CONTRACT OF AGENCY

Introduction:
The

complexities of modern business are such that it is not

possible for any man to transact all his business by himself.

Of necessity he has to depend on the services of other persons,

such other persons are called agents.

The

parties so concern in this sort of contract are agent and

principal.
Examples:

you asking your friend to buy a ticket for you for a

cricket match, your father asks you to deposit a sum of money against an electricity bill.

Definition:
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 the principal

The

function of an agent is to bring his principal into

contractual relations with third persons.

An

agent is merely a connecting link between the principal and

third parties.

Essentials of relationship of agency:

1) Agreement between the principal and the agent:
As

between the principal and third persons any person may

become an agent.
Even

a minor or a person of unsound mind may be an agent.

The principal is however liable for the acts of such an agents.

2) Intention of the agent to act on behalf of the principal

Rules of agency
Whatever

a person can do personally, he can do through an

agent. This rule is subject to certain well known exceptions as when the act to be performed is personal in character (eg : marriage)
He

who does an act through another does it by himself. An

agents acts and contracts will have the same

legal

consequences as if the contracts had been entered into and the acts done by the principal in person.

Agent and Servant:

An

agent is employed to bring the principal into legal relations

with third persons. A servant does not ordinarily create legal relations between employer and third person.
An

agent is bound to follow all the lawful instructions of the

principal but he is not subject to the direct control &

supervision of the principal, which is not the case with servant.
An agent may work for several principals at the same time but a

servant usually serves only one master.

CREATION OF AGENCY
Agency by express agreement:

Normally, the authority given by a principal to his agent is an express authority which enables the agent to bind the principal by acts done within the scope of his authority.

Either by words of mouth or by a written agreement The usual form is a written contract on a stamped paper.

Agency by implied agreement:

Implied 1.

agency arises from the conduct, situation or relationship of parties.

Agency by estoppel: Where a person by his conduct or by words spoken or written, leads willfully another person to believe that a certain state of affairs exists and induces him to act on that belief so as to alter his previous position, he is precluded from denying subsequently the fact of that state of affairs.
A tells T within the hearing of P that he (A) is Ps agent. P does not object to this statement of A. Later T supplies certain goods to A, who pretends to act as an agent of P. P is liable to pay the price to T. By keeping quite, he (P) had let T to believe that A is really his agent.

2.

Agency by holding out: It is a branch of the agency by estoppel. In this case, a prior positive or affirmative act on the part of the principal is required to establish agency subsequently.

P allows his servant habitually to purchase goods for him on credit from T and pays for them. On one occasion, he pays his servant cash to purchase the goods. The servant misappropriates the money and purchases goods on credit from T. T can recover the price from Pas he had held out his servant as his agent on prior occasions.

3.

Agency by necessity: In certain urgent circumstances the law

confers an authority on a person to act as an agent for the benefit of another, there being no opportunity of communicating with that other. Such agency is called an agency of necessity.

i.

Agent exceeding his authority in an emergency: provided was not in position to communicate with the principal & had taken all

necessary steps to protect interest of the principal and had acted

bona fide.
ii.

A person entrusted with anothers property. E.g. goods delivered

to railway station, no body took the delivery. Held the railway

company was an agent of necessity.
iii.

Husband & Wife : entitled to pledge his credit for necessaries.

Agency by ratification (validate/approve):

In simple terms, a person may act on behalf of another

without his knowledge or consent.

A may act as Ps agent though he has no prior authority from P.

In such a case P may subsequently either accept the act of

A or reject it. If he accepts the act of agent , he is said to

have ratified that act.

Ratification may be expressed or may be implied in the conduct of the person on whose behalf the acts are done.

Examples:
A

insures Ps goods without his authority. If P ratifies As

act, the policy will be valid as if A had been authorized to insure the goods.
A,

without authority buys goods for P. Afterwards P sells

them to T on his account. Ps conduct implies a ratification

of the purchase made for him by A.
A,

without Ps authority lends Ps money to T. Afterwards P

accepts interest from T. Ps conduct implies a ratification of the loan.

Agency by operation of law:

Sometimes an agency arises by operation of law.

When a company is formed, its promoters are its agents by operation of law.

A partner is the agent of the firm for the purposes of the business of the firm.

The act of a partner which is done to carry on, in usual way

business of the kind carried on by the firm, binds the firm.

In all these cases, agency is implied by operation of law.

Duties of Agent:
To

carry out the work undertaken according to the

In the absence of any

directions given by the principal:

such directions, he must act according to the custom which prevails in doing business of the same kind at the place where he conducts such business. Example
A, a broker in whose business it is not the custom to sell on credit, sells goods of P on credit to T whose credit at the time

was very high. T before payment becomes insolvent. A must

make good the loss to P.

 To

carry out the work with reasonable care, skill

and diligence: Agent is always bound to act with reasonable

diligence, to use skill as he possesses and to make
compensation to his principal in respect of the direct consequence of his neglect, want of skill or misconduct.
A, an agent for the sale of goods, having authority to sell on credit

sells to T on credit , without making the proper

and usual

inquiries as to the solvency of T. T, at the time of such sale, is insolvent. A must make compensation to his principal in respect of

any loss thereby sustained.

 Not

to deal on his own account: If an agent, without the

knowledge of his principal, deals in the business of the agency on his own account, the principal may repudiate the transaction, Example :
P directs A to sell his (Ps) estate. A buys the estate for himself in the name of T. P, on discovering that A has bought the estate for himself may repudiate the sale, if he can show that A has dishonestly concealed any material fact or that the sale has been disadvantageous to him.

P can claim from the A any benefit which may have resulted to him from such transaction. P directs A, his agent to buy a certain house for him. A tells P it cannot be bought & buys the house for himself. P may on discovering the truth, can compel him to sell it to him (P) at the price he (A) gave for it.

 To communicate with the principal in case of difficulty.

To render proper accounts to his principal. To pay sums received for the principal. To protect and preserve

the interests of the principal in case of

his death or insolvency.

Not

to use information obtained in the course of the agency

against the principal.

Not to make secret profit from agency.
Not to delegate authority. Not to set up an adverse title.

Rights of Agent:

Right to receive remuneration

Right of retainer Right of Lien Right of Indemnification Right of compensation Right of stoppage in transit
Bought goods incurring personal liabilities

Sold good and stands in the position of unpaid seller

Delegation of Authority:
The

general rule is that an agent is not entitled to delegate his authority to another person without the consent of his principal because when the principal appoints a particular person to act on his behalf , he relies upon the agents skill, integrity & competence. Sub agent: agents agent, relation would be that of the principal & agent. Co agent or substituted agent: He is a person who is named by the agent, on authority from principal to act for the principal.
P directs A, his solicitor to sell his estate by auction & to employ an auctioneer for the purpose. A names A1, an auctioneer to conduct the sale. A1 is not a sub agent, but is Ps agent for the conduct of the sale.

Position of principal & agent in relation to third parties

Where

the principals existence & name are disclosed by the agent, named

principal.
Where

the principals existence is disclosed but not his name, unnamed

principal. If the third party contracts knowing that there is a principal although his identity is not disclosed , he cannot sue agent. If however agent refuses to disclose identity of principal in that case agent would be personally liable.
Where

both the existence and the name of the principal are not disclosed,

undisclosed principal. Gives rise to doctrine of undisclosed principal.

Undisclosed Principal
The

position of principal:

When an undisclosed principal is

subsequently discovered or he himself intervenes, the other contracting

party may sue either the principal or agent or both.

The

position of agent:

As between the principal & the agent, the

agent has all the rights of an agent as against the principal but as regards the third party, he is personally liable on the contract. He may be sued on the contract.

The

position of third parties:

Third party may elect to sue

either the principal or the agent or both.

Personal Liability of Agent:

1) When the contract expressly provides: A person while entering into a contract with an agent may expressly stipulate that he would hold the agent personally liable in case of breach and if the agent agrees to it, he is personally liable. 2) When the agent acts for a foreign principal (residing abroad) 3) When he acts for an undisclosed principal 4) When he acts for a principal who cannot be sued: Where the principal is incompetent to enter into a contract (e.g. minor), the agent is personally liable as the credit is presumed to have been given to the agent.

5) Where his authority is coupled with interest

6) Where agent signs a contract in his own name: without disclosing that
he is acting as an agent. 7) Where agent acts for a principal not in existence: This is a rather

peculiar case. The promoters of a company, yet to be incorporated where

the principal (i.e. the company) has no legal existence till the time of incorporation. In such a case the promoters are held to have contracted

on their own account & are personally liable.

8) Agent is liable for breach of warranty of authority (i.e. exceeds the authority)

9) Where agent receives money by mistake or fraud

10) Where the trade usage or custom make him personally liable.

Termination of Agency:
Termination of agency by act of the parties:
1. 2.

Agreement: can be terminated by mutual agreement.

Revocation by the principal: The principal may revoke any

time before the agent has exercised his authority so as to bind principal. But if the act is begun, the authority can only be revoked subject to any claim which the agent may have for breach of contract.

3.

Revocation by the agent: but only after giving a reasonable notice to the principal.

Termination of agency by operation of law:

1. 2.

Performance of contract : particular object. Expiry of time: agent is appointed for a fixed period of time, the agency comes to an end after the expiry of that time even if the work is not completed.

3.

Death & insanity: of either party agent or principal. At the time of

termination the agent must take, on behalf of the representatives of his late principal, all reasonable steps for the protection &

preservation of the interests entrusted to him.

4.

Insolvency: insolvency of the principal puts an end to the agency.

5.

Destruction of subject matter: E.g. Agent is employed to effect an insurance on a particular house, the agency terminates if, before the insurance is effected, the house is destroyed by fire.

6.

Principal becoming an alien enemy: Agency is valid so long as the countries of the principal & the agent are at peace. If war breaks out between the two countries , agency is said to be terminated.

7.

Dissolution of a company: When a company dissolves, the contract of agency with or by the company automatically comes to an end.

8.

Termination of sub - agents authority : puts an end to the subagents authority.

Irrevocable Agency :
When an agency cannot be terminated or put to an end
1.

Where the agency is coupled with interest: An agency is said to be coupled with interest when it is created for securing some benefit to the agent over and above his remuneration as agent. Example:

A creditor is employed as an agent to collect rents due to the principal for adjusting the amount towards debt , the authority of the agent is coupled with interest & it is irrevocable during subsistence of the interest.

2.

Where the agent has incurred a personal liability: The

principal cannot in such a case, revoke the agency leaving

the agent exposed to the risk or liability he has already incurred.
3.

Where the agent has partly exercised the authority: In such a

case principal cannot revoke the agents authority for the acts already done & the principal is bound by the acts

already done on his behalf.

P authorises A to buy 1000 bales of cotton on account of P and to pay for it out of Ps money remaining in As hands. A buys 1000 bales of cotton in his own name. P cannot revoke As authority so far as payment for the cotton.

Thank you.