LAW OF AGENCY

Meaning & Definition of Agency

Section 182,
An agent is a person employed to do any
act for another or to represent another in
dealing with third persons. The person for
whom such act is done or who is so
represented, is called the principal
The person who delegates the authority is
known as principal.
To whom the power is delegated is known
as agent.
The relationship that is created is known
as agency.
A person who act in place of another
Agent
The person on whose behalf he acts -
Principal
Features of the contract of agency
Principal is answerable to third parties for
the acts of agent .
Consideration not necessary Section 185
of the act clearly lays down , No
consideration is necessary to create an
agency
Principal must be competent to employ an
agent Only a person who is competent
to contract can employ an agent. ( Major,
Sound Mind )

Agent may not have contractual capacity
A minor or a person of unsound mind may
act as an agent & bind the principal to the
third persons.
Test Of Agency
A person does not become an agent on
behalf of another merely because he gives
him advice in matters of business.
Every person who acts for another cannot
be agent. Cobbler mending shoes of a
man ,servant rendering services for us
are not agents.
To test whether a person is or not
an agent
The essential condition is that whether he
is clothed with a necessary authority by
another ( principal ) to bind him & make
him ( principal ) answerable to the third
persons & thus establishing a privity
contract between that third person & the
principal.
If this condition is satisfied then a person
is considered as an agent.
Classification of agents
Special Agents who is employed to do
some particular act or represent his
principal in some particular transaction. As
soon as the act is performed the authority
of agent comes to an end. E.g. An agent
engaged to sell a house.
General Agent who is employed to do all
such acts which are connected with the
business of trade of his employer. If
principal limits authority secretly, he
himself will be bound
Universal Agent is one who is employed
to all such act which a principal can
lawfully do & can delegate. Agent has
unlimited authority.
FROM THE POINT OF VIEW OF NATURE
OF WORK TO BE PERFORMED:
1. Factors is a mercantile agent to whom
the possession of goods are given for the
purpose of selling them. He usually sells
the goods in own name. He can exercise a
general right of lien on the goods
delivered to him for balance of payment if
any.
2. Auctioneer is an agent who is appointed
by the principal to sell the goods on his
behalf at a public auction for a reward in
form of commission. Eg reserve price
3. Broker is an agent appointed by the
principal for the purpose os selling or
buying goods on his behalf. He do not
have possession of goods nor he can
contract in his own name. He bring seller
& buyer together to bargain. He gets
commission ( brokerage ).
4. Commission Agent is a mercantile agent who
is employed to buy & sell goods for his principal
on best possible terms. He transact in his own
name. He is entitled to commission. He may or
may not have possession.
5. Del credere Agent is one who guarantees to
his principal, the performance of the financial
obligation by party with whom he enters into a
contract on principal behalf, in consideration of
an extra commission. He becomes surety &
become liable on the default of third party.
6. Banker act as a mercantile agent on behalf of
his customer when he collects cheques, drafts,
bills & pay insurance premium & buy or sell
securities.
Creation of Agency
By express agreement authority is given
to agent in written or by words of mouth.
He can bind the principal to the third
parties by his acts to the extent he is
delegated with the authority.
By implied agreement
1. Agency by Estoppel Where a person
permit another to act on his behalf.
Principal is estopped from denying his
agents authority.
E.g. A tell B in the presence of P that A is
the agent of P. P does not contradict the
statement. B enter into the contract with P
on the belief that A is Ps agent. In such
case P would be bound by the contract.
He is not the agent
He ceases to be an agent
2. Agency by holding out Some positive
conduct of the principal indicates that a
particular person is his agent.
P sends A to buy goods on credit from C.
A buys goods on credit for himself & refuses
to pay. C sue P. P cannot plead that A had
no authority.
3. Agency by necessity When an agency is
created by the circumstances. The
impossibility of getting the instructions
from the principal is the basis of creation
of agency by necessity.
E.G. X sent some horses to Y through a
railway company. But Y did not take the
delivery of the horses at the destination
with the result the railway company had
to feed the horses. Held, the railway co.
was an agent of necessity & could recover
the amount spent on feeding the horses.
4. Agency by ratification Ratification
means subsequent adoption or
acceptance by a person of an
unauthorized act done by another on his
behalf without any authority.
X buys 5 bags of wheat on behalf of Y
without his knowledge or authority. Y
would be bound by the contract, if he
ratify or accept the same.
It can be expressed or implied
Essentials of a valid ratification
1. Act must have been done as agent on behalf of
principal identifiable Only the person on whose
behalf the act is done can ratify it. If the agent
act in his own name, his act cannot be ratified
by any other person.
Case: Keighley maxeted & co. Duarnt X was
authorised by Y to buy wheat at certain price. X
exceeded his authority & purchased wheat from
Z at a higher price in his own name. He did not
profess to buy wheat on behalf of Y.
Subsequently Y ratified the act of X but later
refused to take delivery of the wheat. Z sue Y.
Held, the contract could not be ratified because
X did not purport to act as an agent of Y.
2. The principal must be in existence. Eg
company and promoters
3. The principal must be competent to ratify
the act must have contractual capacity.
A minor cannot ratify the contract a
contract on attaining the age of majority.
4. The principal must have the full
knowledge of all the material facts X
bought certain goods for Y at the price
greater than the market value in the name
of Y. Y ratified the transaction without
knowing the same ( high price ) . The
ratification is invalid.
5. The principal must ratify the whole
transaction.
6. Ratification must be made within
reasonable time.
7. Act to be ratified must not be void or
illegal.
8. Ratification must be communicated.
Duties of an agent
To follow principals directions An agent must
act within the scope of the authority conferred
on him. An agent was instructed to insure goods.
He failed to do so. The goods were destroyed.
He was held liable to the extent of loss.
To follow the customs in the absence of
instructions B, a broker, in whose business, it
is not the custom to sell on credit, sell goods of
A on credit to C, whose credit at the time was
very high. C, before payment, becomes
insolvent. B must make good the loss to A.
To conduct business with reasonable care
skill & diligence A, an agent for the sale
of goods, having authority to sell on
credit, sells to B on credit, without making
the proper & usual enquires as to the
solvency of B. B at the time of such sale,
is insolvent. A must make compensation of
his principal in respect of any loss thereby
sustained.
To keep & render accounts to principal
when demanded.
To communicate with principal.
Not to deal on his own account If an
agent wants to deal on his own account,
he must seek the consent of the principal
first & must acquaint him with all the
material facts. ( Purchase )
Not to make secret profits ( Bribe )
Agency is a fudiciary relation.
To pay sum received he can deduct his
remuneration & all expenses incurred in
conducting business.
Rights of an agent
Right of retainer The agent has a right
to retain, out of any sums received all
money due to him in respect of
remuneration, advance made, expenses
incurred in conducting business.
Right to receive remuneration if he has
completed his task. He is not entitled to
any remuneration for part transaction.
Right of lien he has right to exercise
particular lien over the goods, paper,
property until the amount due to him for
commission, expenses has been paid.

Duties & Rights of the Principal
To pay remuneration to agent
To recover compensation for breach of
duty by the agent
To forfeit agents remuneration where he
is guilty of misconduct
To receive any extra profit made by agent.
To enforce the various duties of the agent.
To receive all sums.
Termination of Agency
By act of parties:
1. By agreement mutual consent
2. By revocation of authority by the
principal The principal can revoke the
authority of an agent at any time before
the authority has been exercised as to
bind the principal.
3. By renunciation by the agent by giving
reasonable notice.
Termination by operation of law:
1. By performance of contract of agency.
2. By death of principal or agent.
3. By expiry of time where agency is for
fixed time period.
4. By insolvency of the principal.
5. By destruction of subject matter
agency was created to sell a house &
house destroys.
6. By becoming alien enemy where
principal & agent are from different
countries.
Irrevocable Agency
The agency which a principal cannot
revoke is known as irrevocable agency.
1. Where the agency is coupled with
interest A gives authority to B to sell
As land & to pay himself out of the
proceeds, the debt due to him from A. A
cannot revoke this authority.
2. Where the agent has incurred personal
liability Where the agent has bought
goods in his own name principal cannot
refuse to pay.
3. Where the authority has been exercised
party X authorizes Y to buy 10 bags of
wheat on his account. Y buys 10 bags of
wheat in the name of X. X cannot revoke
the authority.




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