COURSE NAME- Legal Aspects Of Business

Session No.- 1

By- Asst.Prof. Niji Shajan

 Unit 1 -The Contract Act, 1872

Table of Content

• Essential Elements of Valid Contract

• Types of Contracts
• Contracts of Indemnity & Guarantee
• Contingent Contract
• Quasi Contract
• Discharge of contract
• Breach of contract-Meaning & remedies
• Agency - Creation of Agency
• Agent and Principal (Relationship/rights)
• Types of Agency
 Unit -1 The Contract Act, 1872

Learning Objectives-
• Acquaint with Legal Aspects Of Business, its Characteristic features.
• Know the Essential Elements of Valid Contract, Types of Valid
Contract
• Understand the concepts of Indian Contract Act- 1872
 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
.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 )
 Agentmay 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 dele gate. 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 ).
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.
 He is not the agent
 He ceases to be an agent
.
2.Agency by holding out – Some positive
4. 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.
4. 4. Commission Agent – is a mercantile agent who is employed to buy &
sell goods for his principal on best possible terms. He may or may not
have possession.
5. 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. 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.
 4. .
 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
agent’s authority.
 4. .
 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
agent’s 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.
 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
2. By agreement – mutual consent
3. 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.
4. By renunciation by the agent – by giving reasonable notice.
Termination by operation of law
2. By performance of contract of agency.
3. By death of principal or agent.
4. By expiry of time – where agency is for fixed time
period.
5. By insolvency of the principal.
6. By destruction of subject matter – agency was
created to sell a house & house destroys.
7. By becoming alien enemy – where principal &
agent are from different countries.
 Video Link
https://www.youtube.com/watch?v=gHK0ktprWNY&list=RDLVJMUF2xBXcbk
&index=7
 References

• Business Law By N. D. Kapoor.

• Business Law Book By Tulsian
• Elements of Business Law By N D Kapoor
• Business Law By M. C. Kuchhal and Vivek Kuchhal.
• Legal aspects of Business- S.D.Geet
THANK YOU