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AGENCY IN LAW OF CONTRACT - YASH VARDHAN SINGH

TABLE OF CONTENTS

S. No. 1. 2. Introduction Agency

Topic

Page No. 2 3-4

2.1 Meaning and Definition 2.2 Establishing Agency

3.

Agents 3.1 Meaning and Definition 3.2 Types of Agents

5-7

4.

Essentials of Contract of Agency

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5. 6.

Nature of Contract of Agency Conclusion

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INTRODUCTION

Agency is an institution which includes agent and principal dealing with third person. In an agency, agent represents principal and act on behalf of principal and for all the breach of duty and dealings in capacity of agent principal will be vicariously liable. There are various kinds of agent varying on basis of their working and hence liability differs from agent to agent.

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AGENCY Meaning and Definition :Oxford Dictionary defines agency as business or premises of agent. In an agency one person (principal) employs another person (agent) to represent him or to act on his behalf, in dealings with a third person. The act of the agent binds the principal in the same manner in which he would be bound if he does the act himself. The agent may be expressly or impliedly authorized to do an act on behalf of the principal. In an agency principal delegates his certain power to agent, such delegation of power makes principal vicariously liable if agent to do certain breach of duty which he is to do or not to do.

Establishing Agency :To be an agency The Court must examine the true nature of the agreement and the subsequent dealings between the parties and then decide whether it established a relationship of agency under the law. Use of the expression Agent for a person is not a conclusive proof of the fact that there is agency in law between the parties. Even when a government issues a license to the person to purchase and sell specific goods, did not make such person an agent even though he had been described as such in the agreement.1

Loon Karan v. John and Co. AIR 1967 All. 308

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In Chairman, Life Insurance Corporation v. Rajiv Kumar Bhaskar,2 the Salary Savings Scheme floated by the L.I.C. provided for a tripartite arrangement under which, the employer accepted the sole responsibility to collect premium from its employees and remit the same by means of one cheque to the corporation. No individual premium notice was required to be sent to any employee and furthermore, no receipt was to be given therefore. The employer was to inform the corporation about the changes in staff including factum of cessation of employment. The employees were not made aware of the communication between the L.I.C. and the employer. It was held that employer, though not agent of the L.I.C. qua its Regulations, it could be inferred that the employer had implied authority to act as agent of the L.I.C. in view of Section 182 of the Indian Contract Act, 1872.

AIR 2005 S.C. 3087

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AGENT Meaning and Definition:Section 182 of the INDIAN CONTRACT ACT defines Agent and Principal as An agent is a person employed to do any act

for another or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the principal.
According to this definition, an agent never acts on his own behalf but always on behalf of another. He either represents his principal in any transaction or dealings with a third person, or performs an act for the principal. In either case, the act of the agent will be deemed in law to be not his own but of the principal. The critical test of the status of an agent is that his acts bind the principal. The relationship of principal and agent can only be established by the consent of the principal and the agent. They will be held to have consented if they have agreed to what amounts in law to such a relationship and even if they have professed to disclaim it. But the consent must have been given by each of them, either expressly or by implication from their words and conduct.

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Types of Agent :Depending on the kind of authority given to the agent to act on behalf of the principal, the agents are various kinds as follows :(a) Auctioneers :- An auctioneer is an agent whose business is to sell goods or other property by auction i.e. by open sale. The authority is vested in him to sell the goods only, and not to give warranties on behalf of the seller unless expressly authorized to do that.

(b) Factors :- A factor is a mercantile agent who is entrusted with the possession of the goods for the purpose of sale.3 HE has also the power to sell goods on credit and also to receive the price from the buyer. If the owner has put a factor in possession of the goods or the document of the title but without authorizing him to sell the goods, the sale of gods by him will convey a good title to a bona fide buyer. A factor has right of general lien over the goods belonging to his principal, which are in his profession, for the general balance of account.4

(c) Brokers :- A broker is a agent who has an authority to negotiate the sale or purchase of goods on behalf of his principal, with a third person. Unlike a factor, he himself has no possession of the goods. He merely makes the two parties to enter into a contract. He gets his commission whenever any transaction materializes through his efforts.

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E.H. Parekh v. King Emperor, AIR 1926 Oudh 202 Section 171 of The Indian Contract Act,1872

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(d) Del Credere Agent :- Del Credere agent is not like generally defined agent as a person who represents principal in dealings but such kind of agent is a mercantile agent who is paid extra commission, known as del credere commission, and guarantees the performance of the contract by the third person. If in such a case the third person, for instance, fails to pay for the goods supplied to him, the principal can bring an action against him for the same. And same liability of agent arises if the third party fails to pay to the principal what is due under the contract.

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ESSENTIALS OF CONTRACT OF AGENCY


There are following essentials which are deemed necessary to create a contract of agency : The principal should be competent to contract The agent may not be competent to contract No consideration is necessary to create an agency

(A) The principal should be competent to contract(section 183) :According to section 183, 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 agent. For a valid contract both the parties have to be competent to contract. And in agency agent creates a contractual relationship between his principal and the third persons, it is necessary that the principal and the third person should be competent to contract. If a person is not competent to contract he cannot make a contract through an agent either. A person can do only such thing through agent which he is himself personally capable of doing. Therefore, if the principal is a minor or of unsound mind, he is incapable of being bound through the acts of his agent. Although a minor himself cannot appoint an agent, there is nothing in section 183, which prohibits the guardian of a minor from appointing an agent for him.5

(B) The agent may not be competent to contract(section 184) :According to section 184, As between the principal and a third person, any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained.
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Madan lal Dhariwal v. Bherulal, AIR 1965 Mysore 272

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As far as the agents capacity to bind the principal and the third person is concerned, for that any person may become an agent. It means that even if an agent is minor or otherwise incompetent to contract, he is capable of creating a valid contract between his principal and the third person. So far as the agents capacity to bind himself to the principal is concerned, for that it is necessary that the agent should also be competent to contract. Section 184, therefore, provides that no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained.

(C) No consideration is necessary to create an agency(Section 185) :Section 185 provides that no consideration is necessary to create an agency. From the very nature of the contract of agency, the principal agrees to be bound by the acts done by the agent on his behalf and that serves as a sufficient detriment to the principal. Moreover, the principals duty to indemnify the agent is also there. The law does not require any consideration as such for the validity of a contract of agency.

NATURE OF CONTRACT OF AGENCY

(A) Agent represents principal in dealings.

(B) Principal and third person need to be competent to contract and it is not obligatory to agent to be competent.

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(C) Principal delegates his power to agent.

(D) Principal is vicariously liable for the act performed by the agent in his capacity, but in case of Del Credere agent all the liability is of the agent for non fulfillment of contract from third person.

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CONCLUSION
Now, it is well understood that agent is the whole and sole person who enables a principal to enter into a contract. Agent is the person who represents principal and liability arouse out of such act is falls on principal. This project is a great source of knowledge and helpful in understanding nature and essentials of contract. It helps in understanding role of agent and principal.

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