SCHOOL OF LAW

UNIVERSITY OF PETROLEUM AND ENERGY

STUDIES

PROJECT WORK: – CONTRACT

TOPIC: – Determination as to existence of Agency relationship

Under the Supervision of: Prof. Charu Srivastava

NAME: __HARISH KUMAR__

SAP NO: _500060945______

ROLL NO: ___41____________

 Determination as to existence of Agency Relationship: Judicial
Interpretation

An Agency relationship is:

The fiduciary relation which results from the manifestation of consent by one
person to another that the other person shall act in his behalf and is subject to his
control; and consent by the other so to act. In other words, one person (the agent)
agrees to do something for another party (the principal), subject to the control of
the other party, and the other party (the principal) also agrees to the agreement. It
simultaneously means the principal is bound (normally) by what the agent does,
since the agent is acting as if the principal were there him/herself.

It is a fiduciary and consensual relationship between two persons where

one person acts on behalf of the other person and where the agent can form legal
relationships on behalf of the principal. It may be a business or personal
relationship. It allows the principal the ability, if you will, to be more than one
place at a time, thereby expanding their potential business opportunities.

An agent is a person who acts in the name of and on behalf of another, having been
given and assumed some degree of authority to do so. Most organized human
activity—and virtually all commercial activity—is carried on through agency. No
corporation would be possible, even in theory, without such a concept.

Partnerships and other business organizations rely extensively on agents to conduct

their business. Indeed, it is not an exaggeration to say that agency is the
cornerstone of enterprise organization. In a partnership each partner is a general
agent, while under corporation law the officers and all employees are agents of the
corporation.
Usually the agency relationship consists of following:-

a. Principal and agent:

Principal: The person or entity on whose behalf and subject to whose control
an agent acts. For example, the boss of a company under which agents
works.
Agent: A person who agrees to act on behalf of and instead of his or her
principal, subject to the principal's control. A good example would be an
insurance agent. Agent works for the benefit of the principal and under its
control. Agent has right to represent the principal and make contracts with
3rd parties on behalf of principal.
“Generally, in a business relationship, the principal and agent relationship
requires being either an employee/employer relationship or an independent
contractor.”

b. Employer (master) and employee (servant):

An employee may be defined as: "A person in the service of another under
any contract of hire, express or implied, oral or written, where the employer
has the power or right to control and direct the employee in the material
details of how the work is to be performed.
 c. Principal and Independent contractor:
Principal: The person or entity on whose behalf and subject to whose control
an agent acts. For example, the boss of a company under which agents
works.
Independent Contractor: One who does work for, and receives payment
from, an employer, but whose working conditions and methods are not
controlled by the employer, and for whose acts and omissions the employer
is not liable.

Whether a worker is an employee or an independent contractor?

The IRS distinguishes between an independent contractor and an employee for the
purpose of “payroll taxes and withholding taxes”. Basically, an independent
contractor is an independent business person who runs his or her own business but
who does work for another business. An employee is hired by a company to
perform specific work at the direction of the employer.

Formation or creation of Agency relationship:-

 Agency by Agreement/Contract: An agency relationship based on an
express or implied agreement that the agent will act for the principal.
Obviously the most common form. In some cases, there weren’t enough
required elements to form a contract, and thus only an agreement.

 Agency by Ratification: A confirmation by the principal of an act or

contract performed or entered into on his or her behalf by another, who
assumed, without authority, to act as his or her agent. May be oral or written,
usually cannot be rescinded, and is retroactively applied back to original
date the alleged contract was made.

 Agency by Estoppel: If a principal (NOT THE AGENT) holds out to a third

party that another is authorized to act on the principal's behalf, and the third
party deals with the other person accordingly, the principal may not later
 deny that the other was the principal's agent for purposes of dealing with that
third party.

 Agency by Operation of Law: Agencies recognized by courts -- e.g.,

family relationships, emergency situations -- in the absence of any formal
agreement, confirmation, or act or omission by the principal that implied the
agent's authority. Usually deals with necessities. It consists of two types of
agencies:

 Implied Agency.
 Apparent Agency.

There are basically two authorities of agency relationship:

1. Actual authority:

a) Express Authority: Authority declared in clear, direct, and definite terms,

orally or usually in writing.

b) Equal Dignity Rule: If a contract being executed by an agent on the

principal's behalf is in writing, most states require that the agent's authority
must also be in writing; otherwise, the contract executed by the agent is
voidable at the principal's option.
The equal dignity rule does not apply when the agent acts in the principal's
presence or when the agent's act is merely perfunctory (ministerial).

c) Power of Attorney: A written document, usually notarized, authorizing an

agent to act for a principal.

2. Apparent authority:

Authority that arises when a principal, by either words or actions, causes a

third party to believe that an agent has authority to act, even though the
 agent has no express or implied authority to act with regard to the particular
matter at hand.

 {If the third party changes his or her position in reliance on the
principal's representations regarding the agent's authority, the
principal may be estopped from denying that the agent had authority
to act.}

TYPES OF AGENTS:
1. General Agent: The general agent possesses the authority to carry out a
broad range of transactions in the name and on behalf of the principal.
The general agent may be the manager of a business or may have a more
limited but nevertheless ongoing role.

2. Special Agent: The special agent is one who has authority to act only in
a specifically designated instance or in a specifically designated set of
transactions. For example, a real estate broker is usually a special agent
hired to find a buyer for the principal’s land.

3. Subagent: An agent will often need to appoint her own agents. These
appointments may or may not be authorized by the principal.
 4. Servant: The final category of agent is the servant. Until the early
nineteenth century, any employee whose work duties were subject to an
employer’s control was called a servant.

5. Agency Coupled with an Interest: An agent whose reimbursement

depends on his continuing to have the authority to act as an agent is said
to have an agency coupled with an interest if he has a property interest in
the business.

Agent’s duties to the Principal:

1. Loyalty: An agent has the duty to act solely for the benefit of his or her
principal, and not in the interest of the agent or a third party. Moreover, any
information or knowledge obtained in the course of the agency is
confidential. The Agent cannot profit individually without permission from
the principal.

2. Obedience: An agent has the duty to follow all lawful and clearly stated
instructions of the principal.

3. Accounting: Unless otherwise agreed, an agent has the duty to keep and
make available to the principal an account of all property and money
received and paid out on the principal's behalf, including gifts received from
third persons.

4. Performance: An agent impliedly agrees to use reasonable diligence and

skill (except for a specialist, who is held to a higher degree of skill) in
performing the task in its entirety.
 5. Notification: An agent is required to notify the principal of all matters that
come to the agent's attention concerning the subject matter of the agency. As
a result; the principal must be in constant communication with the agent.

Principal’s duties towards Agent:

1. Compensation: When a principal requests certain services from an agent,

the principal has a duty to pay the agent, in a timely manner, for those
services rendered.

2. Reimbursement: Whenever an agent disburses sums of money to fulfill the

principal's request or to pay for necessary expenses incurred in the
reasonable performance of his or her duties, the principal has the duty to
reimburse the agent.

3. Indemnification: Subject to the terms of the agency agreement, the

principal has a duty to compensate, or indemnify, the agent for liabilities
arising from the agent's lawful and authorized acts on the principal's behalf.

4. Cooperation: A principal has the duty to cooperate with the agent and to
assist the agent in performing his or her duties.

5. Safe Working Conditions: A principal has the duties (i) to provide its
agents and employees with safe working premises, equipment, and
conditions, and (ii) to inspect working conditions and warn agents and
employees of unsafe areas.

Principal’s liability for Agent’s torts:

1. Borrowed Servants: A principal may be liable for the acts of an agent
"lent" to another if the principal retained the primary right to control the
agent's activities.
 2. Intentional Torts: Principals are liable only for those intentional torts that
are committed within the course and scope of the agent's actions on behalf of
the principal.

3. Crimes: A principal is not liable for an agent's crime if the agent

independently undertook the crime.

4. Subagents: A principal is liable for the acts of subagents hired by an agent

authorized to hire subagents.

Agency Relationship: Termination

1. By Act of the Parties: An agency may be terminated by any of the
following:

(1) Lapse of time;

(2) Accomplishment of particular purpose for agency;

(3) Occurrence of a specific event;

(4) Mutual agreement of the agent and principal; and

(5) Renunciation (by the agent) or revocation (by the principal) of the
agent's authority.

2. By Operation of Law: An agency may also terminate as a matter of law due

to:

(1) Death or incompetence of the agent or principal

(2) Impossibility of performance;
(3) Materially changed circumstances; and/or
(4) Bankruptcy of the principal or agent.
 CONCLUSION

An Agent is one who acts on behalf of another. Many transactions are conducted
by agents so acting. All corporate transactions, including those involving
governmental organizations, are so conducted because corporations cannot
themselves actually act; they are legal fictions. Agencies may be created expressly,
impliedly, or apparently. Recurring issues in agency law include whether the
“agent” really is such, the scope of the agent’s authority, and the duties among the
parties. The five types of agents include: general agent, special agent, sub-agent,
agency coupled with an interest, and servant (or employee). The independent
contractor is not an employee; her activities are not specifically controlled by her
client, and the client is not liable for payroll taxes, Social Security, and the like.
But it is not uncommon for an employer to claim workers are independent
contractors when in fact they are employees, and the cases are often hard-fought on
the facts.
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