an agent and a servant are summarized below: 1) An agent has to exercise his authority in accordance with the principal’s instructions; but he is not subject to the principal’s direct control or supervision. A servant has to work according to the orders of the master in every particular. 2) An agent is appointed and employed to bring the principal into contractual relationships with third parties. The servant cannot do that. 3) An agent can bind the principal to the third parties. A servant cannot do so. 4) The mode of remuneration of an agent may vary, including a commission on the basis of the work done. A servant is generally paid through wages. 5) An agent is liable for wrong doing within the scope of his authority. A master is liable for the wrong of his servant if it is committed in course of the servant’s employment.
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6) An agent may work for several principals. A whole-time servant serves only one master. 7) A servant can, however, be appointed as an agent for some purpose.
Agent and Trustee:
An agent is also to be distinguished from a trustee, in some respect they are alike, such as: 1) Both exercise their powers and authorities in the interest and on behalf of other persons, 2) Both have, in a certain sense, a representative character. An agent represents and acts for his principal; a trustee represents and acts for the beneficiary. But notwithstanding those similarities, these are the essential differences between the two: 1) In the eye of law, the powers exercised by the trustee are his own but the powers exercised by an agent merely delegated powers, as far as given to him by the principal; 2) The property which a trustee manages is vested in him; but an agent does the very same thing not with his own property but with the property of principal; 3) A contract is made by an agent on behalf of the principal, but when a trustee makes a contract, the contract is his own.
Nature of Agency
A consensual relationship created by contract or by law where one party, the principal, grants authority for another party, the agent, to act on behalf of and under the control of the principal to deal with a third party. An agency relationship is fiduciary in nature and the actions and words of an agent exchanged with a third party bind the principal. An agreement creating an agency relationship may be express or implied, and both the agent and principal may be either an individual or an entity, such as a corporation or partnership. It is important that an agency agreement, like other agreements, deals with each party's expectations and that it details the rights and obligations of each party. A voluntary, Good Faith relationship of trust, known as a fiduciary relationship, exists between a principal and an agent for the benefit of the principal. This relationship requires the
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agent to exercise a duty of loyalty to the principal and to use reasonable care to serve and protect the interests of the principal. An agent who acts in his or her own interest violates the fiduciary duty and will be financially liable to the principal for any losses the principal incurs because of that breach of the fiduciary duty. For example, an agent who accepts a bribe to purchase only the goods from a particular seller breaches his fiduciary duty by taking the money, since it is the agent's duty to work only for the best interests of the principal.
Power of Attorney
A power of attorney (POA) or letter of attorney is a written authorization to represent or act on another's behalf in private affairs, business, or some other legal matter. The person authorizing the other to act is the principal, grantor, or donor (of the power), and the one authorized to act is the agent, donee, or attorney or, in some common law jurisdictions, the attorney-in-fact. Formerly, a power referred to an instrument under seal while a letter was an instrument under hand, but today both are under hand (i.e., signed by the donor), and therefore there is no difference between the two. Depending on the jurisdiction, a power of attorney may be oral and whether witnessed or not, will hold up in court, the same as if it were in writing. For some purposes, the law requires a power of attorney to be in writing. Many institutions, such as hospitals, banks and, in the United States, the Internal Revenue Service, require a power of attorney to be in writing before they will honor it, and they will usually keep an original copy for their records.
Types of power of attorney:
A power of attorney may be special or limited to one specified act or type of act, or it may be general, and whatever it defines as its scope is what a court will enforce as being its scope.
Durable power of attorney:
Under the common law, a power of attorney becomes ineffective if its grantor dies or becomes "incapacitated," meaning unable to grant such a power, because of physical injury or mental illness, for example, unless the grantor (or principal) specifies that the power of attorney will continue to be effective even if the grantor becomes incapacitated. This type of power of attorney is called "power of attorney with durable provisions" in the United States or "enduring power of attorney" elsewhere. In effect, under a durable power of attorney, the
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authority of the attorney-in-fact to act and/or make decisions on behalf of the grantor continues until the grantor's death.
Health care power of attorney:
In some jurisdictions, a durable power of attorney can also be a "health care power of attorney", which empowers the attorney-in-fact (proxy) to make health care decisions for the grantor, up to and including terminating care and ending life supports that are keeping a critically and terminally ill patient alive. Health care decisions include the power to consent, refuse consent or withdraw consent to any type of medical care, treatment, service or procedure. In many jurisdictions, a health care power of attorney is also referred to as a "health care proxy" and, as such, the two terms are sometimes used interchangeably.
Springing power of attorney:
In some jurisdictions it is possible to grant a springing power of attorney; i.e., a power that only takes effect after the incapacity of the grantor or some other definite future act or circumstance. After such incapacitation the power is identical to a durable power, but cannot be invoked before the incapacity. This may be used to allow a spouse or family member to manage the grantor's affairs in case illness or injury makes the grantor unable to act. If a springing power is used, care should be given to specify exactly how and when the power springs into effect. Determining whether or not the principal is "disabled" enough for the power of attorney to "spring" into action is a formal process. Springing powers of attorney are not automatic, and institutions may refuse to work with the attorney-in-fact. Disputes are then resolved in court, which is of course a costly, and usually unwanted, procedure. Unless the power of attorney has been made irrevocable (by its own terms or by some legal principle), the grantor may revoke the power of attorney by telling the attorney-in-fact it is revoked; however, if the principal does not inform third parties and it is reasonable for the third parties to rely upon the power of attorney being in force, the principal may still be bound by the acts of the agent, though the agent may also be liable for such unauthorized acts.
Enforcement and Consequences of Agency Contract
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The function of an agent is to bring about contractual relations between the principal and the third parties. Usually agents are appointed with specific instructions and authorized to act within the scope of their instructions. Acts of the agent within the scope of the instructions bind the principal as if he has done them himself. There is a legal maxim regarding agency viz., ‘Quit facit per alium per facit per se’, which means - “He, who does through another does by himself”. The act of an agent is the act of the principal.
Any notice given to or information obtained by the agent, provided it be given or obtained in the course of the business transacted by him for the principal, shall, as between the principal and third parties, have the same legal consequences as if it had been given to or obtained by the principal.
Test of Agency
Agency exists whenever a person can bind another by acts done on his behalf. When this power does not exist the relationship is not one of agency. Thus a wife is not the agent of the husband except under special circumstances and for special purposes. But the constituted attorney of a person is his agent for the purposes mentioned in the power of attorney. The common law of agency is the body of law applicable to consensual relationships in which one person (the agent) consents to act on behalf of another person (the principal) and subject to that person's control.
Different Classes of Agents
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There are following kinds of agents, the classification being made on the basis of the powers and authorities may, however, be extended and curtailed by express contract between the principal and the agent.
1. Auctioneer: An auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. In economic theory, an auction may refer to any mechanism or set of trading rules for exchange.
An auctioneer is an agent who is authorized to sell goods of his principal to the highest bidder at a public sale for a commission. He is an agent as well of the buyer as of the owner. An auctioneer has no authority to sell goods by private contract. He has a particular lien on the goods for his remuneration. He has the goods in his possession and can sue the buyer in his own same for the purchase price. An auctioneer acts in a double capacity. Up to the moment of sale, he is the agent of the seller. After the sale, he is the agent of the buyer. An auctioneer has implied authority to sell the goods without any restriction. Therefore, a sale by him in violation of instructions is binding on the owner. If the owner directs the auctioneer not to sell below a reserve price and the auctioneer sells it below the price, the sale is binding on the owner except in cases where the buyer knew that there was a limitation on the auctioneer’s authority. 2. Broker: A broker is an individual or party (brokerage firm) that arranges transactions between a buyer and a seller, and gets a commission when the deal is executed. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. Distinguish agent: one who acts on behalf of a principal. A broker is an agent whose business is to bring about a contractual relation between the principal and a third party. He has no authority to contract in his own name. He generally reduces the terms of a contract into writing and delivers to each party a note In general a broker is an independent agent used extensively in some industries. The prime responsibility of a broker is to bring sellers and buyers together. Therefore, a
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broker is the third -person facilitator between a buyer and a0 seller. An example would be a real estate broker who facilitates the sale of a property. Brokers also can furnish considerable market information regarding prices, products and market conditions. Brokers may represent either the seller (90 percent of the time) or the buyer (10 percent) but not both at the same time. An example would be a stockbroker, who makes the sale or purchase of securities on behalf of his client. Brokers play a huge role in the sale of stocks, bonds and other financial services. 3. Factor: A factor, from the Latin "he who does" (from Latin facit, to do, parallel to agent, from Latin agents), is a person who professionally acts as the representative of another individual or other legal entity, historically with his seat at a factory (trading post)
He is an agent entrusted with the possession of goods and empowered to sell them in his own name as apparent owner. A factor is remunerated by a commission.
The contract made by the factor is binding on the principal. If any special authority is given to him and he acts beyond the scope of that authority, but within the scope of the apparent authority, the contract is nonetheless binding on the principal.
For example, A deposits certain articles with B asking him not to sell them below a stated price. B undersells them to C, who is ignorant of A’s instruction to B. A cannot set aside the contract with C.
4. Del Credere Agent: A Del Credere Agent is one who for an extra remuneration, acts as the surely for the purchaser, and thus, guarantees the due performance of the contract by the buyer. By reason of his charging a del credere commission he assumes responsibility for the solvency and performance by the contract by the vendees, and thus indemnifies his employer against loss. He therefore gives an additional security to the seller, but that does not shift to the responsibility of payment from the buyer to the seller.
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A del credere agent, like any other agent, is to sell according to the instructions of his principal, to make such contracts as he authorized to make for his principal and he is bound, as soon as he receives money, to hand it over to the principal. He is distinguished from other agents, simply in this that he guarantees that those persons to whom he shall perform the contracts, which he makes with them.
The agreement between him and his principal need not be reduced to or evidenced by writing, for his undertaking is not a guarantee within the Statute of Frauds. A Del Credere Agent is an agent who not only establishes a privity of contract between his principal and the third party, but who also guarantees to his principal the due performance of the contract by the third party. He is liable, however, only when the third party fails to carry out his contract, e.g., by insolvency. He is not liable to his principal if the third party refuses to carry out his contract for example, if the buyer refuses to take delivery.
In a contract del credere agency, the guarantor is to answer for the solvency of the vendee and to pay the money if the vendee does not. But a demand on the principal debtor must be proved before the agent can be held liable.
5. Commission Agent: Commission (remuneration), is a form of payment to an agent for services rendered. A commission agent is the one, whose business is to purchase goods at the lowest price from one person and sell them to another without any profit, receiving only a commission for his service. Strictly speaking, he is not an agent at all, for he does not bring about any privacy of contract between the person from the buys and the person to whom he sells.
6. General Agent and Particular Agent: A general agent is one who represents the principal in all names concerning a particular business. A particular agent is one who is appointed fo a specific purpose e.g. to sell a particular article. Factors and Commission agents are usually General Agents.
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Capacity to appoint or act as an agent
Section 183 says, “Any person who is at the age of majority according to the law to which he subject and who is of sound mind may employ an agent”.
Under Section 184 of the Act, “any person may become an agent”, but one who is a minor or of unsound mind cannot be appointed to act as an agent to a principal so as to be personally liable to the latter.
When a minor is appointed as any agent, he can undoubtedly bring about a contractual relation between the principal and a third party, but personally he is not responsible to the principal like other adult agents follows therefore, that a person and who engages a minor agent does so at his own risk, for, if any loss is done to his property on account of the mismanagement of the minor, he cannot recover compensation from him. Minors may act as agents, although a minor’s appointment of an agent is generally voidable or void, if otherwise unexceptionable. In such cases, it will be binding on principals[i]. A mentally incompetent person cannot act as the agent of another always [ii]. One who knowingly appoints another to act as his/her agent is conclusively presumed to guarantee the capacity of such agent to act. The principal will not be excused by reason of the impairment, if the principal knowingly appoints a mentally impaired person as agent or permits such a person to act for him/her after knowledge of the impairment. If the principal selects a mentally competent person as agent, the principal is not bound by the acts of such person who thereafter becomes mentally impaired without the principal’s knowledge. If an intoxicated person is able to understand and execute with skill and fidelity the business entrusted to his/her care, s/he may serve as agent
Methods of Creating Agency
An agency may be created in any of the following ways:
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1) Agency by Authority: Agency by authority is also known as agency by contract.
The authority conferred may be either express or implied. Section 187 of the Act defines express and implied authority in the following way: “An authority is said to be express when it is given by words spoken or written. An authority is said to imply when it is to be inferred from the circumstances of the case”. Example: A owns a shop in Dhaka, himself living in Comilla and visiting the shop occasionally. The shop is managed by B and he is in the habit of ordering goods from C in the name of A for the purposes of the shop and of paying for them out of A’s funds within A’s knowledge. B has an implied authority from A to order goods from C in the name of A for the purpose of the shop. Extent of Agent’s authority: An agent may be special or general. When appointed to do one specific act or enter into one particular contract, an agent is a special agent. But when entrusted with all acts of some general kinds, e.g. all necessary acts connected with some business, the agent so entrusted is a general agent. Section 188 of the Contract Act laws down: “An agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such an act. An agent having an authority to carry on a business has authority to do every lawful thing necessary for the purpose or usually done in the course of conducting such business.” Example: a) A is employed by B, residing in London, to recover at Karachi a debt due to B; A may adopt any legal process necessary for the purpose of recovering the debt and may give a valid discharge for the same. b) A constitutes B his agent to carry on his business of a shipbuilder, B may purchase timber and other materials and hire workman for the purpose of carrying on the business. Illustration (a) above refers to the authority of a special agent and illustration (b) refers to the authority of a general agent. In an emergency an agent has far wider authority than he has in normal circumstances. For example: When an emergency arises, “an agent has authority to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances.”
2) Agency by Ratification: Ratification means the subsequent adoption and
acceptance of an act originally done without instruction or authority. As for example – P buys ten mounds of wheat on behalf of Q. Q did not appoint P as his agent and did
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not instruct him to buy wheat for him. Q may, upon hearing of the transaction, accept it. If he does, the act is ratified and P becomes his agent with retrospective effect.
Effect of ratification: “Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority.” (Section 196)
Ratification may be express or implied i.e. it may be by express words or by conduct. (Sec. 197)
Examples of Implied ratification:
D, without authority, buys goods for B. Afterwards B sells them to C on his own account. B’s conduct implies a ratification of the purchase made by D for him. D, without B’s authority lends B’s money to C. Afterwards B accepts interest on the money from C. B’s conduct implies a ratification of the loan.
Conditions: To be valid, ratification must fulfill the following conditions: i)
The agent must expressly contract as agent. A man cannot enter into a contract in his own name and later shift it on to a third party. The act to be ratified must be a lawful one. There can be no ratification of an illegal act or an act which is void. Ratification must be made within a reasonable time. No valid ratification can be made by a person whose knowledge of the fact of case is materially defective (Section -198). Ratification must be of the whole contract. There cannot be partial ratification and partial rejection. (Section - 199) For valid ratification, the agent must have a principle who is in actual existence at the time of the contract. Example – a person cannot ratify a contract entered into by a promoter on its behalf before the company came into existence by incorporation.
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The principal must have contractual capacity at the date of the contract and at the date of the ratification. Ratification is not valid where the effect of ratification is to subject a third person to damages or of terminating any right or interest of a third person.
3) Agency of Necessity: Circumstances sometimes force a person to act on behalf of
another without any express authority from him. In such cases an agency of necessity is said to be created. Three conditions must be satisfied before an agency can be created by necessity: (a) (b) (c) Examples:
It must be impossible to get the principal’s instructions. There must be an actual necessity for acting on his behalf. The agent of necessity must act honestly in the interest of the parties concerned.
The captain of a ship finds himself in a distant port without money. The owner cannot be communicated with. The captain can pledge the ship for obtaining money. He will be considered the agent of the owner by necessity.
A horse, sent by a train, arrived at a station with nobody to receive it. The railway company fed the horse. Held, the railway company was an agent of necessity and was entitled to recover the money from the owner.
Agency by Estoppels or by Holding Out
Agency may be created by estoppels. When a man has by his conduct or statements
induced others to believe that a certain person is his agent he is precluded from subsequently denying it. Thus an agency is created by implication of law. Examples: i) Y allows his servant X to buy goods for him on credit regularly. On one occasion the servant buys some goods not ordered by his master, on credit. Y is responsible to the shopkeeper for the price because X will be deemed to be his agent by estoppels.
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P employed X a broker, to buy hemp for him and at P’s request it was kept in a warehouse in X’s name. X without P’s authority sold the hemp. Held, P was bound by the sale because he had allowed X to assume the apparent right of disposing of the hemp in the ordinary course of business.
There are three possible cases of agency by estoppels: a) A person can be held out as an agent although he is actually no so. Example as (i) above
A person acting as an agent may be held out as having more authority than he actually has. Example as (ii) above.
c) A person may be held out as an agent after he has ceased to be so. Section-237 provides as follows: “When an agent has, without authority done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations if he has his words or conduct induced such third persons to believe that such acts or obligations were within the scope of the agent’s authority. Example: (i) A consigns goods to B for sale and gives him instructions not to sell under a fixed price. C, being ignorant of B’s instructions, enters into a contract with B to buy the goods at a price lower than the reserved price. A is bound by the contract. C in
iii)A entrusts B with negotiable instruments endorsed in blank. B sells them to
violation of private orders from A. The sale is goods.
Express and Implied Authority: “The authority of an agent may be express or implied.” (Section 186) The authority is said to be express when it is given by words spoken or written. The authority is said to be implied when it is to be inferred from the circumstances of the case. The inference as to implied authority may be drawn from things spoken or written or the ordinary course of dealing between the parties and others. (Section 187) Example: A owns a shop in Serampur, living himself in Calcutta, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A
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for the purposes of the shop, and of paying for them out of A’s funds with A’s knowledge. B has an implied authority from A to order goods from C in the name of A for the purposes of the shop. Extent of Agent’s Authority: “An agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act.” An agent having an authority to carry on a business has authority to do every lawful thing necessary for the purpose, or usually done in the course of conducting such business.” (Section -188) Examples:
i) A is employed by B, residing in London, to recover at Bombay a debt due to B. A
may adopt any legal process necessary for the purpose of recovering the debt and may give a valid discharge for the same.
ii) A constitutes B his agent to carry on his business of a ship-builder. B may purchase
timber and other materials, and hire workmen, for the purpose of carrying on the business. Authority in an Emergency: An agent has authority, in an emergency to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence, in his own case, under similar circumstances. (Section 189) Examples: i) An agent for sale may have goods repaired if it be necessary.
ii) A consigns provisions to B at Dhaka with directions to send them immediately to C at
Barisal. B may sell the provisions at Dhaka, if they will not bear the journey to Barisal without spoiling.
Agent’s duties to principals
a. Agent’s duty in conducting principal’s business: An agent is bound to conduct
the business of his principal according to the directions given by the principal, or in absence of any such directions, according to the custom which prevails in doing
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business of the same kind at the place where the agent conducts such business. When the agent acts otherwise if any loss be sustained he must make it goods to his principal and if any profit accrues, he must account for it. (sec. 211). b. Skill and diligence required from agent: An agent is bound to conduct the business of the agency with as much skill as is generally possessed by persons engaged in similar business unless the principal has notice of his want of skill. The agent is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill or misconduct, but not in respect of loss or damages which are indirectly or remotely caused by such neglect want of skill or misconduct. (Sec.212) c. d. Agent’s duty to render accounts: An agent is bound to render proper accounts to his principal on demand or periodically if so provided in the agreement. Agent’s duty to communicate to principal: It is the duty of an agent, in cases of difficulty to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions. e. Agent not to deal on his own account: If an agent deals on his own account in the business of the agency without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to him. The agent has a duty to avoid conflict of interest between the agent and the principal. f. Principal to get benefit of agent’s dealings: If an agent without the knowledge of his principal, deals in the business of the agency on his own account, instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction. The agent has duty not to make secret profits. g. Agent’s duty to pay sums received for principal: the agent is bound pay to his principal all sums received on his account after deducting there from his dues on account of remuneration and expenses. h. Principal’s death or insanity: When an agency is terminated by the principal dying or becoming of unsound mind. The agent is bound to take on behalf of the
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representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him. i. Miscellaneous: The agent has other duties also. The agent must give all information to the principal. He must not delegate his authority. He must avoid the clash between his duty and self-interest. He should be loyal to the principal. He must not set up an adverse title against the principal. He is not entitled to remuneration in certain circumstances.
Principal’s duties to agent
1. Agent to be indemnified against consequences of lawful acts: The principal is bound to indemnify the agent against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him. 2. Agent to be indemnified against consequences of acts done in good faith: Where one person employs another to do an act and the agent does the act in good faith the employer is liable to indemnify the agent against the consequences of that act though it causes an injury to the rights of third persons. 3. Non-liability for criminal acts: Where one person employs another to do an act which is criminal, the employer is not liable to the agent either upon an express or an implied promise, to indemnify him against the consequences of that act. Compensation for principal’s neglect: The principal must make compensation to his agent in respect of injury caused to such agent by the principal’s neglect or want of skill.
1) Compensation: The principal is entitled to compensation for any breach of duty by the agent. 2) Agent’s duties: The agent’s duties are the principal’s rights. 3) Revocation: The principal can revoke the agent’s authority, subject to certain conditions.
1) Enforcement of rights: The agent can enforce all the duties of the principal. The principal’s duties are the agent’s rights. 2) Agent’s right of retainer: An agent may retain out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of
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advances made or expenses properly incurred by him in conducting such business and also such remuneration as may be payable to him for acting as agent. 3) When agent’s remuneration becomes due: In the absence of any special contract, the agent’s remuneration does not become due until he has completed the act for which he was appointed agent. But an agent may detain moneys received by him on account of goods sold, although the whole of the goods consigned to him for sale may have been sold, or although the sale may be actually complete. 4) Agent not entitled to remuneration for business misconducted: An agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconducted. 5) Agent’s lien: In the absence of any contract to the contrary, an agent is entitled to retain goods, papers and other property, whether movable or immovable of the principal, received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him.
Types of Principal
At the time of the transaction made by the Agent with the Third Party, the latter knows that the person he is dealing with is acting as an Agent and also knows the Principal’s identity. At the time of the transaction, the Third Party knows that the person he is dealing with is acting as an Agent but does not know the Principal’s identity.
The person acting as an Agent represents they are acting on their own behalf and does not disclose the existence of the agency relationship. This is usually Undisclosed because the Principal is wealthy and believes that money can be saved on the proposed deal if their involvement is hidden.
Where the Principals is Undisclosed
From the above table it is apparent that, if an agent makes a contract with a person who neither knows nor has reasons to suspect that he is an agent, the principle of the agent is known as undisclosed principle. When in making a contract, the principal thus remains
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undisclosed. The agent who makes the contract becomes personally liable for it. Consequently, he can sue or be sued for the contract. An agent may enter into a contract with a person without disclosing the name of the principal. The legal consequences of contracts with undisclosed principal are as follows:
(1) Principal may require performance of the contract: If an agent makes a contract
with a person who neither knows, nor has reason to suspect, that he is an agent, his principal may require the performance of the contract. But the other contracting party has, as against the principal, the same right as he would have had as against the agent if the agent had been principal (section 231).
(2) The other party may refuse to fill the contract: If the principal discloses himself
before the contract is completed, the other contracting party may refuse to fulfill the contract, if he can show that, if he had known who was the principal in the contract, or if he had known that the agent was not a principal, he would not have entered into the contract (section 231).
(3) Performance is subject to the rights and obligations between agent and the other
party: Where one man makes a contract with another, neither knowing nor having reasonable ground to suspect that the other is an agent, the principal, if he requires the performance of the contract, can only obtain such performance subject to the rights and obligations subsisting between the agent and the other party to the contract (section 232). Example:
A, who owes Tk. 500 to B, sell Tk. 1,000 worth of rice to B. A is acting as agent for C in the transaction, but B has neither knowledge nor reasonable ground of suspicion that such is the case. C cannot compel B to take the rice without allowing his to set off A’s debt.
(4) Agent is personally liable: In contracts with an undisclosed principle, the agent is, in
the absence of contract to the country, personally liable on the contract. The other party may hold either the agent or the principle or both liable. Example:
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A enters into a contract with B to sell him 100 bales of cotton, and afterwards discovers that B was acting as agent for C. A may sue either B or C or both, for the price of the cotton.
Liability of a Pretended Agent
A person untruly representing himself to be the authorized agent of another, and thereby inducing a third person to deal with him as such agent, if his alleged employer does not ratify his acts, to make compensation to the other in respect of any loss or damage which he had incurred by so dealing (section 235). A pretended agent has no authority to act as agent. When the other party to the contract suffers damage as a result of such want of authority, he can sue the agent for breach of warranty of authority. The pretended agent is liable to pay damages under the law of torts. The liability arises even when the agent acted innocently. Example: • A firm of solicitors was instructed by a client to defend a suit. Subsequently the client became insane (and the solicitors’ authority as agent terminated by law). The solicitors in ignorance of the fact took steps to defend the suits. Held the solicitors were personally liable for the cost of the other side, as on a breach of warranty of authority (Yong v. Toynbee). A person, with whom a contract has been entered into in the character of agent, is not entitled to require the performance of it if he was in reality acting, not as agent, but on his own account (section 236).
Representation as to liability
Representation as to liability includes two different cases. These are as follows(1) When a person who has made a contract with an agent induces the agent to act upon the belief that the principal only will be held liable, he cannot subsequently hold the agent liable on the contract. (2) Similarly if a person induces the principal to act on the belief that the agent only will be held liable, he cannot afterwards hold the principal liable on the contract.
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Misinterpretation or Fraud by Agent
Misrepresentation is a contract law concept. It means a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. For example, under certain circumstances, false statements or promises made by a seller of goods regarding the quality or nature of the product that the seller has may constitute misrepresentation. A finding of misrepresentation allows for a remedy of rescission and sometimes damages depending on the type of misrepresentation. According to Gordon v Selico (1986) 18 HLR 219 it is possible to make a misrepresentation either by words or by conduct, although not everything said or done is capable of constituting a misrepresentation. Generally, statements of opinion or intention are not statements of fact in the context of misrepresentation. If one party claims specialist knowledge on the topic discussed, then it is more likely for the courts to hold a statement of opinion by that party as a statement of fact. Representation is not a term As enacted by the Misrepresentation Act, the statement in question may constitute a representation even if later incorporated into the contract as a term (i.e. a warranty, condition or innominate term). An alternative approach, applied in parallel but in exclusivity to, is to find a collateral contract by interpreting the representation as a promise accompanied by some sort of consideration (see Heilbut, Symons & Co. v Buckleton  A.C. 30 (H.L.)). The collateral contract will have the effect of adding the representation as a term to the contract. If the representation is found to be a term then the normal remedies for breach of contract apply. Criteria for Misrepresentation Misrepresentation is one of several vitiating factors which can affect the validity of a contract. A misrepresentation occurs when one party makes a false statement with the intention of inducing another party to contract. For an action to be successful, some criteria must be met in order to prove a misrepresentation. These include:
A false statement of fact has been made,
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The statement was directed at the suing party and The statement had acted to induce the suing party to contract.
Distortion of Fact A representor may make a statement which prima facie is technically true; however this may tell only half the story. If a statement of fact is made but the representor fails to include information which would significantly alter the interpretation of this fact, then a misrepresentation may have occurred. In Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563, Krakowski agreed to enter into a contract to buy a shop premises from Eurolynx as long as a 'strong tenant' had been organized. The contract proceeded on the grounds that such a tenant had been arranged. Unbeknown to Krakowski, Eurolynx had entered into an additional agreement with the tenant to provide funds for the first three months rent to ensure the contract went ahead. When the tenant defaulted on the rent and subsequently vacated the premises, Krakowski found out about the additional agreement and rescinded the contract with Eurolynx. It was held that Eurolynx’s failure to disclose all material facts about the 'strong tenant' was enough to constitute a misrepresentation and the contract could be rescinded on these grounds. Learned Falsity The negotiating stage of a contract can be a time consuming process. Because of this, new information may arise and circumstances may change. This can result in two situations which can result in a misrepresentation if silence is kept. The first is if the representor subsequently discovers that the statement was false, the second being if the statement becomes false at a later time. If a statement is made and it is subsequently made known to the representor that it is false, it would obviously be inequitable to allow the representor to remain silent with the new information. In Lockhart v. Osman  VR 57, an agent had advertised some cattle as being “well suited for breeding purposes”. Later on it was discovered that the stock had been exposed to a contagious disease which affected the reproductive system. It was held that the agent had a duty to take remedial action and correct the representation. The failure by the agent to take such measures resulted in the contract being set aside. Should a statement be made which is true at the time, but subsequently becomes untrue due to a change in circumstances, the representor is obligated to amend the original statement. In With v O’Flanagan  Ch. 575, the plaintiff entered into a contract to purchase O’Flanagan’s medical practice. During negotiations it was said that the practice produced an income of
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£2000 per year. Before the contract was signed, the practice took a downward turn and lost a significant amount of value. After the contract had been entered into the true nature of the practice was discovered and the plaintiff took action in misrepresentation. In his decision, Lord Wright said "...a representation made as a matter of inducement to enter into a contract is to be treated as a continuing representation." This means that the representation must be true till the contract is made; creating the obligation mentioned above and accordingly the plaintiff’s petition was successful.
Some relationships also provide that silence can form the basis of an actionable misrepresentation.
A fiduciary relationship is one of trust and confidence; it involves one party acting for the benefit of another. For this reason, when entering into a contract, it is important for a fiduciary to disclose all facts which could be considered material even if not expressly asked about. In Lowther v Lord Lowther (1806) 13 Ves Jr 95, the plaintiff handed over a picture to an agent for sale. The agent knew of the pictures true worth yet bought it for a considerably lower price. The plaintiff subsequently discovered the pictures true worth and sued to rescind the contract. It was held that the defendant was in a fiduciary relationship with the plaintiff and accordingly assumed an obligation to disclose all material facts. Accordingly the contract could be rescinded. Statement of Fact It is a general requirement that for an action in misrepresentation to proceed, that the statement in question be one of present or past fact. This has its grounding in that only facts can be distinguished as being true or untrue at the time they are made. Opinion Statements of opinion are not often seen as sufficient to produce a misrepresentation. Obviously it would be unreasonable to treat opinions in the same manner as truths as opinions can be based purely on personal beliefs with no additional foundation. There are however some exceptions where opinions can give rise to an action in misrepresentation:
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• • •
where an opinion is expressed yet this opinion is not actually held by the representor, where it is implied that the representor has facts on which to base the opinion, or where one party should have known facts on which such an opinion would be based.
Intention and the Future Statements which are made in relation to the intention of a party or the occurrence of some event in the future do not constitute misrepresentations should they fail to eventuate. This is because at the time the statements were made they can not be categorized as either true or false. However, similarly to the first point above, an action can be brought if the intention never actually existed. This can be illustrated by the decision in Edgington v Fitzmaurice (1885) 29 Ch. D. 459, which deals with a statement of intention by the directors of a company to use loaned money to alter company buildings and make purchases to expand the company’s operating options. It was found that the directors actually intended to repay current debts and according it was held by the judges that the contract was voidable.
Statements of law were, in the past, considered to be free from claims of misrepresentation because it is equally accessible by both parties and is "...as much the business of the plaintiff as of [the defendants] to know what the law [is].". This has since changed and it is now more recognized that statements of law should be treated as akin to statements of fact rather than occupy a special isolation. As stated by Lord Denning "...the distinction between law and fact is very illusory.".
Statement to the Misled
An action in misrepresentation can only be brought by a representee. This means that only those who were an intended party to the representation can sue. This principle can be seen in Peek v Gurney (1873) LR 6 HL 377, where the plaintiff sued the directors of a company for indemnity. The action failed because it was found that the plaintiff was not a representee (an intended party to the representation) and accordingly misrepresentation could not be a protection. It is not required that in order to be a representee, the representation must be received directly. It is sufficient that the representation was made to another party with the intention that it would be made known to a subsequent party and ultimately acted upon by them as a representee.
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Types of misrepresentation
Four types of misrepresentations are identified with different remedies available:
Fraudulent misrepresentation occurs when one makes representation with intent to deceive and with the knowledge that it is false. An action for fraudulent misrepresentation allows for a remedy of damages and rescission. One can also sue for fraudulent misrepresentation in a tort action. Fraudulent misrepresentation is capable of being made recklessly.
Negligent misrepresentation at common law occurs when the defendant carelessly makes a representation while having no reasonable basis to believe it to be true. This type of misrepresentation is relatively new and was introduced to allow damages in situations where neither a collateral contract nor fraud is found. It was first seen in the case of Hedley Byrne v Heller  A.C. 465 where the court found that a statement made negligently that was relied upon can be actionable in tort. Lord Denning in Esso Petroleum Co. Ltd. v Mardon  Q.B. 801 however, transported the tort into contract law, stating the rule as: if a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another…with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable
Negligent misrepresentation under Statute, enacted by the Misrepresentation Act 1967. When dealing with a negligent misrepresentation it is most lucrative (joint with fraudulent misrepresentation, Contributory Negligence notwithstanding) for an action to be brought under statute law as the burden of proof that is required passes to the person who made the statement. So it is for the person who made the negligent statement to prove that the statement was either not one of fact but opinion and that "had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true" - the so-called innocent defense.
Innocent misrepresentation occurs when the representor had reasonable grounds for believing that his or her false statement was true. Prior to Hedley Byrne, all misrepresentations that were not fraudulent were considered to be innocent. This type of representation primarily allows for a remedy of rescission, the purpose of which is
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put the parties back into a position as if the contract had never taken place. Section 2(2) Misrepresentation Act 1967, however, allows for damages to be awarded in lieu of rescission if the court deems it equitable to do so. This is judged on both the nature of the innocent misrepresentation and the losses suffered by the claimant from it.
Notice Given to an Agent Time to time notice is given to the agent for different purposes. When the agent deviates from the contract then the principal may give notices to the agents. Or when the quality of the products does not conform the agreement or if there is any claim against the agent, then the principal may generate notice to an agent.
Liability of Principal- Agent Acting Outside Of Authority
The principal is not liable for a contract made by his agent outside both his real and his apparent authority. 1. The liability of the principal where the agent has exceeded his authority depends on principles of estoppels. If no facts exist, therefore, to stop the principal from denying the authority of the agent, persons dealing with the agent must take notice of his powers. 2. So persons dealing with an agent are bound by known limitations on his authority. 3. So where the agent is a special agent of limited powers, the principal in the absence of estoppels or ratification, is not bound by his contract in excess of his authority. 4. Thus an agreement by a local railway agent in violation of a known rule of the railway to make no charge to a large shipper for demurrage or storage is not binding on the company. 5. So an agent having an assignment of a judgment for safe keeping cannot assign such judgment to one who knows the facts. 6. So a conveyance by an attorney in fact, having known authority to convey only on approval by his principal, is of no validity if made without such approval. 7. So if A buys a piano from B as agent of X and makes his note therefore payable to B personally, it has been held that if B does not account to X for the proceeds of such note, X may recover the piano, X not having ratified the sale and no such custom of business being
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shown. So a principal is not bound where an agent with mere power to sell, inserts in a contract a clause for interest in case of delay in delivery, 9. or makes specific representations that the threshing-machine sold by him has been shipped, thereby inducing the vendee to deliver his old machine in part payment, and thus leaving him without any threshing machine when needed. 10. So if an insurance agent delivers a policy which by its terms is not to take effect until the first premium is paid, and the insured agrees to pay therefore by giving the agent credit for such premium on his private account, the insurance company is not liable if the agent does not account to it for such premium. 11. So if an insurance policy shows on its face that an agent has no authority to waive certain provisions thereof, an attempted waiver by an agent not having such authority in fact is invalid. 12. So while a rule of an express company that express orders must be signed by their local agent does not prevent recovery on express orders signed by a clerk in the office of the local agent, such rule not being known, 13. Yet if this clerk had solicited business outside the office and had made no charge therefore, the person buying such orders with knowledge of these facts must take notice that such business is outside the apparent authority of an express agent. So an agent who has merely power to sell cannot bind his principal by a contract of sale which provides for payment in something other than cash, such as lumber, 14. Secondhand machinery, 15. or a note and a certificate of deposit. 16. An agent with authority to inspect lumber cannot bind his principal by agreeing to accept lumber which he has not inspected. 17. So an agent with authority only to collect rents cannot bind his principal by a contract to lease. 18. So a principal is not bound by the act of his agent after the authority of such agent is known to the third person to be revoked. 19. Thus an agent originally authorized to sell realty, cannot bind his principal by accepting money from a vendee and putting him in possession, after such vendee knows that the principal has already sold the realty to another.
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20. If the contract of the agent exceeds his authority, it will be held good as far as his authority extends if such part can be separated from the rest. Thus if an attorney in fact is authorized to execute a quit-claim deed only, a warranty deed executed by him will pass title, though the covenant of warranty will not bind the Principal.
A sub-agent is defined by Section 191 of the Contract Act, as “a person employed by a person employed by and acting under the control of the original agent in the business of agency.” A sub-agent may be a properly appointed one or an improperly appointed one. Where an agent, having authority to do so, appoints a sub-agent, he is known as a sub-agent properly appointed (sec. 192.) Where an agent without authority appoints a sub-agent, he is called a sub-agent improperly appointed. (sec.193.).
With regard to the appointment of Sub-Agent, Sec 190 clearly states: “An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may or from the nature of the agency, a sub-agent must be employed”. This rule contained in the above section is founded upon the maxim, delegatus non potest deligar, which means that a delegate cannot sub-delegate. But as Section 190 of the Act provides that an agent can appoint a sub-agent where it is the usual custom of the trade in question or where without such a sub-agent, the assignment cannot be properly executed or where the principal has authorized the appointment or a sub-agent. Thus, A of Calcutta has an agent in Dacca to buy jute for him. He may appoint a banker to keep his capital in deposit and must appoint a lawyer whenever any litigation arises. Both the banker and the lawyer are his sub-agents. Where a sub-agent is properly appointed, the principal is, so as regards third person, represented by the sub-agent, and is bound by and responsible for his acts, as if he were and agent originally appointed by the principal. But as far as the agent himself if concerned he is responsible to the principal for the action of the sub-agent and the sub-agent in his turn is responsible for his action to the agent but not to the principal except in case of fraud of willful wrong (Section 182). But where an agent improperly appoints a sub-agent, i.e., where he has no authority, implied or express, or where it is neither customary nor imperative to appoint a sub-agent, the
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agents stands towards such person in the relation of a principal to an agent and is responsible for his acts both to the principal and to third persons: the principal is not represented by or responsible for the acts of the person so employed nor is that person responsible to the principal” (Section 193). It should be noted that where and agent having express or implied authority to do so has nominated or selected another person to act for the principal in the business of the agency, Such person is not a sub-agent but an agent of the principal for such part of the business of the agency as is entrusted to him (Section 194). Thus, A directs B, his solicitor, to sell his estate by auction and to employ and auctioneer for the purpose. B names C, an auctioneer, to conduct sale, C is not a sub-agent but is A’s agent for the conduct of the sale. In selecting such an agent as contemplated in Section 194, and agent must use such ordinary prudence as the would have done had he been the principal himself. If he does this he is not responsible to the principal for the acts or negligence of the agents so selected (Section 195).
Co-agent or Substituted Agent
A "Co-agent" or a "substituted Agent" is a person who is appointed by the agent to act for the principal in the business of agency with the consent of the principal. Section 194 enacts, "where an agent holding an express or implied authority to name another person to act for the principal, names another person accordingly, he is not a sub-agent, but a substituted agent for the principal"
Dissolution/ Termination of Agency
An agency may be terminated/ dissolved by act of parties or by operation of law. The different possible circumstances leading to the termination of agency are enumerated below.
Termination by Act of Parties
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i) When the principal revokes the authority of the agent: Such revocation must be made
before the agent has exercised his authority and must be for a just excuse. Revocation has, however, to be made subject to the following restrictions:
a) “Where the agent has himself an interest in the property which forms the subject matter of the agency, the agency in the absence of an abstract contract, cannot be terminated to the prejudice of such interest”. Thus, A gives authority to B to sell A’s land and to pay himself, out of the proceeds, the debts due to him from A. A cannot revoke the authority nor can it be terminated by A’s insanity or death.
b) If the agency has been formed for a definite period, the principal cannot revoke unjustly the authority without paying compensation to the agent.
c) The principal cannot revoke the authority given to his agent after the authority has been partly exercised so far as regards such acts and obligations as arise from acts already done in the agency. Thus, A authorizes B to buy 1000 bales of cotton on account of A and to pay for it out of A’s money remaining in B’s hands. B buys 1000 bales of cotton in his own name, so as to make himself personally liable for the price. A cannot revoke B’s authority so far as regards payment for the cotton. If, however, B purchases the cotton in A’s name so as not to render himself personally liable for the price, A can revoke B’s authority to pay for the cotton.
Termination by Operation of Law
ii) When the agent renounces the business of the agency.
Reasonable notice for such renunciation must be given. Renunciation can be made only for a just cause. If the renunciation unwarranted or otherwise amounts to a breach of the contract, the principal is entitled to compensation.
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iii) By the insolvency of the principal.
A person who has been adjudged an insolvent cannot act as a principal because his contractual capacity has thereby lapsed. Hence, all contracts of agency which he has made with others also are dissolved.
iv) By death or insanity of the Principal or the Agent
The relationship between an agent and a principal is entirely personal. Therefore, death or insanity of either terminates the agency, subject to the provisions of Sections 202 and 204 of the Contract Act.
v) On the completion of the business of the agency
If an agency has been formed for a definite period, the agency is dissolved on the termination of the stipulated period. Thus, A employs B to construct a building and C, to supervise the construction for 3 months. The agency of B will terminate after the construction of the building is over and that of C at the end of 3 months.
vi) Performance of the Object
Where the agency is for a particular object, it terminates when the object is accomplished or when the accomplishment becomes impossible.
vii) By an agreement between the Principal and the Agent
Sometimes the contract of agency expressly or impliedly provides for the termination of the contract.
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viii) The Principal becoming an Alien Enemy If the principal and the agent belong to different countries and war breaks out between the two countries, the contract of agency is terminated.
ix) Termination of the Sub agent’s authority The sub agent’s authority comes to an end when the agent’s authority terminates.
Manufacturers and suppliers of goods frequently appoint agents to act on their behalf in promoting sales, both in the home country of the manufacturer as well as overseas. A formal agreement is usually signed setting out the commission the agent will receive, the territory, duration and other terms on which the principal and agent will do business together. Within the European Union, there is legislation designed to give some protection to agents, in particular the right to compensation in certain circumstances when an agency is terminated. The same applies in other parts of the world and in some countries it is necessary for a foreign manufacturer to appoint as agent an individual or company that is a national of the country where the agency will operate. An agent should be distinguished from a distributor – in commercial parlance, a distributor will buy stock from the supplier or principal and then sell it on to his customers at a mark-up, whereas an agent will find customers for the principal who then sells direct to the customers and pays commission to the agent.
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3. 4. 5. 6.
Principals of Commercial Law_ Prof Mafizul Islam Commercial Law and Industrial Law_Arun Kumar Sen & Jitendra Kumar Mitra. Jamesville & W.R. Co. v. Fisher, 109 N.C. 1, 13 S.E. 698 (1891). Lyon v. Kent, 45 Ala. 656, 1871 WL 980 (1871) Central of Georgia R. Co. v. Hall, 124 Ga. 322 (Ga. 1905) Cameron v. Ward, 22 Ga. 168 (Ga. 1857)
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7. 8. 9.
http://www.businessdictionary.com/definition/agency.html Music Business (2006) 3rd edition, by Shane Simpson, Omnibus Press, Chapters 4-6 Earning a Living in the Visual Arts (1997) 3rd edition, by James Stokes, Hale and Iremonger Pty Ltd.
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