You are on page 1of 29

LAW OF AGENCY

Meaning & Definition of


Agency
Section

182,
An agent is a person employed to do
any act for another or to represent
another in dealing with third persons.
The person for whom such act is
done or who is so represented, is
called the principal

The

person who delegates the


authority is known as principal.
To whom the power is delegated is
known as agent.
The relationship that is created is
known as agency.
A person who act in place of another
Agent
The person on whose behalf he acts Principal

Features of the contract of


agency
Principal

is answerable to third
parties for the acts of agent .
Consideration not necessary
Section 185 of the act clearly lays
down , No consideration is
necessary to create an agency
Principal must be competent to
employ an agent Only a person who
is competent to contract can employ
an agent. ( Major, Sound Mind )

Agent

may not have contractual


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

Test Of Agency
A

person does not become an agent


on behalf of another merely because
he gives him advice in matters of
business.
Every person who acts for another
cannot be agent. Cobbler mending
shoes of a man ,servant rendering
services for us are not agents.

To test whether a person is or


not an agent
The essential condition is that whether
he is clothed with a necessary
authority by another ( principal ) to
bind him & make him ( principal )
answerable to the third persons & thus
establishing a privity contract between
that third person & the principal.
If this condition is satisfied then a
person is considered as an agent.

Classification of agents
Special

Agents who is employed to do


some particular act or represent his
principal in some particular transaction.
As soon as the act is performed the
authority of agent comes to an end. E.g.
An agent engaged to sell a house.
General Agent who is employed to do all
such acts which are connected with the
business of trade of his employer. If
principal limits authority secretly, he
himself will be bound

Universal

Agent is one who is


employed to all such act which a
principal can lawfully do & can
delegate. Agent has unlimited
authority.
FROM THE POINT OF VIEW OF NATURE
OF WORK TO BE PERFORMED:
1. Factors is a mercantile agent to
whom the possession of goods are
given for the purpose of selling them.
He usually sells the goods in own
name. He can exercise a general right
of lien on the goods delivered to him
for balance of payment if any.

2. Auctioneer is an agent who is


appointed by the principal to sell the
goods on his behalf at a public auction
for a reward in form of commission. Eg
reserve price
3. Broker is an agent appointed by the
principal for the purpose os selling or
buying goods on his behalf. He do not
have possession of goods nor he can
contract in his own name. He bring
seller & buyer together to bargain. He
gets commission ( brokerage ).

4. Commission Agent is a mercantile agent


who is employed to buy & sell goods for his
principal on best possible terms. He transact
in his own name. He is entitled to commission.
He may or may not have possession.
5. Del credere Agent is one who guarantees to
his principal, the performance of the financial
obligation by party with whom he enters into a
contract on principal behalf, in consideration
of an extra commission. He becomes surety &
become liable on the default of third party.
6. Banker act as a mercantile agent on behalf
of his customer when he collects cheques,
drafts, bills & pay insurance premium & buy or
sell securities.

Creation of Agency
By

express agreement authority is


given to agent in written or by words
of mouth. He can bind the principal to
the third parties by his acts to the
extent he is delegated with the
authority.
By implied agreement
1. Agency by Estoppel Where a
person permit another to act on his
behalf. Principal is estopped from
denying his agents authority.

E.g. A tell B in the presence of P that A is the


agent of P. P does not contradict the
statement. B enter into the contract with P
on the belief that A is Ps agent. In such
case P would be bound by the contract.
He is not the agent
He ceases to be an agent
2. Agency by holding out Some positive
conduct of the principal indicates that a
particular person is his agent.
P sends A to buy goods on credit from C.
A buys goods on credit for himself & refuses
to pay. C sue P. P cannot plead that A had
no authority.

3. Agency by necessity When an agency


is created by the circumstances. The
impossibility of getting the instructions
from the principal is the basis of creation
of agency by necessity.
E.G. X sent some horses to Y through a
railway company. But Y did not take the
delivery of the horses at the destination
with the result the railway company had
to feed the horses. Held, the railway co.
was an agent of necessity & could
recover the amount spent on feeding the
horses.

4. Agency by ratification Ratification


means subsequent adoption or
acceptance by a person of an
unauthorized act done by another on
his behalf without any authority.
X buys 5 bags of wheat on behalf of Y
without his knowledge or authority. Y
would be bound by the contract, if he
ratify or accept the same.
It can be expressed or implied

Essentials of a valid
ratification
1. Act must have been done as agent on behalf

of principal identifiable Only the person on


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

2. The principal must be in existence. Eg


company and promoters
3. The principal must be competent to
ratify the act must have contractual
capacity. A minor cannot ratify the
contract a contract on attaining the age
of majority.
4. The principal must have the full
knowledge of all the material facts X
bought certain goods for Y at the price
greater than the market value in the
name of Y. Y ratified the transaction
without knowing the same ( high
price ) . The ratification is invalid.

5. The principal must ratify the whole


transaction.
6. Ratification must be made within
reasonable time.
7. Act to be ratified must not be void
or illegal.
8. Ratification must be communicated.

Duties of an agent

To follow principals directions An agent must


act within the scope of the authority conferred
on him. An agent was instructed to insure
goods. He failed to do so. The goods were
destroyed. He was held liable to the extent of
loss.
To follow the customs in the absence of
instructions B, a broker, in whose business, it
is not the custom to sell on credit, sell goods
of A on credit to C, whose credit at the time
was very high. C, before payment, becomes
insolvent. B must make good the loss to A.

To

conduct business with reasonable


care skill & diligence A, an agent for
the sale of goods, having authority to
sell on credit, sells to B on credit,
without making the proper & usual
enquires as to the solvency of B. B at
the time of such sale, is insolvent. A
must make compensation of his
principal in respect of any loss thereby
sustained.
To keep & render accounts to principal
when demanded.

To communicate with principal.


Not to deal on his own account If an
agent wants to deal on his own
account, he must seek the consent of
the principal first & must acquaint him
with all the material facts. ( Purchase )
Not to make secret profits ( Bribe )
Agency is a fudiciary relation.
To pay sum received he can deduct
his remuneration & all expenses
incurred in conducting business.

Rights of an agent
Right

of retainer The agent has a right


to retain, out of any sums received all
money due to him in respect of
remuneration, advance made, expenses
incurred in conducting business.
Right to receive remuneration if he has
completed his task. He is not entitled to
any remuneration for part transaction.

Right

of lien he has right to exercise


particular lien over the goods, paper,
property until the amount due to him
for commission, expenses has been
paid.

Duties & Rights of the


Principal
To pay remuneration to agent
To recover compensation for breach of duty
by the agent
To forfeit agents remuneration where he is
guilty of misconduct
To receive any extra profit made by agent.
To enforce the various duties of the agent.
To receive all sums.

Termination of Agency

1.
2.

3.

By act of parties:
By agreement mutual consent
By revocation of authority by the
principal The principal can revoke
the authority of an agent at any
time before the authority has been
exercised as to bind the principal.
By renunciation by the agent by
giving reasonable notice.


1.
2.
3.
4.
5.

6.

Termination by operation of law:


By performance of contract of agency.
By death of principal or agent.
By expiry of time where agency is
for fixed time period.
By insolvency of the principal.
By destruction of subject matter
agency was created to sell a house &
house destroys.
By becoming alien enemy where
principal & agent are from different
countries.

Irrevocable Agency

1.

2.

The agency which a principal cannot


revoke is known as irrevocable agency.
Where the agency is coupled with
interest A gives authority to B to sell
As land & to pay himself out of the
proceeds, the debt due to him from A.
A cannot revoke this authority.
Where the agent has incurred personal
liability Where the agent has bought
goods in his own name principal
cannot refuse to pay.

3. Where the authority has been


exercised party X authorizes Y to
buy 10 bags of wheat on his account.
Y buys 10 bags of wheat in the name
of X. X cannot revoke the authority.

THANK YOU

You might also like