AGENCY: Agency is a relationship between a principal and an agent in which the principal confers his or her rights on the

agent to act on principals behalf. In other words, An agent is a person employed to do any act for another or to represent another is dealings with third persons. The person for whom such act is done or who is so represented is called the principal. The Transaction is called Agency. APPOINTMENT OF AGENT: Any Person who is of the age of majority and who has the sound mind can employ agent. Any person may be appointed as an agent, but if the agent is a minor or of unsound mind, he shall not be personally liable to his principal for any loss suffered by the latter even on account of his fault. KINDS OF AGENTS : (i) Mercantile agents: A mercantile agent is one who has authority either to sell goods or to buy goods or to raise money on the security of goods [Sec. 2(9) of the Sale of Goods Act]. The various kinds of mercantile agents are as follows: (a) Factor: A factor is a mercantile agent to whom goods are entrusted for sale. He enjoys wide discretionary powers in relation to the sale of goods. He sells the goods in his own name upon such terms as he thinks fit. He may pledge the goods as well. (b) Commission agent: A commission agent is a mercantile agent who buys or sells goods for his principal on the best possible terms in his own name and who receives commission for his labours. He may have possession of goods or not. (c) Del credere agent: He is one who in consideration of an extra commission, guarantees his principal that the third persons with whom he enters into contracts on behalf of the principal shall perform their financial obligations, that is, if the buyer does not pay, he will pay. Thus, he occupies the position of a surety as well as of an agent. (d) Broker:

He is one who is employed to make contracts for the purchase and sale of goods. He is not entrusted with the possession of goods. He simply acts as a connecting link and brings the two parties together to bargain and if the transaction materializes he becomes entitled to his commission called brokerage. He makes contracts in the name of his principal. (e) Auctioneer: (f) Banker: He is an agent of the customer when he sells or buys securities, collects cheques, bill, etc., for his customer. (ii) Non-mercantile agents: They include advocates, attorneys, insurance agent, wife, etc. CREATION OF AN AGENCY: To create an agency, the consent of the agent and the principal is necessary. The principal must intend that the agent act for him or her, the agent must intend to accept the authority and act on it. The intention of the agent and the principal must be either in express terms of the contract or can be inferred from the conduct of the parties. In the absence of any claim or exercise of control by one party over the activities of another, there can be no agency relationship The relationship of principal and agent may be created in the following ways: An agent who conducts an auction a person who conducts an auction by announcing the lots and controlling the bidding

CREATION OF AN AGENCY

Agency by implied agreement

Agency by Estoppel

Agency by express agreement

Agency by operation of law

Agency by Ratification

Agency by holding Out

Agency by necessity

1. Agency by express agreement: The authority of an agent may be expressed or implied: Sec 187 The contract of agency may be made orally or in writing. In most of the business dealings the agency is created by a word of mouth. If this form was not recognized by law, the trade and industry could hardly go on. Agency is also created by a contract in writing. Agency is normally preferred in the dealings of immovable property. The common form of an agreement in writing is power of Attorney whereby, authority is given to the power of attorney holder, either generally or specifically, to act on behalf of the Principal. A general power of attorney authorises the Agent to do all things on behalf of the Principal i.e. to act generally in the business of the Principal. A specific power of attorney empowers the Agent to do or perform a single transaction e.g. selling of house or borrowing money on a mortgage etc. 2. Agency by implied agreement According to Sec.187, an authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing may be accounted circumstance of the case. Examples: A owns a shop in Serampur, living himself in Kolkata, and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods

from C in the name of A for the purpose of the shop, and of paying for them out of As funds with As knowledge. B has an implied authority form A to order goods from C in the name of A for the purpose of the shop. a) Agency by Estoppel: Estoppel means to prevent a person from denying a fact. When a person has by his conduct or statements induced others to believe that a certain person is his agent, he is estopped from subsequently denying it. Examples: A consigns goods to B for sale, and gives him instructions not to sell under a fixed price. C, being ignorant of Bs instructions enters into a contract with B to buy the goods at a lower price than the reserved price. A is bound by the contract. b) Agency by holding Out: Such agency is based on the principle of holding out which is a part of the principle of estoppel. The only distinction is that in this case some affirmative conduct by the Principal is necessary. For example, a dealer in iron usually sent his employee to buy on credit and paid for it afterwards. On one occasion, he sent the employee with cash, who bought the iron on credit and pocketed the money. It was held that the iron merchant was liable to pay for the iron, as the previous dealings justified the seller in assuming that the Agent had authority to buy on credit. The employers conduct in holding out his employee to be his agent estops him from denying the existence of authority of the employee. However, if the Agent is held out as having only a limited authority to do acts, the Principal is not bound by an act outside the authority c) Agency by necessity: Generally the authority given by a principal to his agent is an express authority enabling the agent to bind the principal by acts done within the scope of that authority. An agency by necessity is conferred by law in certain cases, where a person is faced with an emergency in which the property or interests of another are imminent danger, and it becomes necessary in order to preserve the property or interests, to act before the instructions of the owner can be obtained.

For example: Where a horse sent by rail was not taken delivery of by the owner, the station master had to feed the horse. It was held that the station master become an agent of necessity and the owner liable for the charges incurred by him. 3. Agency by operation of law: An agency is also constituted by operation of law. For example, is the agent of the firm and the act of the partner to carry on the business of the firm in the usual way binds the firm and its partners. Similarly, promoter of a new company is its agent. 4. Agency by Ratification: Ratification means subsequent acceptance by the principal in respect of an act done by the agent without authority. For example: The Managing Director of a company, purporting to be an agent of the company but without its authority, accepted an offer by the defendant for the purchase of some sugar works belonging to them. The defendant then revoked his offer, but the company ratified the managers acceptance. The defendant was held bound by the contract. If the acceptance was conditioned, the agent saying subject to ratification, then the revocation would be valid if made before ratification. TERMINATION OF AGENCY An agency may be terminated either by 1) act of the parties, or 2) operation of law. In other words, the subsequent adoption and acceptance of act originally done without authority or instructions.

Termination of agency Act of the parties By agreement Revocation by the Principal Renunciation by the Agent Operation of law Completion of business of agency Expiry of time Insanity of the Principal or the Agent Insolvency of the Principal Destruction of the subject matter Dissolution of a Company Becoming an alien enemy BY ACT OF THE PARTIES: 1. By agreement: An agency, like any other contract, can be terminated at any time by a mutual agreement between the Principal and the Agent. 2. Revocation by the Principal: The Principal is empowered to revoke the authority of the Agent at any time. The agency stands terminated from the time such revocation is affected. Revocation can be express or implied. a. In the case of a continuous agency, it can be terminated by revocation only for the future. It cannot be revoked in relation to the acts already done by the Agent. In other words, revocation cannot be with retrospective effect. Reasonable notice should be given to the Agent and also the third parties before revocation. b. An agency, which is created for a fixed period, can be terminated by revocation even before the expiry of that period. However, the Principal is

bound to pay compensation to the Agent, even if the authority is revoked after giving notice. 3. Renunciation by the Agent: It is the termination of the agency at the instance of the Agent, when he no longer wishes to continue working as Agent. The Agent has to give a reasonable notice to the Principal of his intention to renounce the agency; otherwise he is liable to compensate the Principal for any loss due to renunciation without notice. Further, if the agency is for a fixed period and the Agent renounces it without sufficient cause before the expiry of the period, he shall have to compensate the Principal for the resulting loss, if any. BY OPERATION OF LAW: An agency comes to end automatically by operation of law in the following conditions: 1. Completion of business of agency: If the purpose for which the agency is created is served and achieved, the agency stands terminated, e.g. where an advocate is appointed to appear in a suit, his authority comes to end when the adjudication is complete and the judgment is delivered. 2. Expiry of time: When the agency is created for a specified period of time, the agency comes to end with that period, even though the business or reason for which the agency was created continues. 3. Death of the Principal or the Agent: An agency is terminated automatically on the death of the Principal or the Agent. In the event of the death of the Principal, the Agent must take all reasonable care to protect the interests of the deceased Principal, which were entrusted to him. 4. Insanity of the Principal or the Agent: If the Principal or the Agent becomes of unsound mind, the agency is terminated automatically. Here also, in the case of insanity of the Principal, the duty of the Agent is the same as in the event of death of the Principal.

5. Insolvency of the Principal: When the Principal becomes insolvent, the agency is terminated. However, the termination of agency on the insolvency of the Agent is at the discretion of the Principal. 6. Destruction of the subject matter: Where the agency is created with reference to a particular property or subject matter, it stands terminated automatically with the destruction of that property. When the Agent is appointed for the sale of a house, the agency is terminated when the house is destroyed by fire. 7. Dissolution of a Company: It is like the death of the Principal or the agent. When Principal or the Agent is an artificial person created only in the eyes of law (such as incorporated companies), the agency is terminated with the dissolution of that company. 8. Becoming an alien enemy: If the Principal or the Agent is a citizen of another country and the war breaks between India and that country, the contract of agency is automatically terminated, as the continuance of the same is unlawful.

RIGHTS OF AN AGENT: Following are the rights of an agent: 1. Rights to retain money: Sec.127 lays down that an agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of advantage or expenses properly incurred by him conducting and also such remuneration as may be payable to him for acting as agent. 2. Right to receive remuneration:

Sec 219 lays down that in absence of any special contract, payment for the performance of any act is not due to the agent until the completion of such act, but an agent detains moneys received by him on account of goods sold, although the whole of the consigned to him for the sale may not have been sold, The agent is entitled to remuneration when the work is completed except in the case of sale of goods and where there is an agreement to the contrary. For examples: An agent was appointed to introduce a customer, who is willing to purchase Bs property. The agent introduced one customer, Cs who was willing to purchase the property. The sale was settled and earnest money paid. But the sale could not be completed due to Cs inability to find money. It was held that the agent was entitled to his commission. 3. Effects of Misconduct (sec 220) An agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconduct. An agent who misconduct is also liable to compensate his principal. For examples; A employs B to recover Rs.1000, from C, through Bs misconduct the money is not recovered. B is entitled to no remuneration for his services and must make good the loss. 4. Right of Lien: Sec221 lays down that In the absence of any contract to the contrary, an agent entitled to retain goods, papers and other property, whether movable or immovable, of the principal received by him, until, the amount due to himself for compensation, disbursements and services in respect of the same has been paid or accounted for to him. The agent can only retain the goods. He has no power to sell them. 5. Rights to be Indemnified against Consequence of Lawful Act (Sec.222)

This sec lays down that That employer to an agent is bound to indemnify him against the consequence of all lawful acts done by such agent in exercise of the authority conferred upon him. A) For examples: B, at Sinapur under instruction from A of Kolkata, contract with C to deliver certain goods to him. A does not send the goods to B, and C sues B for breach of contract. B informs A of the suit, and A authorizes him to defend the suit, B defends the suit, and is compelled to pay damages and costs and incurs expenses. A is liable to B for such damages, costs and expenses. B) For examples: B, a broker at Chennai, by the words of A, merchant there, contracts with C for the purchase of 10 casks of oil for A. Afterwards A refuses to receive the oil, and C sues B, B informs A, who repudiates the contract altogether. B defends but unsuccessfully, and has to pay damages and costs and incur expenses. A liable to B for such damages, costs and expenses. 6. Rights to be indemnified against Consequences of acts done in good faith (sec.223) This sec lays down that what one person employs another to do an act, and the agent does the act in good.