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Law of Agency

COMPANY LAW | LAW OF AGENCY | LAW OF CONTRACTS | PARTNERSHIP | SALE OF GOODS

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I. DEFINITIONS

1. Define Agency.explain its features.

In law, the term agency is used to connote the relation that exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal and third parties.

The relation of agency arises whenever one person called the agent, has authority to act on behalf of another called the principal and consents to act. The contract of agency may be in writing under seal (i.e, a power of attorney) or it may be a simple writing or it may be an oral agreement.

2. Define an agent ?

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 a Principal. Any person who is of age of majority according to the law to which he is subject and is of sound mind can employ an agent.

Thus an agent is one-
a)who is employed by another (Principal)
b)to do any act for another (Principal)
c)to represent another (Principal) in dealings with third persons.

3. Distinguish between an agent & a servant.

AGENT and SERVANT

1. An agent has the authority to act on behalf of his principal and to create contractual obligations between the principal and a third party.
1.A servant does not enjoy the power to create contractual obligations between the principal and a third party.

2. A principal has the right to direct what the agent has to do.
2. But a master has not only the right but also the right to say how it is to be done.

3. An agent, though bound to exercise his authority in accordance with all lawful instructions, is not subject to direct control or supervision of the principal.
3. A servant acts under the direct control and supervision of his master and is bound to confirm to all reasonable orders given to him in the course of his work.

4. An agent receives commission on basis of work done.
4. A servant is paid by way of salary or wages. It does not depend on the work done.

5. A principal is liable for agents wrong, done within the scope of authority.
5. A master is liable for a wrongful act of his servant if it is committed during the course of the servants employment.

6. An agent may work for several principals at the same time.
6. A servant usually serves only one master at a time.

7. The agent offers & accepts new proposals from the third parties on behalf of his principal and thus new legal relations are created in law of agency.
7. A servant cannot create such legal relations.

8. In a contract of agency, there are three parties-principal, agent and third parties.
8. In a contract of employment there are only two parties-master & servant.

4. Distinguish between an agent & a Bailee.

AGENT and BAILEE

1. An agent is a representative with a power to contract on behalf of his principal.
1. A bailee has no such power.

2. But this is not necessary for subsistence of agency relationship.
2. The relationship between a bailor and a bailee subsists only so long as the bailee holds some goods belonging to the bailor.

3. In a contract of agency, there are three parties-principal, agent and third parties.
3. In a contract of bailment there are only two parties-bailor & bailee.

4. An agent is appointed to do several works including services, bailment, representation, supervision, selling or purchasing etc.
4. A bailee is appointed to certain goods that appear physically for a specified person.

5. Who is a Special Agent?

A special agent is one has been authorized to do a single act such as a broker employed to sell a particular house.

6. Who is a General Agent?

A General Agent is one who is authorized to do all acts connected with a particular trade, employment or business. E.g. the manager of a firm whose authority extends to doing everything concerned with business of the firm.

7. Who is a Co-agent?

When two or more persons are employed jointly and/or severally, they are called co-agents.

8. What is a del-credere agent?

Ans: He is a commission agent with the authority to sell the goods at his own risks and deals with buying and selling of goods on behalf of the Principal. He may not have goods or documents of title thereof with him. He is given extra-commission for assuring the risk of bad debts.

II. KINDS OF AGENTS & THEIR RESPONSIBILITIES

1. What are the various kinds of agents and what are their responsibilities?

Agents are usually of two kinds Mercantile and Non-Mercantile.

a) The following are the different kinds of Mercantile Agents:
Broker: A Broker is an mercantile agent who has been appointed to negotiate and enter into a contract for sale or purchase of goods while the possession and control of the goods is with his principal.
Factor: A factor is a mercantile Agent who has the authority to sell or dispose goods which are in his possession.
Auctioneer: An Auctioneer is a mercantile agent who sells goods by way of public offer to the highest bidder for the Principal.
Del Credere: A Del Credere mercantile agent is one who establishes contract between his principal and a third party. Here the mercantile agent also guarantees to the principal the performance of the contract by the third party. A Del Credere is not liable to the third party for an act of default by the principal.
Commission Agent: A Commission mercantile agent is one who is appointed by his principal to purchase goods in the market on behalf of the principal for which a commission is charged by the agent.
Commission Agents are of two kinds :
a.Kuchha Arhatya: He is similar to a broker. He brings the buyer and the seller together so that they can negotiate and then collects a brokerage from the contract made.
b.Pakka Arhatya: Sells or purchases goods in his name without disclosing the name of the principal.

b) Non-Mercantile Agents are agents who represent their principals in transactions which do not deal in sale or purchase of the goods. Examples. (i) A Secretary of a Company deals with third parties while representing the Company or (ii) a lawyer representing his client in a Court.

2. Explain how an agency is created?

Ans: a. Agency by direct or express appointment. Eg A by writing, appoints B as his agent.
b.Agency by implication.
c.Agency by Estoppel.
d.Agency by necessity.
e.Agency by ratification.

3. What procedure should be followed for appointing an agent?

There is no hard and fast rule for appointment of a person to be an agent.
Agency may be either expressed or implied.
Appointment of agency may be made :

by direct or express appointment in writing or orally i.e. specific words are used to state that an agent has been appointed.. Eg. A by writing, appoints B as his agent.
by inferring agency in the circumstances of the case. Such appointment is called Implied appointment. Thus as agency is implied when it is to be inferred from the circumstances of the case of the ordinary course of dealings.

Agency may be implied by :

estoppel or holding out : When a person acts in such a way that the agent is placed in a situation where a person of ordinary prudence believes that the agent has the authority to perform a particular act and therefore deals with the agent, then the agent is said to have been appointed by estoppel or holding out.

necessity : A relationship which arises out of a situation where the agent has done something and the principal has not protested, it is understood as an appointment out of necessity. Example. A sees a person who has been injured in an accident and A takes him to a hospital and gets him admitted. A acts as the agent of that person even though he has not appointed A or hired A's services.

ratification: When the agent does something on behalf of another without his authority and that person agrees to it instead of protesting, it is understood that the agent has been appointed as an agent by ratification. (Ratification means affirmation or agreeing to action of another.)

4. What is meant by agency by Estoppel?

Ans: Agency by estoppel means that an agency that is implied for quite sometime cannot be estopped from denying it. This is known as agency by Estoppel. For e.g. X buys goods on behalf of Y for quite sometime without expressed orders and Y has been accepting the acts of x as an implied agent. Y cannot deny his agency with X later.

5. Why an agent is appointed?

Ans: An agent can be appointed for the following reasons:
a.The appointer does not possess the required skill or intelligence to do the work.
b.The appointer does not have adequate confidence in doing the work by himself.
c.The appointer wants the work done by delegating the authority to do the work.

6. Explain the duties of an agent to his principal.

Ans: The duties of an agent are:
a.Duty to act according to directions or customs of trade. [Sec. 211]
b.Duty to act with reasonable care and skill. [Sec. 212]
c.Duty to render accounts. [Sec. 213]
d.Duty to communicate with the Principal and obtain his instructions. [Sec. 214]
e.Duty to obtain Principals consent in personal dealings. [Sec. 215]
f.Duty to disclose all material circumstances. [Sec. 216]
g.Duty to remit sums. [Sec. 217 & Sec. 218]
h.Duty to protect and preserve the interest continued to him. [Sec. 219]
i.Duty not to delegate. [Sec. 190]

7. What authority does an agent have and what are the various kinds of authority that may be given to an agent?

An agent has the authority to bind his principal to all the obligations that arise out of contracts entered into by the agent on his (principals) behalf provided that agents acts are within the scope of his (agents) authority.

The various kinds of authority are :

i)Actual authority : When the principal expressly or impliedly authorises him to do something for him. Example: Express authority is when a power of attorney is executed in favour of the agent.

ii)Implied authority : When the agent is placed in situation such that third parties deal with him thinking that they are dealing with the principal. The agents authority in such situations depends on the nature of business, usual trade customs and other things which are incidental to the business. e.g. if A is looking after a shop for his principal whatever A does while selling or buying goods for the shop it will be deemed to be acts of his principal.

iii)Apparent authority : This is also known as ostensible authority. Here the agents authority arises from the position that he has been placed in. Example - if A have been appointed as a Director of a Company it means that A has the authority to do certain acts to represent a that Company.

8. What is the effect of exercising the authority of the agent ?

The principal is normally bound by all the acts of the agent. However, if the agent exercises his authority beyond his scope, then, the principal will not be liable for such acts done by the agent beyond the scope of his authority.

In a situation where the agent has partially acted within the scope of his authority and outside his scope and such acts can be separated, then, the principal's liability will be limited to acts of the agent which were within the scope of his authority. Example - A had authority to sell 100 mangoes on behalf of his principal. But, A sells 200 mangoes. His principal will be bound to the extent of 100 mangoes that A has sold and not for the balance 100 mangoes.

9. What are the liabilities of an agent ?

They are :
when he acts as an agent in a contract of sale or purchase of goods to a principal who is a foreigner.
If he does not disclose the name of the principal
If he acts as an agent to a principal who cannot be sued. Example. acting for a minor.
If he pretends to be the agent of a person who does not ratify his acts.
If he exceeds his authority or represents to have the authority which he does not have.
He has entered into a contract with his principal stating that he will be liable.

10. What are the rights of an agent against his principal?

An agent has following rights against his principal:

a.Right to remuneration-every agent is entitled to agreed remuneration. If there is no agreement, he is entitled to a reasonable remuneration. An agent guilty of misconduct in the business of agency is not entitled to remuneration.

b.Right of retainer-the agent has the right to retain his principals money until his claims, if any, in respect of remuneration or advances made or expenses incurred while conducting the business of agency are paid.

c.Right of lien : the agent has the right to retain goods, papers and other property (movable or immovable) of the principal received by him, until the amount due to himself to commission, disbursements and services or any other payment due to the agent from the principal is made. The condition of lien are:
i)The agent being lawfully entitled to receive money in respect of his business of agency from the principal.
ii)He is in possession of the property, which has come to him because of his being an agent, and the property belongs to the principal.
iii)He is exercising his right of lien on the particular property in respect of which his dues have to be settled.

d.Right to indemnity-the agent has the right to indemnity that extends to all losses and expenses incurred by the agent during the course of business of agency.

e.Right to compensation the agent has the right to be compensated for any injury that the agent suffers due to the negligence of the principal or lack of skill of the principal.

11. Can an agent delegate his authority as an agent to another person & what is the effect of such delegation ?

As an appointment of an agent is due to the trust and confidence his principal has in him, usually the agent cannot delegate his authority to another person.
He may however appoint another and delegate his authority if it is normal in the trade that he is placed, or if his contract of agency permits it. His sub-agent should be under the control of the agent who appointed him.

Delegation may be divided into two categories :
i)Proper delegation and
ii)Improper delegation

Delegation is said to be proper when-
the appointment of delegation is necessary to execute the work
it is custom to delegate
the acts of delegation is of ministerial or clerical work ; and
when the principal by implication or expressly agrees to the appointment
In such situations the principal is bound by the acts of the sub-agent to the third parties. An agent who appoints sub-agents is responsible to the principal for the acts of the sub-agent. The sub-agent is responsible to the agent i.e. the person who has appointed him for his acts and not to the principal unless the it is an act of fraud or wrong.

If the appointment is improper, the principal will not be bound by such appointment and will therefore not be liable for the acts of the sub-agent. The sub-agent in turn will not be liable to the principal but the agent will be responsible to the principal for any act of the sub-agent. The agent will also be responsible to third parties for the acts of the sub-agent.

12. What are the rights as a principal ?

A principal has the right to :
Take back (Revoke) the agency before the expiry of the agency period provided that reasonable notice of intention to do so or adequate compensation for such premature revocation is given.
Cancel or repudiate the agency if the principal realises that his agent has without obtaining his consent runs a business which is in competition with the principals.
The principal can cancel the agency provided :
his agent dishonestly concealed such information from the principal and
the acts of the agent caused loss to principal.
his agent has earned a secret profit from business.

13. What are the liabilities of a principal ?

The liabilities as a principal may be divide into two categories,
a) When the principal is named then:
He will be liable to third parties for all acts of his agent as if he had entered into the contract himself. If his agent has acted outside the agents authority the principals liability will be limited to the extent of act which are done which are within his authority.
It will also be understood that all notices or information given to the agent is given to the principal.
Be liable for all misrepresentations or fraud committed by his agent in the course of his business. If the act of misrepresentation of fraud is outside the scope of his authority , the principal will not be liable for it.

b) If the principal is an unnamed then his liability will be :

To all acts of his agent which are done within the agents authority provided the agent discloses the principals existence but does not name the principal. If the agent does not disclose the principals existence or that he is the principals representative then, he will be personally be bound the contract since he would have entered into a contract in his own name.

But, the principal has the right to :
sue a third party for performance of the contract. In such cases the third party shall have the same right against the principal as he has against the agent.
The third party in such cases will also have the right to cancel the contract provided he can prove that he would not have contracted if he had known the principal.

III. CONTRACT OF AGENCY

1. Define the contract of agency.

Ans: Sec. 182 of the Law of Agency defines agency as a legal relationship in which one person acts for or represents another for latters authority.
Cheshire and Fitfoot define it as Agency is a comprehensive word that describes the relation that arises when one person is appointed to represent another.

2. Explain the rights of a Principal under an agency contract.

Ans: The following are the rights of a Principal under an agency contract:
a.To recover damages.
b.To obtain an account of secret profits and recover them and resist a claim for remuneration.
c.To resist the agents claim for indemnity against liability incurred.

3. Explain agency by ratification.

Ans: If an agent enters into a contract without the authority of the principal, subsequently the principal may ratify or adopt the benefit and liabilities of the contract made o his behalf. Ratification may be expressed or implied.

4. What are the requisites of a valid ratification in a contract of agency?

The requisites of a valid ratification in a contract of agency:
a.The agent must act as an agent to the Principal.
b.The principal must have contractual capacity both at the time of the contract and at the time of ratification.
c.The Principal must be in existence at the time of the contract.
d.Ratification must be with full knowledge of facts.
e.The act to be ratified must be lawful and not void or illegal or ultravires in the case of a company.
f.The whole transaction must be ratified.
g.Ratification should not cause any damage to a third-party.
h.Ratification should be communicated to the party who is sought to be bound by the act done by the agent.

IV. SUB-AGENT & SUBSTITUTED AGENT

1. Who is a sub-agent?

According to a Section 191 of the Law of Agency, a sub-agent is a person employed by and acting under the control of the original agent in the business of agency. He is bound by, and responsible for his acts to the Principal.

2. Who is a Substituted agent?

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 business of agency as is entrusted to him is called a Substituted Agent.

3. Distinguish between a sub-agent and a substituted agent.

SUB-AGENT SUBSTITUTED AGENT
1. A sub-agent does his work under the control of the agent
1. A substituted-agent works under the instructions of the Principal.

2. The sub-agent is immediately responsible to the agent.
2. The substituted agent is directly answerable to the Principal.

3. There is no privy of contract between a sub-agent and the Principal
3. There is privy of contract between a substituted agent and the Principal.

4. If the original contract of agency ceases, automatically sub-agency also ceases.
4. Even if the original contract between the principal and agent ceases, the relationship between the principal and substituted agent may continue.

5. A sub-agent cannot sue the principal and the principal cannot sue the sub-agent.
5. A substituted-agent can sue the principal and the principal can sue the substituted-agent for breach of contract.

6. A sub-agent is the agent of the agent
6. A substituted agent is the agent of the principal.

4. What are the consequences of appointment of a Sub-agent?

The sub-agent is appointed by an agent who is empowered to do so. The sub-agent ahs to perform the functions undertaken by the agent for the principal. The agent is responsible for sub-agents conduct.

a) Where a sub-agent is appointed according to implied and express provisions of law, it is called Proper Delegation:
With regard to third persons, the principal is represented by the sub-agent and the sub-agent in this case, is bound by and responsible for his acts as if he were an agent originally appointed by the principal.
The agent is responsible to the principal for the acts of the sub-agent.
The sub-agent is not directly liable to the principal, except for fraud and willful wrong.

b) Improper Delegation: In this case an agent, without having authority to do so, has appointed a person to act as a sub-agent. The principal will not be bound by such appointment and will therefore not be liable for the acts of the sub-agent. The sub-agent in turn will not be liable to the principal but the agent will be responsible to the principal for any act of the sub-agent. The agent will also be responsible to third parties for the acts of the sub-agent.

V. TERMINATION OF AN AGENCY

1. When and how can an agency be terminated ?

Agency may be terminated when :
i)The business of agency completed.
ii)Either the principal or the agent becomes insane or dies.
iii)The principal becomes insolvent.
iv)An agent renounces the contract of agency and terminates it. In such cases notice of renunciation should be given to the principal failing which the agent will be liable to compensate the principal for any loss or damage.
v)An agency is deemed terminated to a third party when they come to know of it.

Therefore an agency is terminated due to the following reasons:

a.By the act of parties:
i)By agreement.
ii)Revocation by Principal.
iii)Revocation by the Agent.

b.By the operation of law.
i.Performance (Completion) of the Contract.
ii.Expiry of time.
iii.Incapacity of the parties.
iv.Impossibility of performance.

2. What happens when an agency is terminated?

An agency gets terminated when any of the events stated in Q.1 occur. If the agency is terminated due to the death or insanity of the principal then an agent is bound to protect the principal's interest. All sub-agents also in such cases get automatically terminated.

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