Contract of Agency

IV th MODULE
BUSINESS LAW
 Contd..
• The law relating to agency is contained
in sections 182 to 238 of Contract Act.
• No person can do by himself all
activities of modern complex business.
• One cannot personally attend all the
matters.
• It has become highly essential to seek
the assistance of another or others.
• He can avail the assistance of another
either by way of employing him either
as his servant or agent.
 CONTD..
• Agency is a relation between two parties
created by an agreement express or implied.
• The contract of agency is a contract whereby
one person (agent) is engaged or employed
to do an act for and on behalf of another
(“principal”) or to bring that another person
into legal relationship with a third person.
• Principal – the person engaging or
employing another to do an act for him.
• Agent - The person so employed or
engaged to do an act for another.
 Contd..
• Section 182 defines agent and
principal.
• 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 an act is done, or who is
represented is called the “Principal”
 ESSENTIAL OF CONTRACT OF AGENCY
• There should be appointment by the principal of an
agent.
• The principal should confer authority on the agent to
act for him.
• The authority conferred should be such as will make
the principal answerable to third parties.
• The object of the appointment must be to establish
relationship between principal and third parties
• The relationship of agency being based on
confidence between the principal and agent, no
consideration is necessary.
 Contd..
• One can appoint an agent to do any
work which he can do in his right.
• This general rules has certain well-
known exceptions.
- 1. if the act has performed is of
personnel in character eg; In the
case of (marriage) –one cannot
appoint another to act for him.
- 2. if the act to be performed is
annexed to a public office. (eg., that
of a magistrate or police) - one
 CONTD..

• The law of agency is based on the

maxim
“ Qui facit per allium facit per se” –
which means “what a person does by
another, does it by himself”.
Section 226 of contract Act,
recognizes that the principal will be
bound by the contracts entered into by
the agent
- as if the contract had been entered
into by the principal in person.
• On the basis
KINDSof the
OFpurpose
AGENTSof forming
agency and also on the basis of duties and
powers of agents.
• Agents are classified into
1. General agents
2. Special agents
3. Universal agents
4. Commercial or mercantile agents
General Agents :
General Agents have full
authority to act in all matters concerning
a trade or profession.
 Contd..
• Special Agents: A special agent is appointed
for particular purpose and he has only
authority to act in a particular transaction.
Eg: An agent may be appointed to buy or
sell a house. As soon as a house is sold, or
purchased through his agent, his authority
comes to an end.
 Universal agents:
A universal agent is a person whose
authority is unlimited and he can do
anything for his principal, which is legal as
well as agreeable to the law of land.
 Contd..
• Commercial or Mercantile agents :
A mercantile agent is a person whose
authority either to sell goods or to consign
goods or to raise money on the security of
goods.
Mercantile agent classified into
1. Factor
2. Broker
3. Del Credere Agent
4. Agent coupled with interest
 CONTD..

• Factor : means an agent entrusted with the

possession of goods for the purpose or
selling them.
- He is mercantile agent whose ordinary
course of business is to dispose of goods
of which he is entrusted with the
possession or control by his principal.
 Broker :
- A broker is appointed to negotiate and
makes contracts for the sale or purchase
of property on behalf of his principal, but
not given possession of the goods.
 contd…

• Del Credere Agent :

- A Del credere agent is a mercantile agent.
- A Del Credere agent is one who in
consideration of extra remuneration called
the del credere Commission.
- Guarantees his principal that third person
with whom he enters into contract shall
perform their obligations.
- If failure on the part of the third person, the
del credere agent is bound to pay his
principal the sum owned by the third party.
 Contd..

• Agency coupled with interest :

- An agent is one who is engaged to do
some act for the principal
- Sometimes an agent may have an interest
in the property which forms the subject
matter of the agency.
- Then the agency called as agency coupled
with interest.
 Contd..
• Sub -Agent and substituted Agents :
- The contract of agency is of fiduciary in
nature.
- It is based on a confidence reposed by the
principal in the agent.
- An agent cannot delegate his powers or
duties to another without the consent of the
principal. This principal is expressed in the
maxim “ delegatus non protest delegare” - a
delegate cannot further delegate.
- This doctrine is that the authority given to an
agent is personnel and cannot be exercised
through another.
 Contd.

• Section 190 says that “ an agent cannot

lawfully appoint a sub agent to do acts
which he has undertaken personally.
• Certain exceptions:
- If the custom or trade permits the
appointment of sub agent.
- If the nature of work is such that further
delegation is essential.
 Sub agent :
• Section defines sub agent.
• Sub agent is a person employed by, and acting
under the control of, the original agent in the
business of the agency.
• A sub agent may be classified as
1. Properly appointed sub agent.
2. Improperly appointed sub agent.
 Substituted agent:
• A co-agent or a substituted agent is a person
who is appointed by the agent to act for the
principal in the business of agency with the
consent of the principal.
• A substituted agent under the control of
principal
• Section 194 defines
• In this kind of agency, the agents duty
ended when he has named.
• The agent does not delegate any part of his
task to a substituted agent, even though he
appointed substituted agent.
 Modes of creation of agency:
• Agency may classified into
1. Express agreement
2. Implied agreement
3. Ratification
4. Operation of law
 Contd..
• Implied agency: classified into
1. Agency by Estoppel
2. Agency by Necessity
3. Agency by holding out
Agency by Estoppel:
 section 237 deals with agency by estoppel.
 Estoppel is a rule of evidence. If a person
by his conduct or by words spoken or
written induces another person to believe
that a certain person is his agent, he is
estopped from denying subsequently the
fact of agency.
 Contd..
• Estoppel means to prevent a person
from denying a fact.
Agency by holding Out:
 Agency by holding out is a branch of
agency by estoppel. In the case of agency
by holding out the prior positive act on the
part of the principal is necessary to
establish agency subsequently.
 Agency by necessity :
 Because of necessity the law confers an
authority on a person to act as an agent
for another without the consent of that
other person. Such an agency is called as
 Contd..
• Agency by Ratification:
- A person may act on behalf of another without
his knowledge or consent.
- Ratification may be express or implied
- Ratification may be express or implied in the
conduct of the person on whose behalf the acts
are done.
- Section 197 of the contract act.
- Eg:
A, without authority, buys goods for P,
afterwards P sells them to T on his own
account. P’s conduct implies a ratification of the
purchase made for him by A.
ESSENTIALS OF VALID RATIFICATION
• The agent must purport to act as agent for a principal
who is in contemplation. The agent must contract as
agent at the time of the contract on behalf of an
identifiable principal.
• The principal must be in existence at the time of the
contract.
• The principal must have a contractual capacity at the
time of the contract and at the time of ratification
• Ratification must be with full knowledge of facts.
• Ratification must be done within a reasonable time
• The act to be ratified must be lawful and not void.
 Rights and duties of agent and principal
• Duties of Agent
1. Duty to follow instructions: to follow the
instructions of principal strictly. (Section 211)
2. Duty to follow customs in the absence of
instructions: ( section 211)
3. Duty to exercise skill and diligence.
(Section 212)
4. Duty to render account ( sec 213)
5. Duty to communicate (sec 214)
6. Duty not to deal on his own account (sec
215 and 216)
 Contd..

7.Duty to remit all money. Section 218

8.Duty not to make secret profit.
9.Duty to protect and preserve
10.Duty not to set up adverse title.
11.Duty not to delegate authority.
 RIGHTS OF AN AGENT:
• Right to remuneration
• Right to retainer
• Right of lien
• Right to be indemnified against the consequences of
lawful acts
• Right to be indemnified against the consequences of
facts done in good faith.
• Right to compensation
 Rights and Duties of principal
• When the agents acts within scope of his
authority. (Section 226)
• When the agent exceeds his authority.
Sections 227 & 228
• Principal bound by notice given to agent.
Section 229
• Liability of principal by estoppel. Section 237
• Liability for misrepresentation or fraud by an
agent. Section 238
 Agents liability to third parties:
• Where an agent acts for a foreign principal
• Where the agent acts for an undisclosed principal
• When the agent acts for a disclosed principal who
cannot sued.
• Where the agent’s authority is coupled with interest.
• Where an agent receives or pays money by mistake or
fraud
• Where the agent signs the negotiable instruments in his
own name.
• Where the agent exceeds his authority.
• Where the contract expressly provides.
 Contd..
• Where an agent acts for a non-existing
principal.
• Where according to trade usage agent is
personally liable.
 Termination of agency
• By the act of parties
• By the operation of law.
1. By the act of parties
 By the agreement between the parties
 By revocation of authority by the principal
 By renunciation by the agent.
2. By the operation of law.
 By the completion of the business of agency.
 By the death or insanity of the principal or agent
 By the lapse of time
 Contd..

• By the insolvency of principal

• By the destruction of the subject matter
• By subsequent event rendering the agency
unlawful
• By dissolution of company