LAW OF AGENCY

(Introduction)

 A person who has capacity to contract

may enter with another (third party)
(1) Either by himself.
(2) Or, through another person (agent)
when he adopts the latter course, he is said
to be acting through an agent and the
relationship between them is a contract
under 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
Essentials of relationship of agency
1. Agreement between the principal and
the agent.
2. Intention of the agent to act on behalf of
the principal.
 Example
 X (a dealer) appoints Y to sell 200 Kg of
wheat at a price range between (10-12
Rs) per Kg. Y accepted the task assigned
by X. Here, the relationship of principal
and agent has been created by Mr X and Y
through an agreement.
 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.
E.g- X hands over to Y (a Minor), a T.V set
worth Rs 18500 and instructs him not to
sell below 19000. Y sells the same to Z for
Rs 18,000. Now, X will be responsible to Z
for the act of Y.
 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. (Parties are just providing
their Services, Existence of third party is
not there)
 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.
 Cont….
 E.g- A mercantile agent appointed by a
company can buy and sell the goods
under the normal course of business until
or unless it is not terminated by principal.
 Universal Agent – is one who is employed
to all such act which a principal can
lawfully do & can delegate. Agent has
unlimited authority. (Exclusive Rights)
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.
3. Broker – is an agent appointed by the
principal for the purpose of 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. 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.
5. 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
E.g X who owns a shop, appoints Y to manage his
shop by executing a power of attorney in Y’s
favour. Here, relationship has been created
between X and Y by an express authority.
 By implied agreement
1. Agency by Estoppel – Agency by estoppel
arises where a person by his words or
conduct induces third person to believe
that a certain person is, His/her agent.
The person who induces as such is
estopped to denying the truth later on.
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 P’s agent. In such
case P would be bound by the contract.
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.
 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 expressed to act as an agent of Y.
2. The principal must be in existence.
(company)
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 from 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 principal’s 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 agent’s 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
 By act of parties:
1. By agreement – mutual consent
2. 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.
3. By renunciation by the agent – by giving
reasonable notice.
 Termination by operation of law:
1. By performance of contract of agency.
2. By death of principal or agent.
3. By expiry of time – where agency is for
fixed time period.
4. By insolvency of the principal.
5. By destruction of subject matter –
agency was created to sell a house &
house destroys.
6. By becoming alien enemy – where
principal & agent are from different
countries.
THANK YOU