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

Express Or Implied Agreement

Contractual Capacity In Principal

Consideration Not Necessary

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

By Express Agreement

By Implied Authority

By Estoppel Or Holding Out

By Necessity

By Ratification

LEGAL POSITION OF A WIFE AS AGENT FOR HER HUSBAND

When The Husband & Wife Living Together

Case: Girdhari Lal vs. Crowford

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

Act Must Be Done On Behalf Of The Person Ratifying

Existence Of The PrincipalContractual Capacity Lawful ActsExpress Or Implied RatificationWhole TransactionFull KnowledgeWithin Reasonable TimeNo Damage to Third Party

EFFECT OF RATIFICATION

An Agency Is Established By Ratification & The Principal Becomes Liable For The Act ratified

Invalid Acts Become Valid Acts After Ratification

The Agent Become Entitled To Receive Necessary Expenses & Commission

The Effect Of Ratification Is Retrospective

EXTENT OF AGENT’S AUTHORITY

Under Normal Condition

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

Where The Principal Has Clearly Authorised The Agent To Appoint Sub-Agent

Where The Ordinary Custom Of Trade Allows Employment Of Sub-Agent

Where The Nature Of Business Is Such That It Is Necessary To Appoint Sub-Agent & The Performance Become Difficult Without A Sub-Agent

Where The Principal Is Aware That His Agent Wants to Appoint Sub-Agent & Does Not Object

Where An Emergency Requires Delegation

LEGAL POSITION BETWEEN PRINCIPAL, AGENT & SUB-AGENT

Where Sub-Agent Is Properly Appointeda. Liability Of Principal To Third Partyb. Liability Of Agent To Principalc. Liability Of Sub-Agent To Agent

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

General AgentSpecific AgentMercantile Agenta. Brokerb. Factorc. Auctionerd. Commission Agente. Bankerf. Del-Credere Agent

DUTIES OF AN AGENT TO PRINCIPAL

To Work According To DirectorsTo Work With Reasonable Skill & DiligenceTo Render Proper AccountsTo Inform The Principal In DifficultiesNot To Deal On His Own AccountTo Pay The Sum Received For The PrincipalTo Protect The Interest Of The PrincipalNot To Delegate The AuthorityNot To Use The Information Obtained In

Course Of Agency Against PrincipalNot To Set Up An Adverse Title

RIGHTS OF AN AGENT

Right Of Compensation For Premature Breach Of Agency

Right Of RetainerRight To Receive RemunerationRight Of LienRight Of Indemnification For Lawful ActsRight Of Indemnification For Acts Done In

Good FaithRight Of Compensation For Principal’s

Negligence

RIGHTS OF PRINCIPAL

To Get The Agency Business Conducted According To Directions

To Recover Compensation Due To Negligence To Get Proper AccountsTo Give Instructions In Case Of DifficultyRight To RepudiateTo Claim Secret BenefitsTo Receive all Sums From The Agent For

PrincipalTo Forfeit Remuneration In Case Of Misconduct

DUTIES OF PRINCIPAL

To Pay Remuneration To The Agent

To Indemnify For All Lawful Acts

To Indemnify For All Acts Done In Good Faith

To Make Compensation Due To Negligence

To Compensate For Premature Breach Of Agency

PRINCIPAL’S LIABILITY TO THIRD PARTY Agent Acting For Named Principala. When An Agent acts Within His Authorityb. When An Agent Exceeds His Authorityc. Effect Of Notice Given To Agentd. Consequence Of Doctrine Of Estoppele. Misrepresentation Or Fraud By Agent Agent Acting For Unnamed Principal Agent Acting For Undisclosed Principala. Position Of Principalb. Position Of Agentc. 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:

To Make Compensation To Third Party

Not Entitled To Claim Performance

PERSONAL LIABILITY OF AGENT TO THIRD PARTY

When Acting for Foreign PrincipalWhen Acting For An Undisclosed PrincipalWhen For The Principal Who Cannot Be SuedWhen The Agent Exceeds His AuthorityBy Express AgreementAgency Coupled With InterestNon-Existence Of The Principal When The Agent Signs The Contract In His

Own NameWhen Custom Or Trade UsageMisrepresentation Or Fraud

TERMINATION OF AGENCY

Termination By The Act Of Partiesa. By Mutual Agreementb. Revocation By The Principali. Agency Coupled With Personal Interest Of

Agentii. Partial Use Of Authority By The Agentiii. Personal Liability Undertaken By The Agentc. Renunciation By The Agenti. Compensation For Revocationii. Notice Of Revocationiii. Revocation Express Or Implied

CONTD.

Termination Of Agency By Operation Of Lawa. Completion Of The Agency Businessb. On Expiry Of Fixed Periodc. By Death Or Insanity Of The Principal/Agentd. Insolvency Of Principale. Destruction Of The Subject Matter Of Agencyf. Principal Becoming An Alien Enemyg. Winding Up Of A Company

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