Main contract of agency1


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Main contract of agency1

  1. 1. Contract of Agency
  2. 2.  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 acts are done or who is represented is called the principal.  “Agency is a contractual relation between two parties created by agreement express or implied”.
  3. 3.  Who may employ an agent? 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 an agent.  Who may be an agent? As between the principal and third persons any person may become an agent
  4. 4. 1. There should be an agreement between the principal and the agent. 2. Capacity to employ an agent S.183. 3. The consideration is not necessary S.185. 4. Capacity for being appointed as an agent S.184.
  5. 5. MODES OF CREATING CONTRACT OF AGENCY By express authority By implied authority By estoppel By holding out By necessity By ratification By operation of law
  6. 6. A. Agency by express authority S.186 & 187  Appointment in writing or by words of mouth  Usual form of a written agreement: Power of attorney – General power of attorney or Special PA B. Agency by implied agreement / Ostensible Authority S.187  An authority is said to be implied when it is to be inferred from the circumstances of the case and the things spoken or written, or the ordinary course of dealing may be accounted circumstances of the case. Agencies by an implied agreement includes: 1. Agency by estoppel S.237 2. Agency by holding out 3. Agency by necessity
  7. 7. Agency by estoppel : S.237  Where a person by his conduct or by statement has led another person to believe that a certain state of affairs exists that a certain person is his agent, he is estopped from denying the fact of that statement subsequently.  Example: A tells T within the hearing of P that he is P’s agent. P does not object to this statement. Later on T supplies certain goods to A who pretends to be acting as an agent of P. P is liable to pay the price to T. Agency by holding out:  It is a branch of the agency by estoppel. In this case, a prior positive act on the part of the principal is required to establish agency subsequently.
  8. 8. Agency by necessity:  In certain circumstances the law confers an authority on the person to act as agent for another without requiring the consent of that person. Such type is called as Agency by necessity. He has the authority in an emergency to do all such acts for the purpose of protecting his principal from loss as would be done by a person of ordinary prudence.(Sec. 189).However the following are the essentials: 1.The agent was not in position to communicate with the principal. 2. There was an actual and definite necessity for acting on behalf of the principal. 3. The act was done to protect the interest of the principal. 4. The agent acted as a man of ordinary prudence and the act was done bonafide
  9. 9. C. Agency by ratification S.196 A person does some acts on behalf of another person without his knowledge or authority, another person subsequently accepts the acts. Agency by ratification also known as ex-post facto agency (agency arising after the event).  It must be expressed / implied S.197 D. Agency by operation of law: Sometimes an agency arises by the operation of law. For example, when a company is first formed, its promoters are its agents by operation of law. Again, according to Sec. 18 of the Indian Partnership Act, 1932, a partner is an agent of the firm for the purposes of the businesses of the firm.
  10. 10. 1. Acts within principal’s power. 2. The principal must be competent to contract and in existence at the time of contract by the agent 3. Contractual capacity of principal. 4. The principal must have full knowledge of the material facts S.198. 5. Whole transaction must be ratified S.199 6. Within a reasonable time. 7. Ratification must not injure a third party S.200. 8. Ratification must be lawful 9. Must be communicated to 3rd party.
  11. 11. KR/MB/108 On extent of their Authority On the basis of nature of Work Universal Agents Special AgentsGeneral Agents Mercantile Agent Non-Mercantile Agent Broker Factor Commission Agent Auctioneer Del-credere Attorney Solicitors Wife Insurance Agent Election Agent Banker Agent
  12. 12. I. From the point of view of the extent of their authority : 1.General Agent- Is one employed to do all the acts connected with a particular business or employment Eg: manager of a firm. 2. Special Agent – employed to do some particular act or represent his principal in some particular transaction. Eg: agent employed to sell a motor car. 3.Universal Agent – Whose authority is unlimited. He enjoys extensive powers to transact every kind of business on behalf of principal.
  13. 13. II. From the point of view of the nature of work performed by them: I. Mercantile agent-  An agent dealing in the buying and selling of the goods  An agent who has the authority either to sell the goods, or to consign the goods for the purpose of sale, or to buy the goods or to raise the money on the security of the goods on behalf of his principal
  14. 14. 1. Factor: possession of the goods is given for the purpose of selling the same – sells in his own name – has general lien – usually sells in his own name 2. Broker: appointed to negotiate and make contracts for the sale and purchase on behalf of the principal – not given possession – not in his own name 3. Commission agent: buys and sells and receives commission
  15. 15. 4.Del credere agent: One who in consideration of an extra commission, guarantees his principal that the third persons with whom he enters into contracts on behalf of the principal shall perform their financial obligations i.e. if the buyer does not pay , he will pay. II. Non- mercantile agents : Does not usually deal in the buying or selling of the goods. They include Insurance agents ,Counsels or advocates, wife,etc.
  16. 16.  Power or capacity to bind the principal with the third party Extent of Authority: It means scope of authority of an agent. Extent of authority may ne discussed  Under Normal Circumstances S.188  In Emergency S.189
  17. 17.  General rule: “ Delegatus non-protest delegare” i.e. a delegate cannot further delegate  But in exceptional cases sub-agent can be appointed Cases: 1. Express authority from the principal 2. Where the principal has impliedly, by his conduct allowed such delegation of authority. 3. Ordinary Custom of a particular trade 4. Nature of the work 5. Acts which do not require personal or professional skill 6. Due to unforeseen emergencies
  18. 18.  “A sub-agent is a person employed by, and acting under the control of the original agent in the business of the agency.”(Sec. 191)  “An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally unless by the ordinary custom of trade a sub- agent may, or from the nature of the agency, a sub-agent must, be employed.”
  19. 19. Discussed under two heads: 1. Where the sub-agent is properly appointed 2. Where the sub-agent is improperly appointed 1.Where the sub-agent is properly appointed (a)The principal is bound and is liable to third parties for the acts of the sub-agent (b)Where the agent is responsible to the principal for the acts of sub-agent. (c)The Sub-agent is responsible for his acts to original agent not to principal except in fraud or willful wrong
  20. 20. II. Where the sub-agent is improperly appointed (a) The principal is not represented by sub-agent and hence he is not liable for acts of the sub-agent (b) The agent is responsible for the acts of the sub-agent to the principal as well as to the third parties (c) The sub-agent is not responsible to principal at all.
  21. 21.  A substituted agent is a person who is named by the agent holding an express or implied authority from the principal, to act for the principal. in other words, he is the agent of the principal though he is named, at the request of the principal, by the agent. (Sec. 194)  Example: A directs B, his solicitor, to sell his estate by auction and employ an auctioneer for the purpose. B names C, an auctioneer, to conduct the sale. C is not a sub agent, but is A’s agent for the conduct of sale.
  22. 22. 1. Rights to retain money due from the principal S.217 2. Right to receive remuneration S.219 & 220 3. Right of lien S.221 – The agent has the right to retain goods, papers and other property- only particular lien 4. Right to be indemnified against consequences of lawful acts. S.222 5. Right to receive compensation S.225 6. Right to be indemnified against consequences of acts done in good faith S.223 7. Right of stoppage of goods in transit. (a) Principal becomes insolvent (b) Agent has bought goods out of his own money 8. Liability of principal inducing others S.237
  23. 23. 1. To carry out the work undertaken according to instructions: An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conduct such business. Otherwise he is liable to the principal. (Sec.211) 2. To carry out the work with reasonable care, skill and diligence: An agent is bound to conduct the business of the agency with as much skill as is generally possessed by the persons engaged in the similar business. (S.212) 3. To communicate with the principal: It is the duty of an agent in cases of difficulty, to use all reasonable diligence in communicating with his principal, & in seeking to obtain his instructions. (Sec.214) 4. To pay the sums received for the principal: The agent is bound to pay to his principal all the sums received on his account after deducting all moneys due to himself in respect of advances made or expenses properly incurred by him in conducting such business and also such remuneration as may be payable to him for acting as an agent.(Sec. 218)
  24. 24. 5. Not to deal on his own account: If the agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonesty concealed from him by the agent. If an agent without the knowledge of his principal, deals in the business of agency on his own account, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.(Sec. 215 & 216) 6. To protect and preserve the interests on behalf of the principals representative in the case of his death or insolvency: Where an agency is terminated by the principal dying or becoming insolvent, the agent is bound to take, on behalf of the representative of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him. (S.209) 7. Not to disclose information obtained in the course of the agency against the principal
  25. 25. 8. Not to make secret profit from the agency: The agent must not, except with the knowledge and assent of the principal, make any profit out of the transactions into which he may enter on the behalf of the principal in the course of employment beyond the commission or remuneration agreed upon between them. Any such profit must be paid over to the principal. 9. Not to put himself in a position where interest and duty conflict: The agent must not put himself in a position where his duty and interest conflict unless he has made full disclosure of his interest to the principal. 10.Not to delegate authority: An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or from the nature of the agency, a sub-agent must, be employed. (S.190). 11.Duty to render accounts to the principal –(S.213)
  26. 26. General Rule(Sec.230): In the absence of any contract to that effect, an agent cannot personally enforce contract entered into by him on behalf of his principal, nor is he personally bound by them. : Circumstances under which an Agent becomes personally liable In case of Foreign Principal (Sec.230) In case of Undisclosed Principal (Sec.230) In case of Incompetent Principal (Sec.230) In case of Principal not in existence In case of custom or usage of trade In case of acts not ratified (Sec.235) In case of acts in his own name In case of express agreement
  27. 27. End of the relationship of a principal and his agent Studied under: 1. Termination of agency by act of the parties 2. Termination of agency by operation of law 1.Termination of agency by act of the parties 1. Agreement -between the principal and agent 2. Revocation(cancellation) by the principal 3. Renunciation(rejection) of agency by the agent  An agency may be terminated by the principal at any time by giving a notice to the agent. (Sec. 206). If the agent is appointed to do a single act, the authority may be terminated at any time before the act actually begun, the agency can only be terminated subject to any claim (compensation)which the agent may have for the breach of the contract. (Sec. 205). The revocation & renunciation may be expressed or implied (Sec. 207). However when the agency is coupled with the interest the principal cant revoke the agency to the extent of such interest. Moreover if the agent has already partly exercised his authority then also the agency cant be terminated.
  28. 28. 1. Completion of agency business S.201 2. Expiry of time 3. Death of the principal or the agent S.201 4. Insanity of the principal or the agent S.201 5. Insolvency of the principal S.201 6. Destruction of the subject-matter of the agency 7. Dissolution of a company 8. Principal or agent becomes alien enemy
  29. 29. Termination of agent’s authority: Sec. 208 deals with the question as to when termination of agent’s authority takes effect as to agent, and as to third parties. According to it, the termination of the authority of an agent takes effect as regards the agent and the third persons from the time it becomes known to them.
  30. 30. When an agency cannot be terminated or put an end to, it is said to be an irrevocable agency in following cases: a) Where the agency is coupled with interest: Where an agent has an interest in the subject matter of the contract entered into by him with a third party, his authority is coupled with the interest. He has, in such case, the right to sue or be sued, but only to the extent of his interest. (sec 202) b) Where the agent has incurred a personal liability: When an agent incurs personal liability, the agency becomes irrevocable. The principal cannot, in such case, withdraw leaving the agent exposed to the risk or liability he has already incurred. c) Where the agent has partly exercised the authority: The principal cannot revoke the authority given to his agent after the authority has been partly exercised; so far as regards such acts and obligations as arise from the acts already done in agency.(Sec. 204)