CONTRACTS OF AGENCY INTRODUCTION In modern business it

CONTRACTS OF AGENCY

INTRODUCTION In modern business it is not always possible for a person to do everything by himself. So, it becomes necessary to delegate some of the acts to be performed by another. Such another person is called an agent & the contract under which such person is appointed is called a “contract of agency. “ The law of agency is based on the principal, “what a person does by another, he does by himself. ”

MEANING The contract which creates the relationship of principal & the agent is known as the contract of agency. According to English law, the contract of agency implies one person appointing another person to establish lawful business relations with third parties.

DEFINITION According to section 182 of the Indian contract Act, “An agent is a person employed to do any act for another or to represent another in dealings with third parties. The person for whom such act is done or who is represented, is called the principal. ”

ESSENTIAL ELEMENTS OF AGENCY Ø Express Or Implied Agreement Ø Contractual Capacity In Principal Ø Consideration Not Necessary Ø Appointment Of Agent By The Principal

WHO MAY EMPLOY AN AGENT ? According to Section 183 of the Indian Contract Act, “Any person who is of the age of majority according to law to which he is subject & who is of sound mind may employ an agent. ” Thus the principal must be capable of making a contract. So, it is necessary that the principal should have competency to make a contract. If the principal is himself a minor or is of unsound mind, he cannot be made liable for the acts done by the agent.

WHO CAN BECOME AN AGENT ? Since the acts done by the agent are taken as the acts done by the principal, any person may become an agent for creating relationship between the principal & the third parties. Competency to make a contract is not necessary to become an agent. According to Section 184 of the Indian Contract Act, “As between the principal & third person any person may become an agent, but no person who is not of the age of majority & of unsound mind can become an agent, so as to be responsible to his principal according to provisions. ”

IS CONSIDERATION NECESSARY ? One of the essentials elements of a valid contract is consideration. But, Section 185 of the Act states that, “No consideration is necessary to create an agency. ” Therefore, it is not necessary that the agent should get any consideration for his services. It makes no difference on the rights & duties of the agent whether he gets some consideration or not. The only difference is that if the agent is paid any consideration, he is bound to perform the act assigned by the principal.

CREATION OF AGENCY Ø By Express Agreement Ø By Implied Authority Ø By Estoppel Or Holding Out Ø By Necessity Ø By Ratification

LEGAL POSITION OF A WIFE AS AGENT FOR HER HUSBAND Ø When The Husband & Wife Living Together Case: Girdhari Lal vs. Crowford Ø When Wife Living Separately From Husband

DOCTRINE OF RATIFICATION According to Section 196 of the Act, “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. ”

RULES GOVERNING RATIFICATION Ø Act Must Be Done On Behalf Of The Person Ratifying Ø Existence Of The Principal Ø Contractual Capacity Ø Lawful Acts Ø Express Or Implied Ratification Ø Whole Transaction Ø Full Knowledge Ø Within Reasonable Time Ø No Damage to Third Party

EFFECT OF RATIFICATION Ø An Agency Is Established By Ratification & The Principal Becomes Liable For The Act ratified Ø Invalid Acts Become Valid Acts After Ratification Ø The Agent Become Entitled To Receive Necessary Expenses & Commission Ø The Effect Of Ratification Is Retrospective

EXTENT OF AGENT’S AUTHORITY Ø Under Normal Condition Ø In Emergency

SUB - AGENT According to Section 191, “Sub-agent is a person employed by & acting under the control of the original agent in the business of agency. ” This section states that the sub-agent is appointed by the agent & acts under the control of original agent in the business of agency.

CONDITIONS OF APPOINTMENT OF SUB-AGENT Ø Where The Principal Has Clearly Authorised The Agent To Appoint Sub-Agent Ø Where The Ordinary Custom Of Trade Allows Employment Of Sub-Agent Ø Where The Nature Of Business Is Such That It Is Necessary To Appoint Sub-Agent & The Performance Become Difficult Without A Sub. Agent Ø Where The Principal Is Aware That His Agent Wants to Appoint Sub-Agent & Does Not Object Ø Where An Emergency Requires Delegation

LEGAL POSITION BETWEEN PRINCIPAL, AGENT & SUB-AGENT Ø Where Sub-Agent Is Properly Appointed a. Liability Of Principal To Third Party b. Liability Of Agent To Principal c. Liability Of Sub-Agent To Agent Ø Where Sub-Agent Is Not Properly Appointed

SUBSTITUTED AGENT According to Section 194, “Where an agent holding an express or implied authority to name another person to act for the principal in the business of 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. ”

TYPES OF AGENTS Ø General Agent Ø Specific Agent Ø Mercantile Agent a. Broker b. Factor c. Auctioner d. Commission Agent e. Banker f. Del-Credere Agent

DUTIES OF AN AGENT TO PRINCIPAL Ø To Work According To Directors Ø To Work With Reasonable Skill & Diligence Ø To Render Proper Accounts Ø To Inform The Principal In Difficulties Ø Not To Deal On His Own Account Ø To Pay The Sum Received For The Principal Ø To Protect The Interest Of The Principal Ø Not To Delegate The Authority Ø Not To Use The Information Obtained In Course Of Agency Against Principal Ø Not To Set Up An Adverse Title

RIGHTS OF AN AGENT Ø Right Of Compensation For Premature Breach Of Agency Ø Right Of Retainer Ø Right To Receive Remuneration Ø Right Of Lien Ø Right Of Indemnification For Lawful Acts Ø Right Of Indemnification For Acts Done In Good Faith Ø Right Of Compensation For Principal’s Negligence

RIGHTS OF PRINCIPAL Ø To Get The Agency Business Conducted According To Directions Ø To Recover Compensation Due To Negligence Ø To Get Proper Accounts Ø To Give Instructions In Case Of Difficulty Ø Right To Repudiate Ø To Claim Secret Benefits Ø To Receive all Sums From The Agent For Principal Ø To Forfeit Remuneration In Case Of Misconduct

DUTIES OF PRINCIPAL Ø To Pay Remuneration To The Agent Ø To Indemnify For All Lawful Acts Ø To Indemnify For All Acts Done In Good Faith Ø To Make Compensation Due To Negligence Ø To Compensate For Premature Breach Of Agency

PRINCIPAL’S LIABILITY TO THIRD PARTY Ø a. b. c. d. e. Ø Ø a. b. c. Agent Acting For Named Principal When An Agent acts Within His Authority When An Agent Exceeds His Authority Effect Of Notice Given To Agent Consequence Of Doctrine Of Estoppel Misrepresentation Or Fraud By Agent Acting For Unnamed Principal Agent Acting For Undisclosed Principal Position Of Agent Position Of Third Party

PRETENDED AGENT When a person, who is not an agent, claims to be an authorised agent of the another person & thereby induces a third person to make a contract with him, such person is called a pretended agent. § Legal Position Of Pretended Agent: Ø To Make Compensation To Third Party Ø Not Entitled To Claim Performance

PERSONAL LIABILITY OF AGENT TO THIRD PARTY Ø When Acting for Foreign Principal Ø When Acting For An Undisclosed Principal Ø When For The Principal Who Cannot Be Sued Ø When The Agent Exceeds His Authority Ø By Express Agreement Ø Agency Coupled With Interest Ø Non-Existence Of The Principal Ø When The Agent Signs The Contract In His Own Name Ø When Custom Or Trade Usage Ø Misrepresentation Or Fraud

TERMINATION OF AGENCY Ø Termination By The Act Of Parties a. By Mutual Agreement b. Revocation By The Principal i. Agency Coupled With Personal Interest Of Agent ii. Partial Use Of Authority By The Agent iii. Personal Liability Undertaken By The Agent c. Renunciation By The Agent i. Compensation For Revocation ii. Notice Of Revocation iii. Revocation Express Or Implied

CONTD. Ø Termination Of Agency By Operation Of Law a. Completion Of The Agency Business b. On Expiry Of Fixed Period c. By Death Or Insanity Of The Principal/Agent d. Insolvency Of Principal e. Destruction Of The Subject Matter Of Agency f. Principal Becoming An Alien Enemy g. Winding Up Of A Company

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