Contract of Agency

According to Sec 182 defines an ‘Agent’ as “a person employed to do any act for another or
to represent another in dealings with third person”. The person for whom such act is one or who is
represented is called the principal. The relationship between the agent and the principal is called
“agency”. Contracts of agency are based on two important principles, namely: Whatever a person
can do personally shall also be allowed to be done through and agent except in case of contracts
involving personal services such as painting, marriage, singing, etc. He who does not act through a
duly authorized agent does it by himself. The act of the agent are considered the acts of the principal
(Sec.226).
Any person who is of the age of majority according to the law to which he is subject and who is of
sound mind, may be an agent. The function of an agent is to bring his principal into connectional
relations with third parties. The agent is merely a connecting link between the principal and third
parties.
An Agent can create a contractual relationship between the principal and third parties but a servant
cannot create contractual relationship between its employer and third parties. An agent receives
commission for his services while servant is generally paid wages or salary. An agent may work for
several principals at the same time. A servant can serve only one master at a time. An agent is not
subject to direct control and supervision of principal. He is often discretion but a servant acts under
the direct control and supervision of his master and must follow all his reasonable order. The
principal is liable for all the wrongful as of his agent which are within the “scope of his authority.”
But the master is bound by the wrongful acts of his servant if done in the course of servant’s
employment.
Express Agency (sec186). A person may be appointed agent, either by word of mouth or by writing.
No particular for is required for appointing an agent. Implied Agency (Sec187) An agency which
arises from the conduct, situation or relationships of parties. Agency by Estoppel (sec237) When a
person has by his conduct or statements induced others to believe that a certain person is his agent,
he is estopped from subsequently denying it. Ex. A tells B that he is C’s agent, this he does in the
presence of C and within his hearing. C does not object to the statement of A is not actually his
agent. Later B makes a deal with A as agent of C. C shall be bound by this deal. Agency by holding
out (sec189)- Though part of the law of estoppel, some affirmative conduct by the principal is
necessary in creation of agency by holding out. Ex. A child purchase goods from a shop and desires
the shopkeeper to collect payment from his parents later. The parents, though not bound to pay,
make the payment. After a few days, the child again makes purchase from the shop on the credit of
the parents. The parents would be bound this time because, by the making payment earlier without
raising any objection, they had held their child out as their agent for making such purchases. Agency
of necessity (sec189)- This arises where there is no express or implied appointment of a person as
agent for another but he is forced to act on behalf of a particular person. Ex. A horse was sent by rail
at the destination it was not taken delivery by the owner. The station master had to feed the horse.
Held, station master became the agent by necessity and hence the owner must compensate him.
Agency by ratification (sec197)- Where an agent does an act for his principal but without knowledge
or authority or where he exceeds the given authority, the principal is not held bound by the
transaction. Ex. L made an offer to X, MD of a company. X accepted the offer though he had no
authority to do so. L subsequently withdrew the offer, but the company ratified X’s acceptance.
Held- L was bound. The ratification related back to the time X accepted the offer, thus rendering the
revocation of the offer inoperative. An offer once accepted cannot be withdrawn.
One Broad Classification of Agents are Mercantile or Commercial Agents. Broker: A broker is a
mercantile agent engaged to buy and/or sell property or to make bargains and contract between the
engager and a third party for commission. A factor or mercantile agent who is entrusted with the
possession of goods with an authority to sell the same. A commission agent is an agent who is
employed to buy or sell goods or transact business. A del credere agent is one who, in consideration
of an extra remuneration, called a del credere commission, guarantees the performance of the
contract by the other party. An auctioneer is an agent appointed to sell goods by auction. Though
the relationship between banker and customer is ordinarily that of debtor or creditor, he acts as an
customer ordinarily that of debtor or creditor, he acts as an agent when he buys or sells securities on
his behalf. A pakka Adatia is a person who guarantees the performance of the contract, not only to
his principal but also to the broker to the other side. A katcha adatia does not guarantee the
performance of the contract. An indentor is commission agent who procures a sale or a purchase on
behalf of his principal, with a merchant in a foreign country. Non-Mercantile or Non Commercial
Agents (Wife as the agent, Sub agents). Another classification of agent are General and Special.
Right to remuneration (Sec219-220): An agent is entitled to his agreed commission or remuneration
and if there is no agreement to a reasonable remuneration. However, an agent who is guilty of
misconduct in the business of agency is not entitled to any remuneration in respect of that part of the
business which he has misconducted (Sec220). Right of Retainer (Sec217): This also known as
agent’s right of retainer. It can only be claimed on money received by him in the business of the
agency. He cannot therefore, retain, sums received by him in one business for his commission or
remuneration in other business on behalf of the same principle. Right of Lien (Sec221)- In the
absence of any contract to the contrary, an agent is entitled to retain goods, papers and property
whether movable or immovable of the principal received by him until the amount due to himself for
commission, disbursement and services in respect of the same has been paid or accounted for to him.
Right of stoppage-in-transit: This is right available to agent in the following two cases: Were he has
purchased goods with his own funds or by incurring personal liability. Like an unpaid seller, he
enjoys the right of stopping the goods in transit if in the meantime the principle has become
insolvent. Where he holds himself liable for the price of goods sold for example, del credere agent,
he may exercise the unpaid seller’s right of stopping the goods in transit in case at buyer’s
insolvency. Right of Indemnification (Sec 222-224): The principal is bound to indemnify an agent
against the consequences of all lawful acts done by the agent in exercise of authority conferred upon
him. (Sec 222). Example: B, at Singapore, under instruction from A of Calcutta, contracts with C to
deliver certain goods to him. A does not send the goods to B, and C sues B for breach of contract. B
informs A of the suit, and A authorizes him to defend the suit. B defends the suit, and is compelled
to pay damages and costs, and incurs expenses. A is liable for such damages, costs and expenses.
According to Sec 224 an agent can not claim indemnification for a criminal act, even though the
principal had agreed to do so. Right to compensation for injury caused by principal’s neglect (Sec
225): 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. Example: A employs B as a bricklayer in building a house
and puts up the scaffolding himself. The scaffolding is unskilfully put up and B is in consequence
hurt. A must make compensation to B.
The Duties of Agent is to conduct the business of agency according to the principal’s direction’s
(Sec 211). The agent should conduct the business with the skill and diligence that is generally
possessed by persons engaged in similar business, except where the principal knows that Agent in
wanting the skill (Sec 212), where a lawyer proceeds under a wrong section and thereby the case is
lost, he shall be liable for the loss. To render proper accounts. Rendering account does not mean
showing the account supported by the vouchers. In case of difficulty to communicate with the
principal (Sec 214), not to make any secret profits, not to deal on his own account, agent not entitled
to remuneration for business misconducted.
 Contract of Sale

The law relating to sale and purchase of goods, prior to 1930 were dealt by the Indian
Contract Act, 1872. In 1930, Sections 76 to 123 of the Contract act was repealed and a separate Act
known as the sale of Goods Act, 1930 was passed. This act lays down special provisions governing
the contract of sales of goods. The General law of contract is also applicable to the contracts for the
sale of goods unless they are inconsistent with the express provisions of the Sale of Goods Act.
According to Section 4 of the Act, a contract of sale means “a contract where the seller transfers or
agrees to transfer the property in goods to the buyer for price”. Contract of sale maybe of two types:
Sale: It is a contract where the ownership in the goods is transferred by the seller to the buyer
immediately at the conclusion contract. Ex: A sells his house to B for R 10,000,000. It is a sale since
ownership of the house has been transferred from A to B and the other one is, Agreement to sell: It
is a contract of sale where the transfer of property in goods is to take place at a future date or subject
to some condition thereafter to be fulfilled. Ex: A agreed to buy from B a certain quantity of nitrate
of soda. The ship carrying the nitrate of soda was yet to arrive. This is ‘an agreement to sale’. In this
case, the ownership of nitrate of soda is to be transferred to A on the arrival of the ship containing
the specified goods (nitrate of soda).
There must be two parties- a buyer and a seller to constitute a contract of sale. Contract of sale relates
to goods, movable property. Transaction involving purchase and sale of immovable property are out
of the purview of the Sales off Goods Act. The object of the contract must be the transfer of general
property as distinguished from the special property in the goods by one person to another. The term
‘general property’ refers to ownership of goods. The consideration for the contract of sale called
price must be money. Essential elements of a valid contract: All the essential elements of a valid
contract must be present in the contract of sale.
Goods. The subject matter of a contract of a sale must be goods. According to Section 2(7) the term
‘goods’ means “every kind of movable property other than actionable claims and money and
includes stock and shares, growing crops and things attached to or forming part of the land which
agreed to be served before sale or under the contract of sale”. There are several type of goods. One
is the Existing goods: These are the goods which are owned or possessed by the seller at the time of
sale. Only existing goods can be the subject of a sale. The existing goods may be; Specific goods:
Goods identified and agreed upon at the time of making of the contact of sale of goods. Ascertained
goods: Goods identified subsequent to the formation of the contract of sale. The terms ascertained
and specific, are commonly used for the same kind of goods. Unascertained or generic goods: Goods
not identified or agreed upon at the time of making of the contract of sale. They are the goods defined
for description only. Ex: A who wants to buy a television set goes to a showroom where for sets of
Janta model of Oscar television are displaed. He sees the performance of a particular set, which he
agrees to buy. The set so agreed to be bought is a specific set. If after having bought one set he marks
a particular set, the set so marked becomes ascertained. Till this all is done all sets are unascertained.
The other type of goods are; Future goods and Contingent goods. Future goods are goods to be
manufactured, produced or acquired after making of the contract are called future goods. Ex: A
contract, on 1st February, to sell B 50 shares in Reliance Ltd., to be delivered and paid for on the 1st
April of the same year. At the time of making of the contract, A is not in possession of any shares.
The contract is a contract for the sale of future goods. The last one is the Contingent goods.
Contingent goods: Goods, the acquisition of which by the seller depends upon an uncertain
contingency are called ‘contingent goods’. They are also a type of future goods. Ex: A agrees to sell
200 units of an article provided the ship which is bringing them, reached the goods safely. This is
an agreement for the sale of contingent goods.
Perishing of goods before making of the contract (Sec. 7). Where there is a contract for the sale of
specific goods, the contract is void if the goods without the knowledge of the seller have, at the time
when the contract was made, perished or become so damaged as no longer to answer to their
description in the contract. Illustration; Facts: A agrees to sell to B a certain pig. It turns out that the
pig was dead at the time of bargain, though neither party was aware of the fact. Discuss the validity
of the contract. Solution: The agreement is void. In case part of goods is perished, the following rule
applies: (a) If contract is indivisible, it shall be void and (b) If the contract is divisible, it will not be
void and the part available in good condition must be accepted by the buyer. Goods perishing before
sale but after agreement to sell (Sec. 8). Where there is a contract for the sale of specific goods, the
contract is void if the goods without the knowledge of the seller have, at the time when the contract
was made, perished or become so damaged as no longer to answer to their description in the contract.
Illustration; Facts: A buyer took a horse on a trial for 10 days on condition that if found suitable for
his purpose the bargain would become absolute. The horse died on 6th day without any fault of their
party. Discuss the position both parties. Solution: The contract, which was in the form of an
agreement to sell, becomes void and the seller shall bear the loss.
Price. Sec 2(10) defines price as “money consideration for a sale of goods”. It forms an essential
part of the contract. It must be expressed in terms of money, It is not essential that the price should
be fixed at the time of sale. It must, however, be payable, though it may not have been fixed.
Ascertainment of price, price in a contract of sale may be: fixed by the contract itself or left to be
fixed in agreed manner or determined by the course of dealing between the parties [Sec.9(1)]. In the
absence of this, the buyer must pay to seller a reasonable price. What is the reasonable price is a
question of face dependent on the circumstances of each particular case [Sec. 9(2)]. Agreement to
sell at valuation. Where there is an agreement to sell goods on the terms that the price is to be fixed
by the valuation of a third party and such third party cannot or does not make such valuation, the
agreement is thereby avoided. Provided that, if the goods or any thereof have been delivered to and
appropriated by, the buyer, he shall a reasonable price there for. Where such third part is prevented
from making the valuation by the fault of the seller or buyer, the party not in fault may maintain a
suit for damages against the party in fault.
A contract of sale of goods involves transfer ownership from the seller to buyer. Transfer of
ownership or property in goods is in fact the main object of making a contract of sale.
It is important to know the precise moment of time at which the property in goods passes from the
seller to buyer for the following reasons: (a) Risk prima facie passes with ownership: In case of
destruction of or damage to the goods, it is the owner who has to bear the loss because the general
rule is ‘res perit domino’ risk follows ownership or whosoever is the owner must bear the loss. The
payment of the price or possession of goods is immaterial. (b) Action against third parties: In case
the goods have damaged by a third party, it is the only owner who can take action against him. (c)
Insolvency of the seller or the buyer: In the event of insolvency of either the seller or the buyer,
event of insolvency of either the seller or the buyer, the question whether the official receiver or
assignee can take over the goods or not depends on whether the property in the goods has passed
from the seller to the buyer.
Rules regarding transfer of ownership: Goods must be ascertained. Property passes when intended
to pass. For specific goods (Sec. 20 to 22) passing of property at the time of contract (Sec. 20) where
there is an unconditional contract for sale of specific goods in a deliverable state, the property in the
goods passes to the buyer when the contract is made. Passing of property delayed beyond the date
of the contract: Goods not in a deliverable state (Sec. 21) Where there is a contract for sale of specific
goods not in a deliverable, the seller has to do something to the goods to put them into the deliverable
state, the property does not pass until such thing is done and the buyer has notice of it. When the
price of goods is to be ascertained by (Sec. 22) Where there is a contract for sale of specific goods
in a deliverable state, but the seller is bound to weigh, measure, test or do some other act or thing
with reference to the goods for the purpose of ascertaining the price, the property does not pass until
such act or thing is done and the buyer has notice thereof. For the unascertained/ ‘future’ goods Sec.
23; In the case of a contract for a sale of unascertained or future goods by description, in a deliverable
state, are unconditionally appropriated to the contract by one party with the consent of the other.
Goods sent on approval or ‘sale or return’ Sec. 24; When the goods are delivered to the buyer on
‘approval’ or on ‘sale or return’ basis, the property in the goods will pass from seller to the buyer,
when any of the following conditions are satisfied.
Sale of auction is the public sale where the goods are generally sold to the highest bidder. Rules of
auction sale: The law on auction sales is contained in Sec. 64 of the sales of goods Act. According
to it, in the case of a sale of auction the following rules apply: Where goods are put up for sale in
lots, each lot is prima facie deemed to be the subject of a separate contract of sale; The sale is
complete when the auctioneer announces its completion by the fall of the hammer or in other
customary manner; and, until such announcement is made, any bidder may retract his bid; A right
to bid may be reserved expressly by or on behalf of the seller and where such right is expressly so
re-served, but not otherwise, the seller or any one person on his behalf may, subject to the provisions
hereinafter contained, bid at the auction; Where the sale is not notified to be subject to a right to bid
on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to
bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person
and any sale contravening this rule may be treated as fraudulent by the buyer; The sale may be
notified to be subject to a reserved or upset price; If the seller makes use of pretended bidding to
raise the price, the sale is voidable at the option of the buyer.
 ASSIGNMENT OF CREDITS AND
OTHER INCORPOREAL RIGHTS
Contract by which one person transfers to another his rights and actions against a third person
in consideration of a price certain in money or its equivalent. To affect third persons, it must appear
in a public instrument. Consent of the debtor is not essential, notice is sufficient. Purpose of notice:
To inform the debtor that from the date of the assignment he should make payment to the assignee
and not to the original creditor. The assignment involves no transfer of ownership but merely effects
the transfer of rights which the assignor has at the time to the assignee.
All accessory rights including: Guaranty, mortgage, pledge and preference. Warranties of the
assignor or credit: Existence of credit, legality of the credit at the perfection of the contract. (No
warranty as to the solvency of debtor). Violation of warranty: Vendor in good faith: Limited to the
price received and to the expenses of the contract Vendor in bad faith: Liable not only for the
payment of the price and all expenses but also for damages. Duration of assignor’s liability where
debtor’s solvency is guaranteed: (1) if there is a stipulation, then for the period fixed. (2) If there is
no stipulation: (a) 1 year from the assignment of credit (b) 1 year after its maturity when such period
of payment has not yet expired. Sale of successional rights: What is sold is the right to inherit only,
no warranty as to the objects which make up his inheritance. Sale for a lump sum: Subject matter:
totality of such rights, rents, or products and warranty extends only to the legitimacy of the whole
and not the various parts.
Effects of Assignment: (1) Transfers the right to collect the full value of the credit, even if he paid a
price less than such value. (2) Transfers all the accessory rights. Note: If the period for payment has
been extended without the consent of the guarantor, the assignee cannot go after the guarantor
because, as to him, his guaranty is only up to the original period. (3) Debtor can set up against the
assignee all the defenses he could have set up against the assignor. (4) Assignee cannot go after the
assignor as to enforce the credit if through his own negligence he allowed the credit to prescribe
provided the assignee was given enough time to enforce the said credit. Effective against Third
Persons: (1) If personal property is involved, a public instrument is needed to make the assignment
effective against third persons; (2) if real property is involved, registration in the Registry if Property
is necessary. (Article 1625). Effect of Payment by the Debtor after Assignment of Credit: (1) before
Notice of the Assignment: Payment to the original creditor is valid and debtor shall be released from
his obligation (Article 1626). (2) After Notice: Payment to the original creditor is not valid as against
the assignee. He can be made to pay again by the assignee. Note: Formal notice is not essential. As
long as the debtor has knowledge of the assignment, he is not released from the responsibility should
he pay the original creditor. Warranties of the Assignor of Credit: (1) The existence of the credit at
the time of the assignment. (2) The legality of the credit at the time of the sale. (3) The solvency of
the debtor, only IF expressly stipulated, or if the solvency was already existing and of public
knowledge at the time of the assignment. (Article 1628) Note: The seller of an inheritance warrants
only the fact of his heir ship but not the objects which make up his inheritance.

Liabilities of the Assignor of Credit for Violation of his Warranties: (1) Assignor in good faith:
Liability is limited only to the price received and to the expenses of the contract, and any other
legitimate payments by reason of the assignment. (2) Assignor in bad faith: Liability is not only for
the payment of the price and all the expenses but also for damages (Article 1628, par. 2 and 3). Legal
Redemption in Sale or Credit or Other Incorporeal Right in Litigation: Requisites: (1) there must be
a sale or assignment of credit. (2) There must be a pending litigation at the time of the assignment.
(3) The debtor must pay the assignee the: (a) Price paid. (b) Judicial costs; and (c) Interest on the
price from the date of payment. (4) The right must be exercised by the debtor within 30 days from
the date the assignee demands (judicially or extra judicially) payment from him (Article 1634). Sale
of the credits or other incorporeal rights in litigation: General Rule: Debtor has the right of legal
redemption in sale of credit or incorporeal rights in litigation. Exceptions: (1) Sale to a co-heir or
co-owner (Ratio: The law does not favor co-ownership). (2) Sale to a creditor in payment of his
credit (Presumption: The assignment is above suspicion and is in the form of dacion en pago, thus
perfectly legal). (3) Sale to the possessor of property in question (Purpose: To presumably preserve
the tenement) (Article 1635).

Article 1628. The vendor in good faith shall be responsible for the existence and legality of the
credits at the time of the sale, unless it shall have been sold as doubtful; but not for the solvency of
the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale
and of common knowledge. Even in these cases he shall only be liable for the price received and for
the expenses specified in No. 1 of Article 1616. The vendor in bad faith shall always be answerable
for the payment of all expenses, and for damages.

Article 1631. One who sells for a lump sum the whole of a certain rights, rents, or products, shall
comply by answering for the legitimacy of the whole in general; but he shall not be obliged to
warrant each of the various parts of which it may be composed, except in the case of eviction from
the whole or the part of greater value. Article 1632. Should the vendor have profited by some of the
fruits or received anything from the inheritance sold, he shall pay the vendee thereof, of the contrary
has not been stipulated. Since the vendor has already sold the inheritance, he should not profit except
insofar as the price is concerned. Article 1633. The vendee shall, on his part, reimburse the vendor
for all that the latter may have paid for the debts of and charges on the estate and satisfy the credits
he may have against the same, unless there is a n agreement to the contrary. Article 1634. Sale of
credit or other incorporeal right in litigation general rule: The debtor has the right of legal redemption
in sale of credit or incorporeal rights in litigation. The debtor must pay the assignee: (1) the price
paid by him. (2) The judicial costs incurred. (3) Interest on the price from the date of payment.
Article 1634. A credit or other incorporeal right shall be considered in litigation from the time the
complaint concerning the same is answered. (Article 1634) The debtor may exercise his right within
30 days from the date the assignee demands payment from him. (Judicial or extrajudicial).
Exceptions (Article 1635): (1) Sale to a co-heir or co-owner of the right assigned: The law does not
favor co-ownership. (2) Sale to a creditor in payment of his credit: The assignment is above suspicion
and is in the form of dacion en pago, thus perfectly legal. (3) Sale to the possessor of property in
question: To presumably preserve the tenement, and not to speculate at the expense of the debtor.
Ex: (1) A mortgaged his land to B, but A sold it to C. Later while suit is pending, C acquires mortgage
credit assigned to him by B. A has no right to redeem the mortgage credit. This is because C’s
purpose is presumably to preserve the tenement. (2) A owed B. For non-payment, B attached the
property. Property was sold to C, who also acquired the credit. A cannot redeem. C’s purpose is to
preserve the tenement. There is evidently no speculation here.