1. 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”
2. 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.
3. 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
4. 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 )
5. 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.
6. 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.
7. 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.
8. 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
9. 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.
10. 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 ).
11. 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.
12. 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 agent’s authority.
13. 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 P’s 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.
14. 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.
15. 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
16. 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.
17. 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.
18. 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.
19. Duties of an agent To follow
principal’s 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.
20. 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.
21. 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.
22. 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.
23. 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.
24. Duties & Rights of the
Principal To pay remuneration to agent To recover compensation for breach of
duty by the agent To forfeit agent’s 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.
25. Termination of Agency By act of
parties: By agreement – mutual consent 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. By
renunciation by the agent – by giving reasonable notice.
26. Termination by operation of law:
By performance of contract of agency. By death of principal or agent. By expiry
of time – where agency is for fixed time period. By insolvency of the
principal. By destruction of subject matter – agency was created to sell a
house & house destroys. By becoming alien enemy – where principal &
agent are from different countries.
27. Irrevocable Agency The agency
which a principal cannot revoke is known as irrevocable agency. Where the
agency is coupled with interest – A gives authority to B to sell A’s land &
to pay himself out of the proceeds, the debt due to him from A. A cannot revoke
this authority. Where the agent has incurred personal liability – Where the
agent has bought goods in his own name principal cannot refuse to pay.