A Presentation on

Contract of Agency
Prepared by:-
Mehul Rasadiya (42)
Shailesh Hirapara(15)
Submitted to:-
Javed Pathan (38)
Ms. Anupama Goswammi Kishan Kareliya(21)
Nirav Solanki(49)

K.K. Parekh Institute of Management Studies

(Amreli)
1
 Definition of Agent & Principal

 An agent is a person employed to do any act for

another or to represent another in dealings with third
persons.
 The person for whom such acts are done or who is
represented is called the principal.
 The contract which creates relationship of principal &
agent is called an agency.
 Essentials and legal rules

1. There should be an agreement between the principal and

the agent :Agreement may be: Express or implied
2. The agent must act in the representative capacity.
3. The principal must be competent to contract.
4. The agent need not be competent to contract. Why? But in
the interest of the principal?
5. The consideration is not necessary.
 General rules of agency

1. Whatever a person can lawfully do himself, he may

also do the same through an agent

2. He who acts through another, does by himself

Distinction b/w agent & servant.

Conti…
Who may employ an agent?
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 employ an agent.

Who may be an agent?

As between the principal and third persons any person
may become an agent
Agent Servant

He has the authority to He ordinarily has no such

create commercial relationship authority.
between the principal & the
third party

He may work for several He ordinarily work for

principal at a time. only one master at a time.
He usually get commission He usually get salary or
wages.
 TEST OF AGENCY

The question as to whether a particular persons is an

agent can be verified by finding out if his acts bind the
principal or not
 Creation of agency

1. Agency by express agreement

2. Agency by implied agreement
3. Agency by ratification

A. Agency by express agreement

Appointment in writing or by words of mouth
Usual form of a written agreement : Power of attorney – General
power of attorney or Special PA
 B. Agency by implied agreement
Due to the conduct of the parties or the course of dealing

between the parties or the situation of a particular

case.

Agencies by an implied agreement includes:

1. Agency by estoppel

2. Agency by holding out

3. Agency by necessity
Conti…
Agency by estoppels :

Where a person by his words or conduct has willfully led

another to believe that certain set of circumstances or
facts exist, and the other person has acted on that belief,
he is estopped from denying the truth of such statements
although such a state of things did not in fact exist.
Conti…
Agency by holding out:
More than estoppel – positive or affirmative conduct of the
principal is required

 Agency by necessity:
Due to extraordinary circumstances, person may be
compelled to act without requiring the consent or
authority
Conti…

Conditions:

• There must be real emergency to act on behalf of the

Principal.

• Agent not in a position to obtain instructions

• Acting honestly and in the interest of the Principal

• Adopting reasonable and practicable course of action

Conti…
Cases:
1.Where the agent exceeds his authority bonafide in an
emergency
2.Where the carrier of goods acting as a bailee, does
anything to protect or preserve the goods.
3.Where husband improperly leaves his wife without
providing proper means for her sustenance.
 C. Agency by ratification

A person does some acts on behalf of another person

without his knowledge or authority
Another person subsequently accepts the acts Then:
Agency by ratification
Also known as ex-post facto agency (agency arising
after the event)
 Conditions for valid ratification
1. The agent must act on behalf of the principal

2. The principal must be competent to contract and in

existence at the time of contract by the agent

3. There should be an act capable of ratification

4. The principal must have full knowledge of the material

facts.

5. Whole transaction must be ratified

6. Within a reasonable time.

7. Ratification must not injure a third party.

 Kinds of agents
I. From the point of view of the extent of their authority :
1.General Agent- Is one employed to do all the acts
connected with a particular business or employment
Eg: manager of a firm.

2. Special Agent – employed to do some particular act or

represent his principal in some particular transaction.
Eg: agent employed to sell a motor car.

3.Universal Agent – Whose authority is unlimited. He

enjoys extensive powers to transact every kind of
business on behalf of principal.
Conti…

II. From the point of view of the nature of work performed by them:

I. Mercantile agent-

An agent dealing in the buying and selling of the goods

An agent who has the authority either to sell the goods, or to consign

the goods for the purpose of sale, or to buy the goods or to raise the

money on the security of the goods on behalf of his principal

 Types of Mercantile Agents
 Factor: possession of the goods is given for the
purpose of selling the same – sells in his own
name – has general lien – usually sells in his own
name
 Broker: appointed to negotiate and make contracts
for the sale and purchase on behalf of the principal
– not given possession – not in his own name
 Commission agent: buys and sells and receives
commission
Conti…
4.Del credere agent: One who in consideration of an extra
commission, guarantees his principal that the third
persons with whom he enters into contracts on behalf
of the principal shall perform their financial obligations
i.e. if the buyer does not pay , he will pay.

II. Non- mercantile agents :

Does not usually deal in the buying or selling of the
goods. They include Insurance agents ,Counsels or
advocates, wife,etc.
 Duties of an agent
1. Duty to follow the instructions of the principal – if not..

2. Duty to carry out the work with care and skill

3. Duty to render accounts to the principal

4. Duty to communicate with principal – if no time

5. Duty not to deal on his own account

6. Duty not to make secret profits from agency

7. Duty to pay the amount received for the principal

Conti…

8. Duty not to use the information, received in the course of

agency, against the principal

9. Duty to protect the interest of the principal in case of his

death or insanity

10. Duty not to delegate authority

 Rights of an agent
1. Rights to retain money due from the principal
2. Right to receive remuneration
3. Right of lien – The agent has the right to retain goods,
papers and other property- only particular lien
4. Right to be indemnified against consequences of lawful
acts.
5. Right to compensation
6. Right to be indemnified against consequences of acts
done in good faith
7. Right of stoppage of goods in transit.
(a) Principal becomes insolvent
(b) Agent has bought goods out of his own money
 Rights of principal
Recover damages from agent if he disregards
directions of Principal
Obtain accounts from Agent
Recover moneys collected by Agent on behalf of
Principal
Obtain details of secret profit made by agent and
recover it from him
Forfeit remuneration of Agent if he misconducts the
business
 Duties of principal
Pay remuneration to agent as agreed

Indemnify agent for lawful acts done by him as agent

Indemnify Agent for all acts done by him in good

faith
Indemnify agent if he suffers loss due to neglect or

lack of skill of Principal.

 Delegation of authority by an agent
 General rule:
“ Delegatus non-protest delegare” i.e. a delegate cannot
further delegate
 But in exceptional cases sub-agent can be appointed
Cases:
1. Express authority from the principal
2. Where the principal has impliedly, by his conduct
allowed such delegation of authority.
3. Ordinary Custom of a particular trade
4. Nature of the work
5. Acts which do not require personal or professional skill
6. Due to unforeseen emergencies
 Relations of principal with third parties

 Scope and extent of agent’s authority

 Principal and the third party
 Personal liability of the agent

Agent’s authority
 Power or capacity to bind the principal with the third
party
Two types of authority
1. Actual or real authority
2. Ostensible or apparent authority
1.Actual or real authority
Authority conferred upon the agent by his principal
Two kinds:
1. Express authority
2. Implied authority: conferred upon the agent by the
conduct of the principal

2.Ostensible or apparent authority

The act is in excess of the actual authority
Authority due to the appearance created by the principal

3.Authority in necessity
 Relationship between principal and sub-agent
Discussed under two heads:
1. Where the sub-agent is properly appointed
2. Where the sub-agent is improperly appointed
1.Where the sub-agent is properly appointed
(a)The principal is bound and is liable to third parties for the
acts of the sub-agent
(b) Where the agent is responsible to the principal for the
acts of sub-agent.
(c )The Sub-agent is responsible for his acts to original agent
not to principal except in fraud or willful wrong
2. Where the sub-agent is improperly appointed

(a)The principal is not represented by sub-agent and hence

he is not liable for acts of the sub-agent

(b)The agent is responsible for the acts of the sub-agent to

the principal as well as to the third parties

(c)The sub-agent is not responsible to principal at all.

Personal Liability of agent

1. When contract expressly provides

2. Agent acts for foreign principal
3. Agent acts for undisclosed principal
4. When principal can not be sued
5. Where agent signs contract in his name
6. Principal is not in existence
7. Liable for breach of warranty of authority
8. When he pays or receives money by mistake
9. Authority is coupled with interest
10. Trade makes agent personally liable
 Termination of agency
End of the relationship of a principal and his agent
Studied under:
1. Termination of agency by act of the parties
2. Termination of agency by operation of law
1.Termination of agency by act of the parties
1. Agreement -between the principal and agent
2. Revocation by the principal : Revocation may be express
or implied – There are conditions
(i) In case of continuous agency
(ii) Where an agency has been created for a fixed period of
time.
3. Revocation of agency by the agent
 II.Termination of agency by operation of law
1. Completion of agency business
2. Expiry of time
3. Death of the principal or the agent
4. Insanity of the principal or the agent
5. Insolvency of the principal
6. Destruction of the subject-matter of the agency
7. Dissolution of a company
8. Principal or agent becomes alien enemy
Effectiveness of termination:
As between the principal and agent, termination of agency is
effective only when it becomes known to the agent.
- Third parties- when it is known to them.

Irrevocable agency
1. Where the agency is coupled with interest- where the
agent has some interest over the subject matter
2. When revocation would cause the agent personal loss
3. When the authority has been partly exercised by the
agent.
Bibliography
Elements of Mercantile law
Author :- N.D. Kapoor
Publisher :- Sultan chand & Sons

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