“ 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
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 )
Agent may 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 delegate. 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 ).
4. Commission Agent – is 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.
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. Banker – act as a mercantile agent on behalf of his customer when he collects cheques, drafts, bills & pay insurance premium & buy or sell securities.
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.
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 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.
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.
4. 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.
X buys 5 bags of wheat on behalf of Y without his knowledge or authority. Y would be bound by the contract, if he ratify or accept the same.
It can be expressed or implied
Essentials of a valid ratification
1. Act must have been done as agent on behalf of principal identifiable – Only the person on whose behalf the act is done can ratify it. If the agent act in his own name, his act cannot be ratified by any other person.
Case: Keighley maxeted & co. Duarnt – X was authorised by Y to buy wheat at certain price. X exceeded his authority & purchased wheat from Z at a higher price in his own name. He did not profess to buy wheat on behalf of Y. Subsequently Y ratified the act of X but later refused to take delivery of the wheat. Z sue Y. Held, the contract could not be ratified because X did not purport to act as an agent of Y.
2. The principal must be in existence. Eg company and promoters
3. The principal must be competent to ratify the act – must have contractual capacity. A minor cannot ratify the contract a contract on attaining the age of majority.
4. The principal must have the full knowledge of all the material facts – X bought certain goods for Y at the price greater than the market value in the name of Y. Y ratified the transaction without knowing the same ( high price ) . The ratification is invalid.
5. The principal must ratify the whole transaction.
6. Ratification must be made within reasonable time.
7. Act to be ratified must not be void or illegal.
8. Ratification must be communicated.
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:
By agreement – mutual consent
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.
By renunciation by the agent – by giving reasonable notice.
Termination by operation of law:
By performance of contract of agency.
By death of principal or agent.
By expiry of time – where agency is for fixed time period.
By insolvency of the principal.
By destruction of subject matter – agency was created to sell a house & house destroys.
By becoming alien enemy – where principal & agent are from different countries.
The agency which a principal cannot revoke is known as irrevocable agency.
Where the agency is coupled with interest – A gives authority to B to sell A’s land & to pay himself out of the proceeds, the debt due to him from A. A cannot revoke this authority.
Where the agent has incurred personal liability – Where the agent has bought goods in his own name principal cannot refuse to pay.
3. Where the authority has been exercised party – X authorizes Y to buy 10 bags of wheat on his account. Y buys 10 bags of wheat in the name of X. X cannot revoke the authority.