Business Law

A DETAILED STUDY ON AGENCY

PROJECT REPORT

Project report submitted in partial fulfillment of the requirement of South Asia University for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION 2011

Submitted By

NAME : ANDREW CHARA CHANZERA ENROLMENT NUMBER : SAA04M138ELB1HA3

Under the guidance of

Miss. RAMYA RAMACHANDRAN., BA.,LLB.,PGFL..

SOUTH ASIA UNIVERSITY LONDON

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GEMS B SCHOOL PONDICHERRY

CERTIFICATE

This is to certify that project entitled “ A DETAILED STUDY ON AGENCY

” is submitted by ANDREW CHARA CHANZERA (ENROLMENT NUMBER -

SAA04M138ELB1HA3 ),GEMS B SCHOOL, PONDICHERRY in partial

fulfillment of the third trimester, requirement in Business Law for the award of the

degree of Master of Business Administration and is certified to be an original and

bonafide work.

PLACE : Guide Signature

DATE :

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CHAPTERS TITLE PAGE ACKNOWLEDGEMENT 4 EXECUTIVE SUMMARY 5 CHAPTER – 1 INTRODUCTION 6

1.1. MEANING OF BUSINESS LAW 7 - 8

SCOPE OF AGENCY 9 - 10

1.2. NEED OF THE STUDY 11 - 12

1.3. OBJECTIVES OF THE STUDY 13 - 14

1.4. PERIOD OF THE STUDY 15 - 16

1.5. RESEARCH METHODOLOGY 17 - 18

1.6. LIMITATIONS OF THE STUDY 19 - 20

CHAPTER – 2 AGENCY 21 - 22

THE AGENT 22 - 30

THE PRINCIPAL 30 - 34

TERMINATION OF AGENCY 35 - 37

CHAPTER – 3 IMPORTANCE OF AGENCY IN 38 - 40

BUSINESS LAW

CHAPTER – 4 CONCLUSIONS 41 - 42 BIBLIOGRAPHY 43 - 44

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ACKNOWLEDGEMENT

I am indebted to all powerful almighty God for all the blessings he showered on me

and for being with me throughout the study.

I also express with great pleasure and sincerity to record my thanks, gratitude

and honour to Mr. L. Alphonse Liguori - Managing Director and Mr. M. Tamijuddin-

Director academics,for their valuable advice and for timely help concerning various

aspects that helped me in doing my project work.

I place on record my sincere gratitude and appreciation to my project guide Miss.

RAMYA RAMACHANDRAN for her kind co-operation and guidance which enabled me

to complete this project.

I take this opportunity to dedicate my project to our loving faculty

Miss. RAMYA RAMACHANDRAN who was a constant source of motivation and I

express my deep gratitude for her never ending support and encouragement during this

project.

Finally I thank each and every one who helped me to complete this project.

PLACE : ANDREW C. CHANZERA

DATE :

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EXECUTIVE SUMMARY

The study aims at studying Agency, as far as Business Law is concerned. Accordingly

the research design was prepared and adequate literature survey was made. Secondary data

was collected through internet and other sources, after the collection of the secondary data, a

proper compilation was made to highlight the data and form certain conclusions.

It is vital that someone understands who is an agent and his capacity to operate as far as

his jurisdiction is concerned and allowed by the law. As a crucial area in business law,it is so

essential to comprehend the rights, duties and liabilities of an agent and his principal, as it

will help you operate your business without the hindrances of ignorance.

The law of agency covers various concepts of an agent and a principal relationship and

helps to enter into such relationship( principal - agent relationship) without any ambiguity.

CHAPTER – 1

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INTRODUCTION

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1.1 MEANING OF BUSINESS LAW

SCOPE OF AGENCY

1.2 NEED OF THE STUDY

1.3 OBJECTIVES OF THE STUDY

1.4 PERIOD OF THE STUDY

1.5 RESEARCH METHODOLOGY

1.6 LIMITATIONS OF THE STUDY

1.1. MEANING OF BUSINESS LAW

1.1. MEANING OF BUSINESS LAW

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Business law also known as mercantile law is the branch of law which comprises

laws concerning trade,industry and commerce,or it encompasses;

The law governing Contracts,

Sales,

Commercial paper,

Agency, and

Employment law,

Business organizations, property, and bailments.

Other popular areas include insurance, wills and estate planning, and consumer and

creditor protection.

Business law may include issues such as starting, selling ,or buying a small business,

managing a business, dealing with employees, or dealing with contracts, among

others.It’s also the general field of law relating to business organizations, business

structures, and business transactions.

Business law has a wider scope of items to be studied.In this project,much attention

is given to the topic of;Agency.

SCOPE OF AGENCY

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Agency is the capacity to act on behalf of someone(the principal),in order to create

a legal relationship with a third party. Succinctly, it may be referred to as the relationship

between a principal and an agent whereby the principal, expressly or impliedly,

authorizes the agent to work under his control and on his behalf. The agent is,thus,

required to negotiate on behalf of the principal or bring him and third parties into

contractual relationship.An agents authority can be revoked by the principal.

This branch of law separates and regulates the relationships between:

Agents and principals,

Agents and the third parties with whom they deal on their principals' behalf, and

Principals and the third parties when the agents purport to deal on their behalf.

The law of agency allows one person to employ another to do her or his work, sell

her or his goods, and acquire property on her or his behalf as if the employer were present

and acting in person. The principal may authorize the agent to perform a variety of tasks

or may restrict the agent to specific functions, but regardless of the amount, or scope, of

authority given to the agent, the agent represents the principal and is subject to the

principal's control. More important, the principal is liable for the consequences of acts

that the agent has been directed to perform.

The relationship between an agent and his principal is created by contract.

Under the Agency Contract,the agent is given authority to do certain things in his

principal's place. In exchange for the service provided by the agent to act on his

principal's behalf, the principal pays the agent a fee or commission. Agents are not

employees. The distinction between an agent and an employee is the degree of control

and method of remuneration. A principal tells the agent what he wants and leaves it to the

agent how to bring about the result. An employer, on the other hand, tells the employee

what to do and how to do it.

The agent is usually paid by way of a commission that becomes payable only

when he brings in the result. An employee, instead, expects to be remunerated for the

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number of hours he works regardless of whether or not the result is accomplished. Real

Estate Agents are a particular kind of agents. A real estate agent acts on behalf of his

principal, almost always the Seller, but can also act on behalf of a Buyer and can, in fact,

act on behalf of both Seller and Buyer at the same time subject to certain restrictions. The

contract that spells out the terms and conditions of the authority confered by a Seller to

the real estate agent is called the Listing Agreement. With the Buyer, the name changes

to Buyer's Agency Agreement.

Therefore;

According to sec. 183,"Any person who is of the age of majority according to the law

to which is subject, and who is of sound mind, may employ an agent.

According to Sec. 184,"As between the principal and third person, 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 reasonable to his principal

according to provisions in that behalf herein contained.

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1.2. NEED OF THE STUDY

1.2. NEED OF THE STUDY

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The law of agency being an important area of commercial law that deals with

contractual and non-contractual set of relationships,there is a need for a detailed study and

proper understanding of the various concepts that forms it and make it operative.

In this context,perusal of some secondary data was done so as to study the various laws

of an agent,and a principal.

The need of study has also emerged so as to understand the various avenues an agent is

allowed to operate as per the laws of agency.At the end, one gets to understand the inner

concept of agency as it is used in both philosophy and sociology

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1.3. OBJECTIVES OF THE STUDY

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1.3. OBJECTIVES OF THE STUDY

The objectives of the study are as follows;

a).To study the various laws of agency.

b).To know the importance of agency in various aspects.

c).To study and understand the inner concepts of agency as far as business law is concerned.

d).To study and get to know the rights,liabilities and duties of both an agent and a principal.

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1.4. PERIOD OF THE STUDY

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1.4. PERIOD OF THE STUDY

The period of the study is limited for a span of one and half months,as from 4 th March

2011.

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1.5. RESEARCH METHODOLOGY

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1.5. RESEARCH METHODOLOGY

Research methodology is a very important aspect of any research work.The research design

of this project is as follows;

a).Literature survey,i.e through the internet and some text books.

b).Compilation of data.

The secondary data has been assiduously collected,after the compilation of the data

conclusions have been made on this project.

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1.6. LIMITATIONS OF THE STUDY

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1.6. LIMITATIONS OF THE STUDY

Insufficient time is found to be the major drawback in the course of doing this project.

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CHAPTER – 2

AGENCY

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AGENCY

The law of agency is an area of commercial law dealing with a contractual or quasi-

contractual, or non-contractual set of relationships when a person, called the agent, is authorized

to act on behalf of another (called the principal) to create a legal relationship with a third party.

Succinctly, it may be referred to as the relationship between a principal and an agent whereby the

principal, expressly or impliedly, authorizes the agent to work under his control and on his

behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third

parties into contractual relationship.

The common law principle in operation is usually represented in the Latin phrase, qui facit

per alium, facit per se, i.e. the one who acts through another, acts in his or her own interests and

it is a parallel concept to vicarious liability and strict liability in which one person is held liable

in criminal law or tort for the acts or omissions of another.

In India, section 182 of the Contract Act 1872 defines Agent as “a person employed to do

any act for another or to represent another in dealings with third persons”.

THE AGENT

Concepts;The reciprocal rights and liabilities between a principal and an agent reflect

commercial and legal realities. A business owner often relies on an employee or another person

to conduct a business. In the case of a corporation, since a corporation is a fictitious legal person,

it can only act through human agents. The principal is bound by the contract entered into by the

agent, so long as the agent performs within the scope of the agency.

A third party may rely in good faith on the representation by a person who identifies himself

as an agent for another. It is not always cost effective to check whether someone who is

represented as having the authority to act for another actually has such authority. If it is

subsequently found that the alleged agent was acting without necessary authority, the agent will

generally be held liable.

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Brief statement of legal principles of an Agent

There are three broad classes of agent

1. Universal agents hold broad authority to act on behalf of the principal, e.g. they may

hold a power of attorney (also known as a mandate in civil law jurisdictions) or have a

professional relationship, say, as lawyer and client.

2. General agents hold a more limited authority to conduct a series of transactions over a

continuous period of time; and

3. Special agents are authorized to conduct either only a single transaction or a specified

series of transactions over a limited period of time.

Authority

An agent who acts within the scope of authority conferred by her principal binds the

principal in the obligations she creates against third parties. There are essentially two kinds of

authority recognized in the law;

Actual authority (whether express or implied), and

Apparent authority.

1.Actual authority

Actual authority can be of two kinds. Either the principal may have expressly conferred

authority on the agent, or authority may be implied. Authority arises by consensual agreement,

and whether it exists is a question of fact. An agent, as a general rule, is only entitled to

indemnity from the principal if she has acted within the scope of her actual authority, and may be

in breach of contract, and liable to a third party for breach of the implied warranty of authority.

Express actual authority means an agent has been expressly told she may act on behalf of a

principal.

Implied actual authority, also called "usual authority", is authority an agent has by virtue of

being reasonably necessary to carry out his express authority. As such, it can be inferred by

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virtue of a position held by an agent. For example, partners have authority to bind the other

partners in the firm, their liability being joint and several, and in a corporation, all executives and

senior employees with decision-making authority by virtue of their position have authority to

bind the corporation.

Authority by Ratification

Sometimes an authority can be created retroactively. For example, where an agent enters

into a contract on behalf of his principal but the contract is beyond the agent's express authority,

he can be given authority in the past. This is done by ratification. If the principal consents after

the fact to be bound by the unauthorized acts of his agent, he has ratified the contract. The end

result is, therefore, that the principal is bound by the contract just as if the agent had been so

authorized in the first place.

Usual Authority

Usual authority arises when an agent is engaged by the principal to act in a particular

transaction and such transaction is governed by 'customs of the trade' . In such case the principal

is considered to have consented to the agent acting in accordance with such customs, as long as

they are lawful and reasonable and the principal has not indicated otherwise.

2.Apparent authority

Apparent authority (also called "ostensible authority") exists where the principal's words or

conduct would lead a reasonable person in the third party's position to believe that the agent was

authorized to act, even if the principal and the purported agent had never discussed such a

relationship. For example, where one person appoints a person to a position which carries with it

agency-like powers, those who know of the appointment are entitled to assume that there is

apparent authority to do the things ordinarily entrusted to one occupying such a position. If a

principal creates the impression that an agent is authorized but there is no actual authority, third

parties are protected so long as they have acted reasonably.

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This is sometimes termed "agency by estoppel" or the "doctrine of holding out", where

the principal will be estopped from denying the grant of authority if third parties have changed

their positions to their detriment in reliance on the representations made.

A simple case

Watteau v Fenwick

In the case of Watteau v Fenwick,Lord Coleridge CJ on the Queen's Bench concurred with

an opinion by Wills J that a third party could hold personally liable a principal who he did know

about when he sold cigars to an agent that was acting outside of its authority. Wills J held that

"the principal is liable for all the acts of the agent which are within the authority usually confided

to an agent of that character, notwithstanding limitations, as between the principal and the agent,

put upon that authority." This decision is heavily criticised and doubted, though not entirely

overruled in the UK. It is sometimes referred to as "usual authority" (though not in the sense

used by Lord Denning MR in Hely-Hutchinson, where it is synonymous with "implied actual

authority"). It has been explained as a form of apparent authority, or "inherent agency power.

Authority by virtue of a position held to deter:fraud and other harms that may befall

individuals dealing with agents, there is a concept of Inherent Agency power, which is power

derived solely by virtue of the agency relation.

For example, partners have apparent authority to bind the other partners in the firm, their

liability being joint and several (see below), and in a corporation, all executives and senior

employees with decision-making authority by virtue of their declared position have apparent

authority to bind the corporation.

Even if the agent does act without authority, the principal may ratify the transaction and

accept liability on the transactions as negotiated. This may be express or implied from the

principal's behavior, e.g. if the agent has purported to act in a number of situations and the

principal has knowingly acquiesced, the failure to notify all concerned of the agent's lack of

authority is an implied ratification to those transactions and an implied grant of authority for

future transactions of a similar nature.

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Liabilities of an Agent

Liability of an agent to third party

If the agent has actual or apparent authority, the agent will not be liable for acts performed

within the scope of such authority, so long as the relationship of the agency and the identity of

the principal have been disclosed. When the agency is undisclosed or partially

disclosed,however, both the agent and the principal are liable. Where the principal is not bound

because the agent has no actual or apparent authority, the purported agent is liable to the third

party for breach of the implied warranty of authority.

Under the partially disclosed principal theory of an agent's liability to a third party for

actions the agent has taken on behalf of a principal, the third party must establish that the third

party was aware of the agency, was without knowledge of the principal's identity, and had

formed a valid contract with the agent. A known agent is not liable for the debts of its disclosed

principal. 

When a seller conditions his agreement to sell goods on an agent's proffer of his own

creditworthiness on behalf of that agent's principal, the agent becomes an accountable party to

the sales contract.

Liability of agent to principal

If the agent has acted without actual authority, but the principal is nevertheless bound

because the agent had apparent authority, the agent is liable to indemnify the principal for any

resulting loss or damage.

Liability of principal to agent

If the agent has acted within the scope of the actual authority given, the principal must

indemnify the agent for payments made during the course of the relationship whether the

expenditure was expressly authorized or merely necessary in promoting the principal's business.

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Rights Of an Agent

Right to Receive Remuneration : The agent is entitled to receive an agreed remuneration or

reasonable remuneration unless otherwise agreed upon. An agent has a right to claim his

remuneration on completion of his work, even if the contract never materializes on account of

breach. But, if an agent is found guilty of misconduct or fraud, etc. he has no right over

remuneration. In addition, he is entitled or liable to compensate the principal for any such loss.

Right of Retainer: An agent has the right to retain any sum, received by him on behalf of his

principal from the third parties, which may fall due as part of his remuneration, or advances or

expenses incurred in the general conduct of business.

Right of Lien: An agent has the right to retain any movable or immovable property, papers or

goods of the principal received by him, until the amount of commission due to him is received.

This kind of  a lien is a;Particular lien which will end as soon as the possession is cost.

However, by a special contract such a lien can be extended to a ‘General Lien’.

Right to be Indemnified Against Consequences of Lawful Acts: An agent has also the right

to be indemnified against the consequences of all lawful acts done by him in exercise of

authority conferred upon him. This right of the agent is obvious for the simple reason that an

agent is a representative of his principal.

Right to be Indemnified Against Consequences of Acts Done in Good Faith: An agent has

the right to be indemnified against all acts done by him in utmost good faith ,where one person

employs another to do an act and the agent does the act in good faith, the employer or principal is

liable to indemnify the agent.

Right to Compensation: The agent has a right to be compensated for injuries sustained by

him due to the principals neglect or want of skill. However, the principal is not liable for any

compensation for the injuries caused by the own neglect of the agent.

Right of Stopping of Goods in Transit: An agent has a right to stop the goods in transit if :-

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He has bought goods either with his own money or by incurring a personal liability for

the price on behalf of the principal,

The principal has become insolvent of / and

When an agent, e.g. del Credere agent is personally liable to his principal to his principal

for the price of the goods sold, he can exercise the unpaid seller’s right and stop the

goods in transit on the unsolvency of the buyer.

Agent’s Right To do All Lawful Things: A person who is appointed as an agent has the

right to do all lawful things which fall under the usual course of business.

Right in Emergency: An agent has a right to do all such acts which could protect his

principal from loss in case of emergency as would have been done in his own case, in a similar

situation.

Right to Appoint Sub-Agent & Substitute Agent: An original agent has a right appointed

would be responsible to the original agent, except in case of fraud, etc. Where an agent has an

express or implied authority he may name another person as  substitute agent to act for his

principal.

Right  to Renounce His Agency: An agent is in full right to renounce his agency by giving a

reasonable notice to  his principal.

Right to Receive Compensation for Remature Revocation: If there is an express or implied

conduct on the part of the agency that the agency would continue for a specified period and if

there is previous revocation without any reasonable cause, the agent would have a right to

compensation in such a case.

Duties of an Agent

An agent owes the principal a number of duties. These include:

a).Duty to undertake the task or tasks specified by the terms of the agency; That is, the

agent must not do things that he has not been authorised by the principal to do.

b).Duty to discharge his duties with care and due diligence;

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c).Duty to avoid conflict of interest between the interests of the principal and his own; That

is, the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment

of the principal.

d).Duty to Render Accounts; It is the duty of the agent to maintain proper accounts of his

principal’s property and render it to him on demanded, or periodically if so agreed upon.

e).Duty to Communicate; It is the duty of the agent to communicate to the principal with full

diligence any difficulty that may arise from time to time. He should obtain proper instructions

from the principals, before taking any steps in facing the difficulty. But, if due to certain reasons

he is unable to communicate the difficulty, he has full authority to take all reasonable steps to

prevent loss.

f).Duty  not to use the Information Obtained in the course of the Agency Against his

Principal; It is  the duty of the agent not to use the information obtained in the course of

business against his principal. If he does so, he must compensate the loss incurred by his

principal.

g).Duty to Pay Sums Received for the Principal; It is the duty of the agent to pay all such

sums to his principal which he may have received for him. He has the right to deduct any amount

which may be outstanding in this account like remuneration, etc.

h).Duty not to set up an Advance Adverse Title; When an agent receives goods from his

principal or other sources, on behalf of the principal, it is the duty of the agent not to set up on

adverse title i.e. his own title or title of third parties to it. If he does so, he can be held liable.

i).Duty in Naming an Agent for his Principal; Selecting an agent for his principal, an agent is

bound to put in same amount of discretion, as he would do in his own case, under similar

circumstances.

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An agent must not accept any new obligations that are inconsistent with the duties

owed to the principal. An agent can represent the interests of more than one principal,

conflicting or potentially conflicting, only after full disclosure and consent of the principal.

An agent also must not engage in self-dealing, or otherwise unduly enrich himself from the

agency. An agent must not usurp an opportunity from the principal by taking it for himself or

passing it on to a third party.

In return, the principal must make a full disclosure of all information relevant to the

transactions that the agent is authorized to negotiate and pay the agent either a prearranged

commission, or a reasonable fee established after the fact.

use was unauthorized and contrary to written policies and directives governing private use of

government vehicles, and he was clearly on a frolic of his own.

THE PRINCIPAL

A person who designates another to act as their attorney in fact or agent. In the English law,

the chief person in some inns of chancery is called principal of the house. Principal is also used

to designate the best of many things as, the best bed, the best table, and the like. One who, being

competent to contract, and who is sui juris, employs another to do any act for his own benefit, or

on his own account.

As a general rule, it may be said, that every person, sui juris, is capable of being a principal,

for in all cases where a man has power as owner, or in his own right to do anything, he may do it

by another.Married women, and persons who are deprived of understanding, as idiots, lunatics,

and others, not sui juris, are wholly incapable of entering into any contract, and, consequently,

cannot appoint an agent. Infants and married women are generally, incapable but, under special

circumstances, they may make such appointments.

For instance, an infant may make an attorney, when it is for his benefit; but lie cannot enter

into any contract which is to Iiis prejudice. A married woman cannot, in general, appoint an

agent or attorney, and when it is requisite that one should be appointed, the hushand generally

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appoints for both. Perhaps for her separate property she may, with her hushand, appoint an agent

or attorney but this seems to be doubted.

Principals are of two kinds,namely;

Principals in the first degree;are those who have actually with their own hands committed

the fact, or have committed it through an innocent agent incapable himself, of doing so; as an

example of the latter kind, may be mentioned the case of a person who incites a child wanting

discretion, or a person non compos, to the commission of murder, or any other crime, the incitor,

though absent, when the crime was committed, is, ex necessitate, liable for the acts of his agent

and is a principal in the first degree. It is not requisite that each of the principals should be

present at the entire transaction. For example, where several persons agree to forge an

instrument, and each performs some part of the forgery in pursuance of the common plan, each is

principal in the forgery, although one may be away when it is signed.

Principals in the second degree;are those who were present aiding and abetting the

commission of the fact. They are generally termed aiders and abettors, and sometimes,

improperly, accomplices. The presence which is required in order to make a man principal in the

second degree, need not be a strict actual, immediate presence, such a presence as would make

him an eye or ear witness of what passes, but may be a constructive presence. It must be such as

may be sufficient to afford aid and assistance to the principal in the first degree. It is evident

from the definition that to make a man a principal, he must be an actor in the commission of the

crime and, therefore, if a man happen merely to be present when a felony is committed without

taking any part in it-or aiding those who do, he will not, for that reason, be considered a

principal.

Rights of Principal

A principal has rights which he can enforce, and is liable to obligations which he must

perform. The rights against their agents, are;

a).To call them to an account at all times, in relation to the business of their agency.

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b).When the agent violates his obligations to his principal, either by exceeding his authority, or

by positive misconduct, or by mere negligence or omissions in the discharge of the functions of

his agency, or in any other manner, and any loss or damage falls on his principal, the latter will

be entitled to full indemnity.

c).The principal has a right to supersede his agent, where each may maintain a suit against a third

person, by suing in his own name; and he may, by his own intervention, intercept, suspend, or

extinguish the right of the agent under the contract.

d).The principal has the right to demand from the broker his best efforts, and that he should be

faithful and true to his employer, and exert every possible means and make the best possible

efforts to serve his principal most advantageously. The relationship of principal and broker is one

of trust and confidence, and from such relationship spring the rules governing the conduct of

persons standing in similar positions.

e).The principal's rights against third persons.When a contract is made by the agent with a third

person in the name of his principal, the latter may enforce it by action. But to this rule there are

some exceptions 1st. When the instrument is under seal, and it has been exclusively made

between the agent and the third person; as, for example, a charter party or bottomry bond iii this

case the principal cannot sue on it. When an exclusive credit is given to and by the agent, and

therefore the principal cannot be considered in any manner a party to the contract, although he

may have authorized it, and be entitled to all the benefits arising from it.

The case of a foreign factor, buying or selling goods, is an example of this kind: he is

treated as between himself and the other party, as the sole contractor, and the real principal

cannot sue or be sued on the contract. This, it has been well observed, is a general rule of

commercial law, founded upon the known usage of trade; and it is strictly adhered to for the

safety and convenience of foreign commerce. When the agent, has a lien or claim upon the

property bought or sold, or upon its proceeds, when it equals or exceeds the amount of its value.

Contracts are not unfrequently made without mentioning the name of the principal; in such

case he may avail himself of the agreement, for the contract will be treated as that of the

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principal, as well as of the agent. Third persons are also liable to the principal for any tort or

injury done to his property or rights in the course of the agency.

Liabilities Of Principal

Liabilities of principal to agent

The liabilities of the principal to his agent, are;

a).To reimburse him all expenses he may have lawfully incurred about the agency.

b). To pay him his commissions as agreed upon, or according to the usage of trade, except in

cases of gratuitous agency.

c). To indemnify the agent when he has sustained damages in consequence of the

principal's conduct; For example, when the agent has innocently sold the goods of a third

person, under the direction or authority of his principal, and a third person recovers damages

against the agent, the latter will be entitled to reimbursement from the principal.

Liabilities of the principal to third persons

They include;

a).To fulfil all the engagements made by the agent, for or in the name of the principal, and

which come within the scope of his authority; When a man stands by and permits another to

do an act in his name, his authority will be presumed.

b).The principal is liable to third persons for the misfeasance, negligence, or omission of

duty of his agent; but he has a remedy over against the agent, when the injury has occurred in

consequence of his misconduct or culpable neglect but the principal is not liable for torts

committed by the agent without authority. A principal is also liable for the misconduct of a sub-

agent, when retained by his direction, either express or implied.

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Between Principal and Third Person;One who delegates his affairs to lawyers, accountants,

and others, and who signs the documents his own agents have prepared for him, cannot escape

liability to a third party by claiming that the documents are not binding on him because he did

not read or understand them. Employer/bailee is also contractually liable for the negligence of

his employees in executing the bailment, since he cannot receive money for performing a duty

and at the same time escape liability for violating such duty by shifting the responsibility to an

employee. Under doctrine of respondeat superior, a bailee employer is vicariously liable for loss

or injury with respect to the bailed property which results from the negligence or wrongful acts

or omissions of his employees in executing the bailment within the course and scope of their

employment. A party who conducts a transaction with an agent is liable to a disclosed principal

to the same extent as if the principal had conducted the transaction. The relationship of master

and servant is a species of agency in which the principal may be liable for the torts of the agent.

Inherent in the power of agency, is the power of the agent to subject the principal to liability for

unauthorized conduct.

Between Principal and Independent Contractor;The employer of an independent

contractor is generally not liable for physical harm done by the contractor or the contractor's

employees; however, an employer is liable when he knows or has reason to know that, in the

ordinary course of doing the work in a usual or prescribed manner, the work is likely to result in

trespass. A garageman who had possession of a vehicle in order to repair it and who was outside

the direction or control of the owner was an "independent contractor" for whose negligence the

owner could not be held liable under a theory of agency or master/servant liability.

The general rule, that a principal cannot be charged with injuries committed by his agent

without his assent, admits of one exception, for reasons of policy. A sheriff is liable, even under

a penal statute, for all injurious acts, wilful or negligent, done by his appointed officers, colore

officii, when charged and deputed by him to execute the law. The sheriff is, therefore, liable

where his deputy wrongfully executes a writ or where he takes illegal fees.But the principal may

be liable for his agent's misconduct, when he has agreed, either expressly or by implication, to be

so liable.

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TERMINATION OF AGENCY

An agent's authority can be terminated at any time. If the trust between the agent and

principal has broken down, it is not reasonable to allow the principal to remain at risk in any

transactions that the agent might conclude during a period of notice.

As per sections 201 to 210 of the Indian Contract Act 1872, an agency may come to an end

in a variety of ways:

1. Withdrawal by the agent; However, the principal cannot revoke an agency coupled with

interest to the prejudice of such interest. An agency is coupled with interest when the agent

himself has an interest in the subject-matter of the agency, e.g., where the goods are

consigned by an upcountry constituent to a commission agent for sale, with poor to recoup

himself from the sale proceeds, the advances made by him to the principal against the

security of the goods; in such a case, the principal cannot revoke the agent’s authority till the

goods are actually sold, nor is the agency terminated by death or insanity (illustrations to

section 201);

2. By the agent renouncing the business of agency;

3. By the business of agency being completed;

4. By the principal being adjudicated insolvent (section 201).

The principal also cannot revoke the agent’s authority after it has been partly exercised, so

as to bind the principal (section 204), though he can always do so, before such authority has been

so exercised (section 203).

Further, as per section 205, if the agency is for a fixed period, the principal cannot terminate

the agency before the time expired, except for sufficient cause. If he does, he is liable to

compensate the agent for the loss caused to him thereby. The same rules apply where the agent,

renounces an agency for a fixed period. Notice in this connection that want of skill continuous

disobedience of lawful orders, and rude or insulting behavior has been held to be sufficient cause

for dismissal of an agent. Further, reasonable notice has to be given by one party to the other;

otherwise, damage resulting from want of such notice, will have to be paid (section 206). As per

section 207, the revocation or renunciation of an agency may be made expressly or impliedly by

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conduct. The termination does not take effect as regards the agent, till it becomes known to him

and as regards third party, till the termination is known to them (section 208).

When an agent’s authority is terminated, it operates as a termination of subagent also

(section 210).

This has become a more difficult area as states are not consistent on the nature of a

partnership. Some states opt for the partnership as no more than an aggregate of the natural

persons who have joined the firm. Others treat the partnership as a business entity and, like a

corporation, vest the partnership with a separate legal personality. Hence, for example, in

English law, a partner is the agent of the other partners whereas, in Scots law where there is a

separate personality, a partner is the agent of the partnership. This form of agency is inherent in

the status of a partner and does not arise out of a contract of agency with a principal.

The English Partnership Act 1890 provides that a partner who acts within the scope of his

actual authority (express or implied) will bind the partnership when he does anything in the

ordinary course of carrying on partnership business. Even if that implied authority has been

revoked or limited, the partner will have apparent authority unless the third party knows that the

authority has been compromised. Hence, if the partnership wishes to limit any partner's

authority, it must give express notice of the limitation to the world.

However, there would be little substantive difference if English law was amended:partners

will bind the partnership rather than their fellow partners individually. For these purposes, the

knowledge of the partner acting will be imputed to the other partners or the firm if a separate

personality. The other partners or the firm are the principal and third parties are entitled to

assume that the principal has been informed of all relevant information. This causes problems

when one partner acts fraudulently or negligently and causes loss to clients of the firm. In most

states, a distinction is drawn between knowledge of the firm's general business activities and the

confidential affairs as they affect one client. Thus, there is no imputation if the partner is acting

against the interests of the firm as a fraud. There is more likely to be liability in tort if the

partnership benefited by receiving fee income for the work negligently performed, even if only

as an aspect of the standard provisions of vicarious liability. Whether the injured party wishes to

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sue the partnership or the individual partners is usually a matter for the plaintiff since, in most

jurisdictions, their liability is joint and several.

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CHAPTER – 3

IMPORTANCE OF AGENCY IN BUSINESS LAW

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IMPORTANCE OF AGENCY IN BUSINESS LAW

The various importance of agency law in a business environment and at large include;

Agency law principles allow corporations to act; In an agency relationship, there is a

principal and an agent. The corporate business entity is a legal "thing." Once properly

setup, the corporation can act like an individual in a business setting: it can operate a

company, enter into contracts, conduct business transactions, sue and be sued.It is the

principal in the agency relationship. A corporation can only act through a board of

directors; the board is, in essence, the brains of the operation. The board can delegate

duties to officers or committees. In general, the board of directors and the officers of the

corporation are agents of the corporation.

Agency principles make corporations accountable for their actions; Whether or not

the actions are law abiding. In an agency relationship, the principal is accountable for the

actions of his agents if the agents are acting within the scope of the authority bestowed by

the agency relationship. If a director or officer of the corporation acts within his scope of

employment, the entire corporation is on the hook for those actions, unless an exception

applies.

Agents have certain duties to the principal. In a corporate setting, the board members owe

both a duty of care and loyalty to the organization. The board members must act based on

reliable information and any actions taken must generally be in the best interests of the

corporation. Under the "business judgment rule," the law favors a strong presumption that

the directors are acting reasonably and in the best interests of the corporation as the

corporation's agents.The business judgment rule helps protect the directors from being

sued for reasonable, but ultimately poor, decisions unless it can be shown that the director

was motivated by self-dealing or was acting on bad information.

Agency principles also help protect the shareholders of the corporation; The

shareholders are the actual owners of a corporation who may not necessarily be directors.

Because agency principles define how a corporation may conduct business through a

board of directors, non-director shareholders are not at risk for the actions of the agents.

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Non-director shareholders cannot generally be personally liable for the actions of the

board, unless an exception applies. Instead, the shareholders generally are at risk to lose

any investment into the corporation.

The other importance include;

Helps the managemnt professionals in realizing the business ethics,he or she must

follow,in order to run a proper authenticated business.,hence this must be in accordance

with laws and regulations prevailing in the society.

Its also crucial and necessary for every management student,whether he want to setup a

proper business, or willing to join a service as a manager.

It gives immense confidence in handling day to day business requirements to those who

know the legal aspects of business,since doing a proper business with an authenticated

business license and registration gives confidence.

Business case law studies are also important for those individuals, who want to run a

career in law agencies and consultancy firms. Taking the business case law studies, a

person is taught all the major aspects of the business laws and ethics. This provides the

individual, a chance to start a career as a legal advisor, or consultant for big budget

businesses and trade mechanism.

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CHAPTER – 4

CONCLUSIONS

41

CONCLUSIONS

The following conclusions are jotted down:

Its found that the law of Agency law plays a vital role in almost all areas of the

commercial law.

It is essential for an individual to follow the proper procedures/formalities when hiring an

agent and also while acting as an agent in any case,so as to avoid any complications and

some other misunderstandings in the future,Since, if it is subsequently found that the

alleged agent was acting without necessary authority, the agent will generally be held

liable.

Its also found that,the reciprocal rights and liabilities between a principal and an agent

reflect commercial and legal realities.

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BIBLIOGRAPHY

43

BIBLIOGRAPHY

Referred websites include;

www.wikipedia.com, data downloaded on march 10th 2011

Ezine articles,data downloaded on march 11th 2011

Lectlaw.com(the lectric law library),data downloaded on march 16th march 2011

Referred text books include;

Elements of Mercantile law by N.D. Kapoor

Business Law by M C Kachhal(Fifth Revised Edition)

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