CONCEPT OF AGENCY AND

TERMINATION OF AGENCY

BY
SYED SIKANDAR SHAH MOHMAND
DEPARTMENT OF LAW, NUST
 CONCEPT OF AGENCY

INTRODUCTION:
Agency is a two party relationship in which one
party(the agent) is authorized to act on behalf of and
under the direction of the other party(the Principal).
Any Examples…..??????
 Examples of Agency

Examples of agency are innumerable.

Hiring sales person to sell goods
Engaging a real estate agent to sell a house for You.
 Who is Agent

Who Is Agent: Under section 182 of the contract act,

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 an act is done or represented
is known as principal. Principal authorizes the agent
to act in his place, and the agent has the authority of
principal to act on behalf of the principal with third
person.
The contract which creates the relationship of principal
and Agent is called an Agency.
Principal Agent relationship
 AGENT AND PRINCIPAL

Section 182 defines the terms agent and principal as

follows:
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 act is done or who is so
represented is called Principal.
The contract which creates the relationship of
principal and agent is called Agency.
Under a contract of agency the agent is authorized to
create a contract between the principal and a third
party.
An agent is merely a connecting link in case of
commission agent. After entering into a contract on
behalf of the principal with a third party the agent
drops out and ceases to be a party to the contract and
after that the contract binds the Principal and the
third party as if they have made the contract in first
place.
The Person who gives only an advice to another can
not be called an agent.
Similarly a person who renders personal services to
his master on fixed pay is not an agent…what will be
his status….?
A person working in a factory or home of a master is
not an agent..what will be he called….?
 Example

A appoints B to buy ten bags of sugar on his behalf. A

is the principal, B is the agent and contract between
A and B is agency.
Who will pay the money for sugar…?
 Difference between Agent and an employee

An employee is a person who is employed on fixed pay by the

employer, while agent may or may not be on fixed pay, but the
principal may pay him the commission or any amount agreed
upon after the completion of any prescribed transaction.
For Example: A the principal ask the agent to buy a second
hand car for him with giving the agent his requirement and
specifications and the principal will pay the agreed amount to the
agent is a contract of agency. Once the agent finds a car of
principal choice, it is now the principal/owner and the third
party to do the deal or the agent can also do the deal with the
consent and directions of the owner/Principal. After that the job
of the agent comes to an end. Agent is just a connecting link
between the owner and the third person.
 Difference between Agent and Employee

An agent is engaged to bring the principal into the legal relationship with third person
or to represent the principal in dealing with third persons in contracts of purchase,
sale,etc. The agent will do the acts on behalf of the principal within the scope of the
principal.
An employee does not ordinarily create the legal relationship between his employer
and third persons. It is the employer or agents who will make the contract with third
person and not the employee or servant of an organization except in one condition if
the servant has also given the power of agents. The employee has no right of
sale,purchase,gift etc. these kinds of transaction will be called ultra vires.The employer
is not responsible to third person for such kinds of transactions.
So agent can do the legal contracts on behalf of the Principal but the employee has no
such powers unless contrary to the contract.
An agent is bound to follow all the lawful instructions of the principal but he is not
subject to the direct control and supervision of the principal. Principal can tell agent
what to do, but how to do the particular task is not in direct control of the principal. It
is the agent to accomplished the particular task in whatever way he likes to
accomplished that lawful task.
 Difference between Agent and Employee

A servant/employee acts under the direct control and supervision of his

employer and is bound to follow all reasonable orders given to him in the
course of his employment.
For Example:
Property dealer is an agent of your immovable property to sell it on
particular rate of 50lac and the agent will get one percent profit on one
lac,now if the property is of 50lacs,the agent will get straight away 50,000
from the owner. Now if the agent get one percent from the third party, it is
none of the business of the principal. An agent may work for several
principles at the same time as in this example.
While the employee will legally serve only one employer at a time.
In the above example the property has to be solved on 50 lac,but how to do
the following transaction in only the job of property dealer.
   
Who can appoint an agent under the contract Law 1872

Any Person who is of the age of majority according to

the law of a country to which he/ is subject, and who
is of sound mind, may appoint an agent (Section
183).
 Who may be an agent

According to section 184 of the contract act any

person become an agent who has reached the age of
majority and of sound mind.
Marriage Bureau Services/Agents
 ESSENTIAL OF AGENCY

The essentials of agency are as follows:

Agreement:
The relationship of agency is the result of an
agreement between the principal and agent.The
agreement may be express or implied from the
conduct of the parties.
Example of implied agent the person join you in
animal market to search a ram on reasonable price
and you the principal just don’t stop him.
 Contractual capacity

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 (Section 183) As such a
lunatic or a minor or a drunken person cannot be
employed as agent.
Consideration not necessary Section 185 of the contract Act.

In contract of agency the consideration may or may

not exist that’s why agency is also an exception of
valid contract which is without consideration.
For Example:
A act as an agent of B the principal without
consideration but free of cost is still a valid contract
of Agency.
 Test of Agency

The test of agency is the authority that one person

possesses who is the agent to create legal contractual
relationship with other person on behalf of the
Principal.
When this kind of power is not enjoyed, the
relationship is not one of agency. Thus a person is
not an agent merely because he gives another person
advice in matters of business.
PURPOSE OF AGENCY MUST BE LAWFUL

Usually an agency may be created to perform any act

which the principal himself could lawfully do.
The object of the agency should not be criminal and
contrary to public Policy. The court will not enforce
an agency contract which is against the interest of
society.
 Certain Acts which can not be performed by an agent.

What are they…..?

There are some acts which must be performed by a
person himself and can not be delegated to an agent.
Voting
Swearing to the truthfulness of documents are the
instance where personal action of the principal is
required.
 General Rules of Agency

The following are the two rules regarding Agency:

Whatever a person competent to contract can do
himself, he can do it through agent as well.
The acts of the agent are the acts of the Principal. It
means he who acts through an agent act himself.
Principal of Agency is based on the following maxim

Latin Maxim “Qui facit per alium facit per se”

meaning thereby that a person who does an act
through others, is deemed in law as doing himself.
 TERMINATION OF AGENCY

According to section 201-211 an agency may be

terminated in any of the following ways:
BY AN AGREEMENT:
An agency can be terminated at any time by the
mutual agreement between the principal and the
agent. Therefore the authority of an agent terminates
when the principal and the agent agree to terminate it.
For Example: A employs B as his agent for 5 months. A
and B can terminate the agency by mutual consent
before the expiry of 5 months time.
 Revocation by the Principal (section 201)

 The Principal can revoke the authority of the agent

at any time before the agent has exercised his
authority with giving reasonable notice of revocation.
The agency can not be revoked with regard to acts
already done by the agent if agency is for a single
task or continuous agency. Although in continuous
agency it can be revoke for the future tasks or
business.
The agency can be revoked impliedly...?
 Revocation by the Agent(section 201)

An agency can be terminated by the agent because a

person can not be compelled to work as agent. But
the agent must give a reasonable notice of revocation
to the principal otherwise he will be liable to
compensate the principal for any loss resulting
thereby.
A is appointed as an agent of B, for two years. After a
year A can terminate the agency by giving a
reasonable notice to B.
 Completion of the Business/Task of the agency

An Agency comes to an end automatically when the

business of agency is completed. When an agency is
for sale of particular property, agency terminates on
the completion of the sale and does not continue
until payment of price.
For Example: A appoints B as his agent to sell his
house.B sells the house, the agency is terminated.
 EXPIRY OF TIME

If the agent is appointed for fixed period the agency

comes to an end on the expiry of fixed period.
For Example:
A appoints B as his agent for one years time period.
An agency terminates after the expiry of one year
time period.
 Death of the Principal or agent

An agency terminates automatically on the death of

the principal or the agent. On the death of the
principal or agent the agency is automatically
terminated because of person can not act on behalf
of non-existent person.
For Example: A appoints B as his agent for one year.
After two months A or B dies, an agency terminates.
 Insanity of the Principal or the agent (Section 207)

 An agent terminates automatically when the

principal or the agents becomes of an unsound mind.
When Principal becomes insane the agent can not act
for a person of unsound mind.
 INSOLVENCY OF THE PRINCIPAL

An agency is also terminated by the insolvency of the

principal. But since an agent is a merely connecting
link with the third parties, his insolvency may not
terminate the agency in some cases.
 Destruction of the subject Matter

An agency terminates on the destruction of the

subject matter of the contract of agency. For
EXAMPLE: The agency was created for the sale of
house and the house is destroyed by earthquake.
Example No.2:
A appoints B his agent to sell his horse. The horse died
before B could sell it.The agency comes to an end.
 Principal or agent Becomes Alien Enemy

If the Principal and agent are nationals of two

different countries and a war breaks out between the
two countries, the contract of agency terminates.
For Example:
A is the agent of B for one year. A lives in India. B the
principal lives in Pakistan. War breaks out between
two countries. The agency terminates.
Termination of Agency