LAW

OF AGENCY
 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 :Agency relationship
1. Agreement between principal and the agent,
may not a contract.
2. Intention of the agent to act on behalf of the
principal
FEATURES: Contract of Agency
• Principal is answerable to third parties for
the acts of agent .
• Consideration not necessary.
 Ping !!!!
Q1 :Who can employ an agent ??
Q 2:Who may be an agent ??
 Classification of Agents
(I) Basis : Extent of Authority
(I) Special Agents
One 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.
(II) General Agent
One who is employed to do all such acts which are
connected with the business of trade of his
employer.
- continuous authority till it is ended.
E.g. manager

(III) Universal Agent

The one who is employed to all such act which a
principal can lawfully do & can delegate. Agent has
unlimited authority.
 (II) Basis : Nature of Work to be performed
1.Commercial/Mercantile Agent
- sell or consign goods
- buy goods and raise money on security of goods
(i) Factor
- 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.
 ???
• P owned a motor car and delivered it to A, a
mercantile agent for sale not less than Rs.600.
A sold the car for Rs.340 to T, who bought it in
good faith and without notice of fraud.
A misused Rs.340 and P sued to recover car
from T.
• A had the car and authority to sell, so T gets a
good title.
 (ii) 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.
- agent for principal and later becomes for
third party/buyer too.
- he can sue for price in his own name
Example : Reserve Price

CASE : Rainbow v. Hawkins

 CASE : Rainbow v. Hawkins

• P instructed A to sell a pony by auction,

subject to a reserve price of Rs.25. A at the
time of sale said there is no reserve price and
knocked the pony at Rs.16.
• The sale was binding.
 (iii) Broker
- is an agent appointed by the principal for the
purpose of selling or buying goods on his behalf.
- do not have possession of goods
- nor he can contract in his own name.
- brings seller & buyer together to bargain.
- gets commission ( brokerage ).
 (iv) Commission Agent
- 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.

(v) Banker
The one who acts as a mercantile agent on behalf of his
customer when he collects cheques, drafts, bills & pay
insurance premium & buy or sell securities.
 (vii) Del credere Agent
- The 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.

2. Non Mercantile Agent

- solicitors
- insurance agent
- clearing and forwarding agents
Others :

1. Sub-agent
Sub-agent has a relation like of principal and agent.
Example: a banker authorised to let out a house and earn rent
may further give the work to an estate agent.

2. Co-agent/ Substituted agent

named by an agent on request of principal
Example
P asks his lawyer A, for selling his state through employment of
an auctioneer.
A named A1.
 Creation of Agency
(I) By express agreement

The 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. power of attorney
(II) By implied agreement
(e.g Rent collection)

(i) Agency by Estoppel (stopped from denying a fact admitted

earlier)
Where a person permit another to act on his behalf. Principal
is estopped from denying his agent’s authority.
Example :
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.
(ii) Agency by holding out
Some positive conduct of the principal in past
indicates that a particular person is his agent
subsequently.
Example :
P sends his servant A to buy goods on credit
from T generally. One day P gives him cash. A
misappropriated cash and bought things on
credit. P held liable to T for the credit.
(iii) 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.
Points :
A. agent exceeding authority in case of emergency
e.g sell at Kolkata if not at Cuttack
B. a person entrusted with another’s property
C. Husband and wife
D. Where the wife lives apart.
 Case : Great Northern Rail v. Swaffield
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.
Discuss rights of railway…
 (iv) 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.
A buys 5 bags of wheat on behalf of P without
his knowledge or authority. P would be bound
by the contract, if he ratify or accept the
same.
Example:
A without authority buys goods for P. P
later sells them to T.
What does it show??
 ???
A, the managing director of a company, acting
as an agent on company’s behalf but without
its authority accepted an offer by T.
T later withdrew the offer but the company
ratified A’s acceptance.
Is T bound by the deal?
 (v) Agency by Operation of Law

Example -
1. partners in a partnership firm
2. Promoters in case of company
 Duties : Agent
1. To follow principal’s directions
E.g. 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.
Example: time to time investment for interest

2. To follow the customs in the absence of instructions

A , a broker, in whose business, it is not the custom to sell on
credit. He sell goods of P on credit to T, whose credit at the
time was very high.
T before payment, becomes insolvent.
B must make good the loss to A.
3. To conduct business with reasonable care skill &
diligence
Example:
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.

4. To keep & render (provide/give) accounts to

principal when demanded
5. To communicate with principal.
6. 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.
In case he goes against P, then P can:
- cancel the transaction (e.g Purchase of estate himself )
- claim benefit from the transaction (e.g sale of house)

7. Not to make secret profits ( e.g P is seller, A taking extra

commission from the buyer also. )
8. To pay sums received for the principal
9. To protect and preserve the interests of the principal
(death/insolvency)

10. Not to use information obtained to the course of agency

against the principal

11. Not to put himself in a position where interest and duty

conflict ( e.g. A sold his own shares to P w/o disclosing the
facts.)

12. Not to delegate authority

 Rights of an agent
1. Right of retainer –
2. Right of lien –
3. Right of receive Remuneration
e.g. obtaining ads for newspaper, commission on property sold
4. Right of Indemnification
e.g A sued by T in abroad due to P
5. Right of Compensation
e.g P puts the scaffolding to A himself for bricklayering
6. Right of Stoppage in Transit
- where A bought the goods for P by spending personally.
- when A is personally liable to P for price of goods sold, he against
buyer on his insolvency
• P employs A to beat T and agrees to indemnify
him against all the consequences of the act.
• A thereupon beats T and has to pay damages
to T for doing so.
• Is P liable to indemnify for those damages??
 Duties & Rights of the Principal
DUTIES
1. To indemnify the agent for the consequences of all lawful
acts.

2. To indemnify the agent for the consequences of acts done

in good faith.

3. To indemnify the agent for injury caused by the principal’s

neglect.

4. To pay the agent the commission or remuneration agreed

RIGHTS
1. To recover damages
2. To obtain account of secret profits and recover
them.
3. To forfeit agent’s remuneration where he is guilty
of misconduct .
4. To enforce the various duties of the agent.
5. To receive all sums.
6. To resist agent’s claim for indemnity against
liability incurred.
Sub – Agent
????
Co – Agent/ Substituted
Agent
????
 ????
• P appoints A, a minor to sell his bicycle for
cash for a price not below Rs.400.
• A sells it to T for Rs.280.
• Explain the position of A and T.
 Termination of Agency
(I) By act of parties:
1. By agreement – mutual consent
2. By revocation of authority by the principal
3. By revocation by the agent – by giving reasonable notice.
(II) 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
6. By becoming alien enemy – where principal & agent are
from different countries.
 When does termination ends?
(I) Of Agency
(II) Of Sub-agency
(III)Of Substituted Agent