- Slides: 16
n Contract of Agency Ø Agency is a special type of contract. The concept of agency was developed as one man cannot possibly do every transaction himself. Hence, he should have opportunity or facility to transact business through others like an agent. Ø The principles of contract of agency are – Ø (a) Excepting matters of a personal nature, what a person can do himself, he can also do it through agent (e. g. a person cannot marry through an agent, as it is a matter of personal nature) Ø (b) A person acting through an agent is acting himself, i. e. act of agent is act of Principal. - Since agency is a contract, all usual requirements of a valid contract are applicable to agency contract also, except to the extent excluded in the Act. Ø One important distinction is that as per section 185, no consideration is necessary to create an agency.
n AGENT AND PRINCIPAL DEFINED 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” [section 182]. n WHO MAY EMPLOY 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. [section 183]. - - Thus, any person competent to contract can appoint an agent. n WHO MAY BE AN AGENT As between the principal and third persons 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. [section 184]. - - The significance is that a Principal can appoint a minor or person of unsound mind as agent. In such case, the Principal will be responsible to third parties. Thus, Principal will be liable to third parties for acts done by Agent, but agent will not be responsible to Principal for his (i. e. Agent’s) acts. n CONSIDERATION NOT NECESSARY No consideration is necessary to create an agency. [section 185]. Thus, payment of agency commission is not essential to hold appointment of Agent as valid.
n CHARACTERISTICS/FEATURES OF A CONTRACT OF AGENCY Ø Ø An agent can bind his principal to the third party. In a contract of agency consideration is not necessary. Principal must be competent to contract. Agent may not be competent to contract. n TEST OF AGENCY Ø Ø Following questions need to be answered to determine whether agency relationship exists or not Whether the person has the capacity to bind the principal and make him answerable to third parties? Whether he can create legal relationship between the principal and third parties and thus establish a privity of contract between principal and third parties?
n SCOPE AND EXTENT OF AGENT’S AUTHORITY n Agent's authority may be expressed or implied Ø The authority of an agent may be expressed or implied. An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case. Ø n Extent of agent's authority Ø Ø An agent, having an authority to do an act, has authority do every lawful thing which is necessary in order to do so such act. An agent having an authority to carry on a business, has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business. n Agent's authority in an emergency Ø An agent has authority, in an emergency, to do all such acts for the purpose of protecting his principal from loss and would be done by a person or ordinary prudence, in his own case, under similar circumstances.
n DELEGATION BY AN AGENT n When agent cannot delegate An agent cannot lawful 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 or agency, a sub-agent must, be employed. n "Sub-agent" defined A "sub-agent" is a person employed by, and acting undue the control of, the original agent in the business of the agency. n Representation of principal by sub-agent properly appointed Where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent, and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal. n Agent's responsibility for sub-agents: The agent is responsible to the principal for the acts of the sub-agent. n Sub-agent's responsibility: The sub-agent is responsible for his acts to the agent, but not to the principal, except in case of fraud or willful wrong.
n Agent's responsibility for sub-agent appointed without authority Where an agent, without having authority to do so, has appointed a person to act as a sub-agent, the agent stands towards such person in the relation of a principal to an agent, and is responsible for his acts both to the principal and to third person; the principal is not represented, by or responsible for the acts of the person so employed, nor is that person responsible to the principal. n SUBSTITUTED AGENT When an agent, holding an express or implied authority to name another person to act for the principal with the knowledge and consent of the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.
n KINDS OF AGENT n Express or Implied agents General, Special or Universal Agents Agent or Sub agent Mercantile agents Ø Factor Ø Auctioneer Ø Broker Ø Commission agent Ø Del credere agent Ø Banker Ø General agent and Particular agent Non mercantile agents n n
n CREATION OF AGENCY n Agency may be created in the following ways: n Ø 1. By consent of the parties: The authority of an agent may be expressed or implied. An authority is said to be express when it is given by words spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case. Ø Implied agency includes Ø A. ) Agency by estoppel: Agency by estoppel refers to a situation when the words or conduct of the principal creates an impression in the minds of third party that agent’s authority is greater than the authority actually vested in him. And the third party under this impression enters into an agreement with the agent. B. ) Agency by holding out Where a person permits another by a long course of conduct to pledge his credit for certain purposes, he is bound by the acts of such persons. C. ) Agency by Necessity: Sometimes extraordinary circumstances require that a person who is not really an agent should act as an agent for another.
2. By operation of law: Agent’s authority in an emergency (section 189) An agent has 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, in his own case, under similar circumstances. 3. ) By ratification Where acts are done by one person on behalf of another, but without his knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the same effects will follow as if they had been performed by his authority. n Ø Ø Ø Ø Essentials of Valid Ratification: Act must have been done on behalf of the person ratifying. The principal must be in existence at the time of the act that is to be ratified. Ratifier should be competent top ratify the act. The transaction must have been subsisting at the time when it is ratified. The principal must have signified his unconditional acceptance of the act. Ratification may be express or implied. Ratification must have been made with full knowledge of all the material facts. Whole transaction must be ratified. Ratification must be made within a reasonable time. Act to be ratified should not be void or illegal. Ratification must be communicated. Ratification must not injure a third person. Ratification relates back to the date of the act of the agent.
n AGENT’S DUTY TO PRINCIPAL An agent has following duties towards principal. Ø Ø Ø Ø Ø Conducting principal’s business as per his directions. Carry out work with normal skill and diligence. Render proper accounts [section 213]. Agent’s duty to communicate with principal [section 214]. Not to deal on his own account, in business of agency [section 215]. Agent’s duty to pay sums received for principal [section 218]. Duty not to use information obtained in the course of agency against a principal. Duty not to set up adverse title. Duty not to delegate. Agent’s duty on termination of agency by principal’s death or insanity - [section 209].
n RIGHTS OF AN AGENT An agent has following rights: Ø Ø Ø Right to remuneration. Right of retainer (principal’s money until his claims in respect of remuneration are settled). Right of lien Right to be indemnified against consequences of lawful acts. Right to be indemnified against consequences of acts done in good faith. Right to compensation for any loss or injury caused to him.
n RIGHTS OF PRINCIPAL Ø Ø Recover damages from agent if he disregards directions of Principal. Obtain accounts from Agent. Recover moneys collected by Agent on behalf of Principal. Obtain details of secret profit made by agent and recover it from him. Forfeit remuneration of Agent if he misconducts the business. • DUTIES OF PRINCIPAL Ø Pay remuneration to agent as agreed. Indemnify agent for lawful acts done by him as agent. Indemnify Agent for all acts done by him in good faith. Indemnify agent if he suffers loss due to neglect or lack of skill of Principal. Ø Ø Ø
n PRINCIPAL’S LIABILITY FOR THE ACTS OF THE AGENT n Agent acting for the named principal Ø Ø When the agent acts within the scope of his authority, his acts are binding on the principal. When the agent exceeds the authority, the principal is bound by the part which is within the authority, if separable. Principal bound by the notice given to the agent. Liability of principal by estoppel. Liability for misrepresentation or fraud by an agent. n Agent acting for the unnamed principal Ø The contract made by the agent binds the principal. n Agent acting for an undisclosed principal Ø An agent is personally liable for the contract. On such contracts he can sue and be sued in his own name. Ø Ø Ø
n AGENT’S LIABILITY TO THIRD PARTIES Personal liability of an agent is as follows: Ø Ø Ø Ø Ø Where the agent acts for a foreign principal. Where the agent acts for an undisclosed principal. Where the agent acts for a disclosed principal who cannot be sued. Where agent’s authority is coupled with interest. Where an agent receives or pays money by mistake or fraud. Where the agent signs the negotiable instrument in his own name. Where the agent exceeds his authority. Where the contract expressly provides. Where the agent acts for the non-existing principal. Where according to trade usage agent is personally liable.
n TERMINATION OF AGENCY n By the acts of the parties Ø Ø By agreement between the parties. By revocation of authority by the principal; By the agent renouncing the business of the agency; n By operation of law Ø By the business of the agency being completed; By death or insanity of either the principal or agent; By the principal being adjudicated an insolvent under the provisions of any Act; By the eflux of time. By the destruction of the subject matter. By the subsequent event rendering the agency unlawful. By dissolution of the company. Ø Ø Ø Ø n Ø Ø Ø In following cases, an agency cannot be revoked – Agency coupled with interest (section 202). Agent has already exercised his authority (section 203). Agent has incurred personal liability.