Business and Insurance Law

Session 2 – 06.06.2020

Munim Masood
Barrister of Lincoln’s Inn
Advocate High Courts of Pakistan
Law of Agency
The general law of contracts is embodied in the Contract Act, 1872. The
law of agency being a branch of the law of contracts, the same is
incorporated in the said Act by giving it a full chapter on the subject.
Thus sections 182 to 238 of the Contract Act, 1872 deal with the subject
of Agency.

The Legal maxim on the subject is: Quai Facit Per Alium Facit Per Se (He
who does an act through another is deemed to be doing it himself).
Law of Agency
Who is an Agent and a Principal? (Sec. 182)
An Agent is a person employed to do an act for another or to
represent another in dealings with third persons.
The person for whom such act is done, or who is so
represented, is the Principal.
The relationship between them is called Agency.
Creation of Agency
1. Agency by an express agreement (When such agreement is written
or spoken it is express) (Section 186 & 187).
2. Agency by Implication
(When agreement is by conduct, situation or relationship of parties).
Implied agency may be,- (i) by estoppel; (ii) by holding (s.237); (iii) by
necessity (as in emergency, for safety of principal, between husband and
wife; (iv) by operation of law.
3. Agency by ratification
Ratification is adopting or accepting subsequently a
past act of an agent done on behalf of another w/o
authority. It is subsequent confirmation of
unauthorized acts.
Rules Governing
Ratification
Act must be done by a person on behalf of another.
Act must have been done w/o knowledge or authority of the
person on whose behalf the act is done.
Person must be legally in existence.
May be expressed/implied by conduct of the person.
Act to be ratified must not be void ab-initio.
Principal must be competent to ratify both at the time of
contract and at time of ratification.
It must be done within a reasonable time.
It can be for whole contract and not part of it.
It should not put a third party to damages.
Contractual capacity
Who can employ an Agent and who can be appointed an Agent?
Any major person and of sound mind may become an agent to
be responsible to the Principal.
There is no bar to the appointment of a minor as an Agent but a
minor, however, cannot be held personally liable [Section 184].
A principal must be competent to contract, he must have
attained the age of majority, and he should be sane (of sound mind).
Thus a minor cannot appoint an agent. [Section 183]
Is consideration necessary?
Who can employ an Agent?
No consideration is necessary to create an agency (Section
185).
Test of Agency: It is whether a person has the capacity to
bind the Principal by acts done on his behalf.
It is the power of an agent to make the principal answerable
to third person that determines existence of agency.
As for intention to act on behalf of principal, the agent must have
intention to act on behalf of the principal.
Classification of Agents
Specific or Particular Agent: Appointed to do a single act for
the Principal. Also called a Special Agent.
General Agent: Appointed to do all acts concerning a
particular trade or business of the Principal.
Mercantile Agents: Broker, Commission Agent, Factor
(authority to sell to 3rd person), Auctioneer, Del-credere
Agent (extra commission).
Sub-agent: An agent appointed by the original agent.
Co-agent: Two or more persons appointed as agents by the
Principal to act as such jointly or severally.
Substitute Agent: Where an agent holding an
express/implied authority to name another person
accordingly, as part of the business of the agency as is
entrusted to him. He is an agent of the Principal.
Agent’s Authority
Agent’s capacity to bind the Principal is his authority.
Agent does certain acts on behalf of the principal.
His authority extends to such acts authorized.
The authority of an agent may be express or implied
(Section 186).
How an Agency can be
terminated?
An agency can be terminated in the following ways:
(1) By Agreement:
(2) By Revocation of the Principal:
(3) By Revocation of the Agent:
(4) By completion of the business of agency;
(5) By expiry of the time:
(6) By death of Principal or Agent:
(7) By Insanity of Principal or Agent:
(8) By Insolvency of the Principal:
(9) Where it is created by illegal contract.
Revocation of Agent’s
Authority
Revocation by Principal: Can at anytime before the authority
has been exercised so as to bind the Principal (Section 203).
Notice must be given before revoking the authority,
otherwise Agent will be entitled to damages (Section 206).
A empowers B to let A’s house. Afterwards A lets it to
himself. This is revocation of B’s authority and is implied.
When Agency cannot be
revoked?
Agent has exercised authority partly.
Agency coupled with interest: A gives authority to B to sell
A’s land, and to pay himself, out of the proceeds (to the
debt due to him from A). A cannot revoke this authority, nor
can it be terminated by his insanity or death.
When Agent is personally liable.
Duties of an Agent
As for duties of an agent towards his principal, those are:
(i) Duty to execute Principal’s mandate.
(ii) Duty to follow principal’s direction or custom under section 211.
(iii) Duty to work with reasonable care and diligence under section 212.
(iv) Duty to render accounts under section 213.
(v) Duty to communicate in difficulty and get instructions from the principal under
section 214.
(vi) Duty on termination of agency to take reasonable steps for protection of
interests of the Principal.
(vii) Duty not to deal on his own accounts in the business of agency without
obtaining prior permission of the Principal.
(viii) Duty not to make any secret profit out of his agency.
(ix) Duty to remit all sums received on his account to the Principal. [section218].
(x) Duty not to delegate authority to another person but to perform the work of
agency himself.[section 190].
Agent’s Rights
An agent has the following rights under the law:
(i) Right to receive remuneration [section 219]
(ii) Right to retain out of the money recovered on account of the principal, all
moneys in respect of the remuneration, advances or reasonable expenses incurred
by him in conducting the business of agency. According to judicial precedent an
agent can retain only such money as is in his possession.
(iii) Right of lien over goods, papers and other property whether movable or
immovable of the principal until the amount dew as commission and expenses has
been paid to the agent. [s. 221]
(iv) Right to be indemnified against the consequences of all lawful acts done by the
agent in exercise of authority conferred upon him by the principal.[s. 222]
(v) Right to be indemnified against consequences of acts done in good faith [s.223]
(vi) Right to compensation for injury sustained by the agent due to the principal’
neglect or want of skill.[s. 225]
(vii) Right to stoppage of goods in transit to the principal like unpaid seller, if he has
brought goods with his own money and the principal has become insolvent.
Principal’s Duties &
Liabilities
To indemnify the agent. (i) Against consequences
of lawful act, and (ii) Against consequences of the
acts done in good faith.
Compensate for injury caused.
To pay remuneration and dues.
Misrepresentation or fraud by Agent: Is not liable
if act falls beyond Agent’s authority.
Liable for contracts entered into by Agent with
third persons.
Notice to the Agent is imputed notice to Principal.
Principal’s Rights
To Repudiate contract (Section 215).
To claim benefits (Section 216).
To ratify or disown agent’s acts (Section 196).
To revoke Agent’s authority (Section 203)
To claim on loss or profit (Section 211 & 212).
To demand accounts (Section 213).
To refuse remuneration when agent is guilty of misconduct
(Section 220).
Termination of Agency
By act of parties: By agreement; By revocation and
renunciation; By completion of performance.
By operation of law: By death or insanity; By insolvency of
the principal.
Other modes of termination: By efflux of time (fixed
period); By destruction of the subject-matter; By incapacity
of Principal or Agent; Principal and Agent becoming alien
enemy; By object of Agent becoming unlawful.
Some important concepts
Agency irrevocable – Agency coupled with interest:
- PLD 2004 SC 860 – Bolan Beverages vs Pepsi Cola
The close examination of section 202 of the contract Act would show that it can be split
up into two parts. The first part contemplates that the interest of the agent himself
should exist in the property that forms the subject-matter of agency. The second part of
the section is that when such an interest is created, it cannot be terminated to the
prejudice of agent unless it is expressly provided in the contract. The first portion of the
section is clearly indicative of the fact that either the agent must have an interest pre-
existing in the property or creation of such interest should be the direct result of the
agreement itself. Any interest, either not pre-existing or not forming subjectmatter of the
agreement but created subsequent to the agreement in any related matter would not be
called as the creation of interest of the agent. In the instant: case, the subject-matter of
the agreement is the sale of concentrate by Pepsi Cola Company to the Bolan Bottlers. The
interest of the parties is only to the extent of sale by one and purchase by the other.
Everything comes to an end the moment .the sale is completed. The case of the appellant
is that after such agreement the Bolan Bottlers constructed offices, built a vast
infrastructure, employed numerous persons and hence a clear interest was created. This;
we are afraid, would not be a proper definition of interest because such interest is created
independent of the agreement which is only for sale of concentrate. All the infrastructure
which has been constructed and prepared by the appellant is for the expansion and
promotion of his own business which he commenced in order only to earn his own profits
which are never to be shared by the respondent i.e. the Pepsi Cola Company.
Some important concepts
2012 S C M R 380-
It is, quite obviously, a case of authority coupled with an interest falling within the
purview of section 202 of the Contract Act, 1872. Though the section itself is clear
yet para 868 of Halsbury's Laws of England would be quite illustrative in this behalf,
which reads as under:--
"868. Authority coupled with interest.---Where the agency is created by deed, or for
valuable consideration, and the authority is given to effectuate a security or to
security or to secure the interest of the agent, the authority cannot be revoked.
Thus, if an agreement is entered into on a sufficient consideration whereby an
authority is given for the purpose of securing some benefit to the donee of the
authority, the authority is irrevocable on the ground that it is coupled with an
interest. So, an authority to sell in consideration for forbearance to sue for previous
advances, an authority to apply for share to be allotted on an underwriting
agreement a commission being paid for the underwriting, and an authority to
receive rents until the principal and interest of a loan have been paid of or to
receive money for a third party in payment of a debt, have been held to be
irrevocable. On the other hand, an authority is not irrevocable merely because the
agent has a special property in or a lien upon goods to which the authority relates,
the authority not being given for the purpose of securing the claims of the agent.“
The Decision of the High Court was upheld and appeal dismissed.
Some important concepts
Power of Attorney Law in Pakistan – Powers of Attorney Act, 1882
Under the normal circumstances for the purposes of legal process or to perform the legal duties or to
transact in any other manner, person himself and if he is not in a position to do so may authorize
anybody to act on his behalf. In first instance the person who gives right to the other to perform duty
on his behalf is called “Principal” and the person to whom the authority is given is called “Attorney”.
The Principal may authorize the Attorney not to pursue his cases only but also to compromise or settle
the matters on his behalf. In these circumstances all the acts performed by the Attorney will be
deemed to be performed by the Principal who will be responsible for the acts done by the Attorney as
he has done them himself.
There are two kinds of Power of Attorneys: General Power of Attorney and Special Power of Attorney.
General Power of Attorney means that Attorney may perform more than one job on behalf of the
Principal and all his acts will be binding on the Principal as done by him and under his authority.
Special Power of Attorney is for only a specific purpose which is explained in that deed of Special
Power of Attorney.
It is relevant to mention here that power of attorney either General or Special given by the Principal to
the Attorney must be in writing and it cannot be given orally. If Power of Attorney is for any immovable
property, sale or for mortgage then it should be registered under section 17 of the Registration Act,
1908.
Power of Attorney should be attested: All the documents written as a Power of Attorney should be
authenticated by a Notary Public, any Court, Judge, Magistrate, Pakistan Consul or Vice-Consul, or
representative appointed by the Federal Government, and then it will be presumed correct.
Power of Attorney Law
Necessary requirements of Power of Attorney: Every Pakistani citizen who is a major, adult and
according to law is competent to enter into a contract whether resides in Pakistan or outside Pakistan
may authorize any other person through power of attorney to act on his behalf. If power of attorney is
executed outside the country then Pakistani Embassy or consulate’s authorized officer will verify it and
if the power of attorney relates to transfer of property then it should be registered in Pakistan with the
concerned registrar.
Power of Attorney in Civil Cases: Civil cases can be pursued through power of attorney i.e. to appear
in the court, to move application and to proceed in the matter. In civil cases the Attorney can do each
and every act on behalf of the Principal. Service of summons/notices of the court on the Attorney will
be presumed to be service on the Principal. For all these matters no court will allow the Attorney to act
on behalf of the Principal unless Power of Attorney is there.
Civil and Criminal liabilities of Principal and Attorney: Civil liability of Principal; if in performance of
acts according to the power of attorney the third party suffers a loss then the Principal will be
responsible subject to authorizing for the same act in the power of attorney. Civil liability of Attorney;
in case of any action for which he is not authorized he will be responsible for the losses occurred to the
third party on the basis of such act.
Criminal liability of Principal and Attorney: Criminal liability of Principal; under normal circumstances
the Principal will not be responsible for the criminal acts of the Attorney. Criminal responsibility of the
Attorney; if Attorney is found guilty of breach of trust then he can be preceded under section 406 and
409 of Pakistan Penal Code and be punished.
Cancellation of Power of Attorney: The Principal can cancel the Power of Attorney whether General or
Special at any time or in case of death of Attorney or the Principal, it will be cancelled automatically.A
registered POA for consideration can only be cancelled by the Competent Courts. Power of Attorney
will also be cancelled if the job/assignment for which it was given is completed.