LAW OF AGENCY

Why agency is to be created?

Today the business is full of complexities and

the modern businessman is not in a position to
go and attend personally in all matters which is
necessary to him so he must depend on
services of other persons in order to run his
day to day business affairs such persons are
called agents

Definition of agent and principal

An agent is a person employed to do any act for
another or to represent another in dealings with
third parties.
The person for whom such act is done or who is so
represented is called the principal .
E.G- A appoint B to buy 100 bales of cotton on his
behalf .A is the principal and B is the agent . The
relationship between A and B is called agency
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Essentials of relationship of agency

1.Agreement between the principal and agent
2.Intention of the agent to act on behalf of the
principal

Who can employ an agent?

Any person may become an agent .In other words
even minor can become an agent .But the minor agent
will not be responsible to his principal .Thus if an
agent is to be held liable to his principal ,he must be a
major and is of sound mind (sec184)

Who may be a principal?

Any person who is of age of majority and is of
sound mind can become principal(sec 183)
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Distinction between agent and

servant

Agent

servant

1.He has authority to act

No authority to act
2.He receives commission
The servant is paid
wages
3. principal is liable for the
Master is liable for the
agent's act.
servants Act.
4. principal has right to what
Master has right to what is
to
be done
is to be done and how it is to
be done.
5. Agent may work for many Servant usually serves only
principalsOne master

Creation of an agency
Agency is the legal relationship which
exists between an agent and his principal,
to
bring
the
principal
into
legal
relationship with third parties.
Methods to create an agency
1.Agency by express agreement.
2.Agency by implied agreement.
(a)agency by estoppel
(b)agency by holding out.
(c) agency by necessity
3.Agency by ratification
4.Agency by operation of law
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1.Agency by express agreement

Agreement may be written or oral.
It is usual in many cases to appoint agents by
executing formal power of attorney on a written and
stamped
The power of attorney may be general
(empowers the agent to represent the principal
generally)and special( authorizes the agent only to
do particular transaction) .

2.Agency by implied agreement

It may be implied under certain circumstances
from the conduct of the parties or the relationship
between them (e.g) partners,wives
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(a)Agency by estoppel
Where the principal by his conduct or statement
wilfully induces another person to believe that a
certain person is his agent, he is subsequently
prevented or estopped from denying the fact of
agency
(e.g) A tells B within hearing of C that he is the
agent of C, C doesnot object to this statement of A.
later on B supplies certain goods to A. Now C is
liable to pay the price to B.

(b)Agency by holding out

In this case a prior and positive affirmation
act on the principal is required to establish agency
subsequently.
(e.g)P allows his servant habitually to
purchase goods from a local dealer and pays them.
one day he terminated from the services with out
the notice to the dealer .The servant purchased
goods worth Rs200 from the same dealer on
credit .P liable to pay the amount to local dealer .

(c) Agency by necessity

In certain circumstances law confers
authority upon a person to act as agent for another
without requiring the consent of that other person
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3) Agency by ratification(expost facto

agency)
An agent may act on behalf of the principal either with or
with his authority .Acts performed by an agent beyond the
scope of his authority are not binding upon the principal.
However the principal may in such a case either adopt or
reject the act of the agent
e.g-A buys 5 bags of rice on behalf of B.B did not appoint
A as his agent .B may upon hearing of the transaction
,accept it or reject it ,If B accepts it,the act is ratified and
A becomes his agent .
4.Agency by operation of law
Sometimes agency created by operation of law. When a
company is first formed ,its promoters are its agents by
operation of law. Similarly partners act as agent in
partnership concern
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Definition of ratification;
Ratification
is
an
approval
a
previous
unauthorized act or contract. It is thus a kind
affirmation of unauthorized acts.
Section 196 of the contract act provides that
where acts are done by one person on behalf of
another ,but without his knowledge authority ,he
may elect to ratify or to disown such acts. If he
ratifies them ,the same effects will follow as if they
had been performed by his authority
William vs north china insurance company
In this case, an agent insured the goods of the
principal without authority. Later the principal ratified
his agents act of insurance .The parties were bound
by the contract.
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Essentials of valid ratification

1.Agent must act in behalf of the principal
The act must be done in the name of the
principal. If the agent acts in his own name
ratification does not become valid.
2.Principal must be in existence
The principal must be existence at the time when
the act was done .A contract cannot be ratified if the
principal does not in existence.
3.Contractual capacity of the principal
The principal must have contractual capacity at
the time of making the contract and also at the time
of the contract.
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4.Void acts
An act which is void from the very beginning
cannot be ratified .
e.g- payment of dividend out of capital is void
and cannot be ratified.
5.Legal acts
The act to be ratified must be legal and lawful.It
must not be unlawful and criminal.
E.g-forgery cannot be ratified because it is a
crime.
6.No partial ratification
Ratification must relate to the whole act or
transaction and not the part of it. There cannot be
partial ratification and partial rejection.
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7.Full knowledge of material facts

No valid ratification can be made by a person
whose knowledge of facts of the case is materially
defective.
(e.g.) A has an authority from P to buy certain goods at
the market rate. He buys at a higher rate but P
accepts the purchase. Afterwards P comes to know
that the goods purchased by A for P belonged to A
himself. The ratification is not binding on P.
8.Reasonable time
Ratification must be made within a reasonable
time after the original contract is made.
9.Communication
Ratification must be communicated within a
reasonable time. Uncommunicated ratification is not
valid.
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10.Power of the principal to ratify

Ratification can be made of those acts alone
which the principal had the power to do.
(e.g) A company cannot ratify the acts of the
directors which are ultra vires the powers of the
company.
11.Third parties right
Ratification must not cause loss to a third party.
An act which puts the third party to damage cannot
be ratified
(e.g) A gave his house to B on a lease terminable
by a 3months notice. X was his agent to collect
rents. X gave a 3 months notice to B on behalf of A
terminating the lease. Later A ratified it. Held that
the ratification was not valid as the notice of
termination was prejudicial to B
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12. Nature of ratification

It may be expressed or implied.

Classification of agents
A general classification of agents from the point
of view of the extent of their authority
1.Special agent- who is appointed to perform a
particular act or to represent his principal in some
particular transaction.
2.general agent- who has authority to do all acts
connected with a particular trade,business or
employment.
3.universal agent-whose authority to act for the
principal is unlimited. He has authority to act
provided(i)is legal and(ii) agreeable to law of the
land
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Another classification from the point of

view of the nature of work performed by
them as follows
1.Mercantile agent
according to sec 2(9) of the sale of goods act 1930
means a mercantile agent having in the customary
course of business as such agent, authority either to
sell goods ,or to consign goods for the purpose of sale
or to buy goods or to raise money on the security of
goods . This definition does not cover all kinds of
mercantile agents are as follows
(a) factor entrusted with the possession of goods for
the purpose of selling them .
(b) auctioneer-an agent is appointed by a seller to sell
his goods by public auction for a reward generally in
the form of commission
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(c) Broker an agent who is appointed to buy and sell

goods on behalf of another .He is not entrusted with

the possession of the goods which he deals .
(d) Commission agent- an agent is appointed to buy and
sell the goods or transact business generally for other
persons receiving for his labour and trouble a money
payment called commission
(e)Del credere agent-One who is consideration of an
extra commission guarantees his principal that the
persons with whom he enters in to contract on behalf
of the principal ,shall perform their legal obligations.
2. Banker
The relationship between banker and customer is
really a debtor and creditor
3.Non mercantile agents-attorneys, insurance, agents,
wife
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Rights and duties of principal

Rights of principal
1.To recover damages
2.To obtain an account of secret profits and recover them and
resist a claim.
3.To resist agents claim for indemnity against liability
incurred .

Duties of principal
1.To indemnify the agent against the consequences of all lawful
acts.
2.To indemnify the agent against the consequences of acts
done in good faith
3. To indemnify agent for injury caused by principals neglect
4.To pay the agent the commission or other remuneration
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Rights and duties of agent

Rights of an agent

1.Right to receive remuneration.

2.Right of retained-Principals money
3.Right of lien-Retain goods of principal.
4.Right of indemnification-compensate against consequences of all lawful
acts done by the principal.
5.Right to receive compensation.- For any injuries caused by the principal.

Duties of an agent
1.To act according to principals directions.
2.To act with reasonable skill and diligence.
3.To render accounts to the principal.
4.To communicate with the principal.
5. Not to deal on his account.
6. Not to make secret profits from agency.
7.To pay sums received for the principal.
8. Not to disclose confidential matters.
9.Not to setup adverse title.
10.Not to delegate authority.

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Termination of agency
Section 201 of the contract act lays down the various
modes in which the authority of the agent mat be
terminated .
The different ways in which agent is terminated
(a) By the act of the parties
A contract of agency may come to an end either on account of the
act of the principal or agent or both. Thus agency may be
terminated by the act of the parties in the following cases:

1) By the agreement between the parties

The agency may be terminated at any stage by mutual agreement
between principal and agent

2)By revocation of the principal

The principal may revoke an agency at anytime by giving a notice
an agent.(sec 207).
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3.By renunciation of business by the agent

section 201 of the act empowers the agent to
renounce his authority .After giving reasonable notice
to the principal ,may renounce the business of agency.
In case of premature renunciation ,the agent will be
liable in damages to the principal.
B)By operation of law
(a) By completion of the agency business
When the business of agency gets completed the
agency comes to an end
(e.g) when the lawyer is appointed to plead in a suit
his authority comes to end with the judgement.
(b)By the expiry of time
When the agent is appointed for a fixed period of time
,the agency comes to end after the expiry of fixed
period of time even if the work is not completed.
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c)By the death or insanity of the principal or agent

Death or insanity of the principal or agent terminates
the agency .On the death or insanity of the principal
,the agent has a duty to protect the estate of the
principal by taking reasonable steps.
d)By insolvency of the principal
The insolvency of the principal puts an end to agency.
The insolvency of agent also terminates the agency.
e) By destruction of subject matter
Where the subject matter for which the agency was
created has been destroyed ,the agency comes to end.
f)By the principal becoming an alien enemy
When the principal and agent are alien enemy the
contract of agency is terminated
g) By the dissolution of the company
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