Law of Agency

LAW OF AGENCY

Who is an Agent? [Sec-182]

A person employed to do any act for another, or to represent another in dealing with the third person - is an agent. [Sec – 182]

Example - 1: A asks B to go and sell 100 books to C.

Here, B is A’s agent – because A has employed B to create contractual relationship between A and C.

A is B’s Principal – because B has been employed by A to create contractual relationship between A and C. Example -2: Power of Attorney holder is an Agent acting on behalf of his Principal who constituted him – to act on his behalf, for his inability to act himself timely.

Principal defined. [Sec – 182]

Who is the Principal He is a person

– who appoints someone as his agent, or – who is represented by the Agent or – the person on behalf of whom an act is done lawfully by Agent employed for that purpose

In an agreement creating Agency, the parties are:- Principal and- Agent

Methods of Creating an Agency.

1. Agency may be created express, if it is expressed - in words written, or

- in words spoken [Sec-187]

2. Agency may be implied from- the conduct of the parties, or- Circumstances i.e. the nature of dealings

between them. [Sec-187]

Implied Agency may be of two (2) types:- Agency by Estoppel or Holding-out- Agency of Necessity

Agency by Estoppel or Holding-out

This type of Agency is -inferred from circumstances. When one Person has been, for sometime, in the

habit of representing another in certain dealings, then - the latter cannot deny that the former is his Agent.

Example: A’s wife W buys articles on A’s credit from the grocer G, and at the end of the month, A pays the bill. Repeatedly, this happened for about six (6) months by now. G can assume that W is A’s implied Agent by Estoppel or Holding-out.

In trading concern, there is a authority to borrow money, but in non-trading concern - there is no such authority.

Trading concern is one – in which goods are bought & sold in the usual course of Business.

Agency of Necessity At times, under the pressure of circumstances,

- one person, who is not really an agent, should act as an agent - in the name of another, and - according to the nature of the transaction.- The latter will be bound to accept that act.

The former is deemed agent of the latter. Hence, this is called the Agency of Necessity.

Example: When P entrusts his property to A, and A pays taxes on that property to preserve it, there might not have been an obligation on A to incur that expense, yet Law implies that authority on A.

Agency by RatificationIf an act done on behalf of Principal is an

unauthorised one, the Principal is not bound by such act of the Agent.

But, the Principal may decide to accept the unauthorised act of his Agent.

And, the adoption of the unauthorised act of the Agent by the Principal is called as ‘Ratification’.

Once the unauthorised act of the Agent is ratified, it binds the Principal.

An act of ratification always relates back to the earlier date. [Sec – 196]

Agency by Ratification - 2 Ratification may be expressed or implied in the

conduct of the person on whose behalf the acts are done. [Sec – 197]

No valid ratification can be made by a person – whose knowledge of the facts is materially defective, like minor, lunatic or non-existent person. [Sec – 198]

Example: It was held that a contract entered into on behalf of a company before its incorporation, cannot be ratified on its behalf before it comes into existence.

Agency by Ratification - 3 The person ratifying any unauthorised act

done on his behalf - ratifies the whole of the transaction, of which such act formed a part. [Sec-199]

If a third Party is placed at a disadvantage as a result of such ratification, such ratification shall be void. [Sec – 200]

Example: T holds a land on lease from P, terminable on three (3) months prior Notice. A, an unauthorised person gives Notice of Termination to T. The Notice cannot be ratified by P so as to be binding on T.

Three General Rules which govern ‘Agent-Principal Relationship’.

1. Whatever a person, competent to contract, – can do himself– may also get it done through his agent.

By implication: No agent can do - what his Principal can’t.

2. He who acts through an agent – is himself acting.

By implication: Acts of Agent are - the acts of his Principal. Thus they - Bind the Principal.

3. There is no consideration in a contract creating an agency.

Caution • The relationship between Agent – and – Principal should be distinguished from

Master – and – Servant. [Ref: Lakshiminarain Ram Gopal & Sons Ltd vs.

Government of Hyderabad (AIR 1954 SC 364]

The Test of Agency

The test of agency is 1. That the Principal must be in a position to

supervise the method of work of the agent, and2. The agent must be entitled to bind the principal

to third parties. Hence

1. An independent Contractor for construction work is not an agent since his Principal does not fulfill the first condition.

2. A servant employed at home for domestic services is not an agent as he cannot fulfull the second condition.

LAW OF AGENCY - 2 Who can appoint an Agent?

Any person who is1. of the age of majority, according to the law of which he is subject,

and 2. of sound mind – may employ an Agent.Thus a Minor cannot appoint an Agent.

Who can be appointed as an Agent? Any person can be appointed as an Agent

Examples: - a minor - a major,

- an unsound person - an unqualified person etc…

LAW OF AGENCY - 3 Competency of Principal is essential for -

the lawful appointment of an Agent. On the other hand, -

Agent himself may not be competent at all.

If that is the position of Law of Agency, what will be the consequences that fallow:

- when Agent is a minor, not a major?- when Agent is a major, but of unsound mind?- when Agent is a fully competent person?

Consequences that are likely to follow: If the Agent is – a minor

or – a person of unsound mind: Such an Agent is

Not personally responsible for anything done by him

No matter – whether he acted – within his authority or – exceeded his authority.

The Principal is liable for anything done by such Agent.

But, If the Agent is – competent, and – exceeded his powers/limits The Agent is personally responsible

– for the acts beyond his powers.

Sub-Agent and Substitute Agent

Sub-Agent defined: [Sec – 191]In the Business of Agency, a Sub-Agent is A Person - Employed by the Original Agent, and

- acting under the control of the Original Agent.

When can a sub-agent be appointed by an Agent:1. When express permission of the Principal has been obtained2. When appointment of sub-agent is the custom or usage of the trade 3. When nature of agency business makes such appointment

imperative4. When the work to be done by the sub-agent is of a routine type

requiring no special skills5. When due to an unanticipated emergency, such an appointment

becomes imperative. [Sec 189 & 190]

Sub-Agent and Substitute Agent - 2

Substitute-Agent : [Sec – 194 & 195]

The Principal authorises, expressly or impliedly, his agent to name some other person

The purpose of such other person is to do a particular thing in the business of the agency

The Agent has recommended some name to the Principal

The Principal appoints such person as Agent And, such an Agent is called a Substitute-Agent. He is not sub-agent because he has been

appointed by the Principal Such Substitute-Agent works under the Principal,

not under the Agent.

Different Types of Agents.

1. Broker: A Brokers is – a middle-man – who brings the buyer and seller together– on completion of the contract, he is entitled – to remuneration – in the form of commission, on the basis of – percentage of value of transaction.

2. Commission Agent: He is almost in the same position as brokers.3. Mercantile Agents: He is also called as Factors. He is in a better

position than the Broker - in the sense – that he has the possession of Goods; he buys and sells in the market on behalf of the Principal.

4. Del Credere Agent: He guarantees the payment of transaction amount upon the Principal’s promise to pay him extra remuneration.

Different Types of Agents - 2 5. Banker: The relationship between Banker and the

customer is that of Debtor and Creditor with the super added liability on the Banker to honour the cheques & drafts of the Customer.

6. Auctioneer: He is an Agent- appointed by the Seller - to sell goods by Public Auction - for a remuneration - in the form of Commission. He is entrusted with the Goods He has authority to delivery Goods against

Payment.

Termination of Agency

Agency may be terminated in the following ways: Under Section – 201

1. By the Principal’s Notice of Revocation2. By the Agent’s Notice of Renunciation3. By expiry of the Period of Agency4. Upon fulfillment of the Purpose of Agency5. On either party becoming insane6. On Principal becoming insolvent 7. On the death of either party8. Destruction of subject matter of Agency 9. On Principal becoming an alien enemy.

Termination of Agency - 2 Some Limitations and Restraints: 1. Agency cannot be terminated by Notice, when the Agent

has a Special Interest in it. [Sec-202] Example: A gives authority to B to sell his land and to pay

himself out of the sale proceeds, a sum of debt of Rs. 50,000/- due to B from A. A cannot revoke the authority given to his Agent B; nor can the Agency be terminated by his insanity or death.

2. Agency cannot be revoked after the Agent has exercised his authority to bind the Principal [Sec-203] But Agency can be revoked for Part of the work that remains unexecuted. [Sec-204]

Termination of Agency - 3 Some Limitations and Restraints: 3. If Agency is terminated without sufficient

cause, the party affected will be entitled to compensation. [Sec-205]

4. If there is an understanding that the Agency was made for a definite period, the Notice of termination must be reasonable in point of time. [Sec – 206]

5. Notice of termination may be - in writing or oral; it may be express or implied. [Sec-207]

Termination of Agency - 4

Some Limitations and Restraints:

6. Notice of termination of Agency takes effect - after it becomes known to the Agent;- after it is made known to third parties.

And, it will not take effect before. [Sec-208]

7. Termination of Agency or Agents authority - automatically terminates all authority of sub-agents. [Sec-210]