Contract of Agency

Contract of Agency Group Members

Masooma Zahra Fatima tariq Khadija zahid Afia Khalid Faryal ayub Roomat mariam Umbreen Fatima Madiha saleem Sidra Ijaz Sidra mehmood Munib Akbar F08b005 F08B009 F08B012 F08B018 F08B028 F08B032 F08B039 F08B042 F08B044 F08B047 F08B052

Institute of Business & Information Technology University of the Punjab

Business Law

Contract of Agency

Contract of Agency
Introduction
Agency is a two party relationship in which one person may act for another in business dealings in order to create contractual relationship between that other party and the third person.

Definition of Agency
A relationship between two persons, by agreement and otherwise, where one (the agent) may act on behalf of the other (the principal) and bind the principal by words or actions. Blacks Law

Agent and principal

Section 182 of the contract act defines as An agent is a person that is 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 represented so, is called Principal.

Essential of Agency
1. Agreement:
There must a valid expressed or implied contract between the binding parties.

Case Law
Administration of PNG v Leahy (1961) 105 CLR 6 Facts
There was an agreement between the parties (instigated by Leahy) that PNG officers would eradicate ticks infesting the plaintiffs cattle. They failed in their endeavors and Leahy sued he succeeded at first instance.

Held (Dixon CJ)

There was no contract as there was no intention to create legal relations. The Department was doing no more than giving effect to government policy for tick eradication when

Business Law

Contract of Agency

it agreed to assist Leahy. The plaintiff had sought aid and in responding the defendant was doing no more than performing a function of government in accordance with settled policy.

Held (McTiernan J)
Agreed promises alone are insufficient to make a contract. The Administration did not intend to enter into legal relations with Leahy-it was an administrative arrangement in accordance with the Administrations agricultural policy-McTiernan considered it analogous to a social service which does not have as its basis a legal relationship of a contractual nature.

Held (Kitto J)
Reached the same conclusion

2. Contractual Capacity
The Principal must be major, of sound mind, solvent and sane person. Minor cannot hire agent. The competency of Agent is not essential as he incurs no personal liability when making a contract on behalf of the Principal.

3. Consideration:
Consideration is not essential in agency.

4. Intention to act on behalf of principal:

The Agent must have intention to Act on behalf of the Principal. When he enters into a contract for himself, the Principal will not be liable.

Creation of Agency
1. Agency by Express agreement
The Agency may be created by word of mouthy or by an agreement in writing. The usual for of Agency is the power of attorney on stamped paper.

Illustration:
A appoints an agent B to sell his house.

2. Agency by Implied Agreement

An implied agency arises from conduct, situation, or relationship of parties. Implied Agency may be of following Type.

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Contract of Agency

a) Agency by Estoppels
Section 273 says that when an agent has, without authority, done acts or incurred obligation to third person on behalf of his Principal, the Principal is bound to by such acts, induced such third persons to believe that such acts and obligations were within the scope of the agents authority.

Illustration:
A tells B in the presence and within the hearing of P that he is the agent of P and P does not object to his statement and keeps quite. Later on B enters into contract with A considering he is Ps agent. Now P is bound by this contract. b) Agency by Holding out It occurs due to some prior positive act on the part of Principal.

Illustration:
A gives authority to B (his servant), to purchase goods for him on credit. One day B misappropriates the money given to him by A and purchased goods on credit. A is bound to pay to P.

c) Agency by necessity
In certain circumstances the Law gives authority to a person to act as an agent on behalf of other without his permission. These circumstances are: i. ii. Where the agent exceeds his authority, bona fide in an emergency Where the carries of goods, does anything to protect the goods.

d) Agency by ratification of Unauthorized act:

Section 196 of contract act lays down that the Principal may ratify the act which is unauthorized and done without his permission. If he ratifies, same effects will follow as they had been performed with his consent.

Business Law

Contract of Agency

Duties of Agent
i. The first and foremost is to carry out the mandate of his Principal.

Case law
Tichel v shorts
The Court held that the agent is liable to pay damages as he was responsible to insure the goods of his Principal. ii. iii. iv. v. vi. It is the duty of agent that he follows Principals Directions. If the principal does not give directions then he must follow customs of trade. Section 212 of contract act implies that the agent must work on the business of agency with reasonable skill work and care of man of ordinary prudence. Section 213 contract act demands an agent to render proper accounts to his Principal. Section 214 contract act provides that the agent must inform and get the instructions from Principal in case of any difficulty or emergency. Section 209 contract act provide when an agency terminates due to death of Principal, the agent must take reasonable steps to safeguard the interests of the representation of the late Principal. According to section 215, 216 of the act agents must not deal on his accounts. An agent should not make any secret profits out of that agency. Under section 218 of the act, the agent is bound to pay all sums received on his accounts. Section 190 of the act lays down that the agent must not delegate his authority to another person.

vii. viii. ix. x.

Rights of Agents
Agent has the right: i. ii. iii. iv. v. vi. vii. To retain out of the money received on Principals accounts, all the expenses he incurred. To receive agreed or reasonable, in case of no agreement, rumination To retain goods, papers and other property, whether moveable or immoveable of the Principal, until he receives his reward. To be indemnified against all lawful acts done by him in exercise of authority conferred upon him. To be indemnified against consequences of acts done in good faith. To be compensated for injury To stop the goods in transit to the Principal like unpaid seller.

Business Law

Contract of Agency

Rights of Principal
A Principal has the right:

1. To recover damages
According to section 211of the contract act, if the Principal suffers any loss, he has the right to from the agent. The reason of loss may be: i. ii. iii. When the agent does not act according to the directions of his principals When he does not follow customs of trade When he does not perform his duties with care, skill and diligence.

2. To obtain Secret Profit:

Under section 190 of the contract act, the Principal has the right to recover the secret profits made by the agent out of his agency.

Duties of Principal
Following are the duties of a Principal: i. ii. iii. To indemnify the agent for lawful acts. To indemnify the agent for acts done in good faith. To compensate the agent for injury caused by Principals negligent.

Termination of Agency
According to section 201 to 211 of the contract act, an agency may be terminated in any of the following ways; i. ii. iii. iv. v. vi. vii. viii. ix. An agency may be terminated at any time by a mutual agreement between the Principal and the agent. The Principal can revoke the authority of the agent at any time before he exercised his authority. An agent may also terminate the relationship as no one can compel him to work as agent. Agency terminates automatically when the business of agency is completed. Agency is also terminated when the period for which the agent was hired is expired. In case of death of any of the parties, agency terminates. If any of the Principal and the gent becomes insane, agency terminates. When principal becomes insolvent. When subject matter of the Agency destroys.

Business Law

Contract of Agency

x.

When Principal or the agent becomes alien enemy.

Conclusion
An agent is the representative of the Principal in dealings with the third person. The rights of the agent are the duties of the Principal and the duties of the agent are the rights of the Principal. No consideration is necessary to create agency. Agency can be terminated at any time within particular circumstances by giving a reasonable notice.

The End

Business Law