AGENCY Who is an agent? An agent is a person who acts on behalf of some other person. Who is a principal?

A person on whose behalf an agent acts. What are the essentials for a valid agency? 1. There should be an agreement (express/implied) between the principal and agent. 2. The agent must act in the representative capacity:-i.e. he must represent his principal and must have the power to bind his principal with the third persons. 3. The agent need not be competent to contract(Section 184) An agent can be a minor. If the agent is an incompetent person than the incompetent agent shall not be liable to the principal. The principal cannot recover any compensation from the agent for the losses caused by his misconduct/by his unauthorized acts of such agent. 4-The principal must be competent to contract:-He must be sound mind and have attained the age of majority. 5-Consideration is not necessary:-Agency can be created without consideration (Section 185). Generally, an agent is remunerated by way of commission for his services.

How an agency can be created?

(1)Agency by express agreement:An agent may be appointed by a written agreement or by words of mouth. (2)Agency by Implied agreement:A person can become agent of another due to the conduct of the parties/the course of dealing between the parties. (3)Agency by Estoppel:-When a person by his conduct or statement, willfully leads another person to believe that a certain person is his agent, then he is stopped from denying the truth of the agency.

(4)Agency by holding out:It is a kind of agency by estopple. But is something more than estopple. In this case, there is some prior positive or affirmative conduct of the principal, which indicates that a certain person was already his agent. (5)Agency by necessity:Sometime due to some extra ordinary circumstances, a person may be compelled to act as an agent of some person without requiring the consent or authority of the same person. (6)Agency by operation of Law:According to the partnership act, every partner is an agent of the firm for the purpose of business of the firm and he is also an agent of the other partners of the firm. And thus the firm and other partners are bound by the acts of a partner. (7)Agency by Ratification:-Sometime a person does some acts on behalf of another person without his knowledge or authority. And such another person subsequently ratifies the act one on his behalf. How an agency can be terminated? An agency can be terminated in the followings two circumstances:(1) Termination of agency by the act of the parties (2) Termination of agency by operation of Law. Termination of agency by the act of the parties(Principal/Agent). (1) Agreement between principal and agent:The agency may be terminated by the mutual agreement between the principal and agent at any time and at any stage. EXAMPLE: - Ram appointed Karan as his agent for buying 100 bales of cotton. Karan bought 50 bales of cotton. Later on, they entered into an agreement to put an end to the agency relationship between them. In this case, the agency is terminated. (2) REVOCATION BY THE PRINCIPAL:-

Principal can revoke (cancel) the authority of his agent before it can be exercised by the agent so as to bind the principal.

Revocation can be express or implied. EXAMPLE:-1-Ram appointed Karan (an auctioneer) to sell his house and some moveable goods (Like car and other household things). In this case, Ram may revoke Karans authority to sell at any time before the auction is completed by knocking down in favor of highest bidder.(EXPRESS REVOCATION). EXAMPLE NO 2:-Ram empowered Vipin to let out his house. Afterwards, Ram himself let-out his house (Implied revocation). EXCEPTIONS:-Revocation by the principal is subject to the followings two conditions:(1) Where the agent has partly exercised his authority, the principal may revoke the agency for the further acts only. However, the principal remains bound by the acts already done prior to the revocation. EXAMPLE: - Ram has made power of attorney in favor of Subhash for the purpose of managing his farmhouse and his business. Later on, he revoked the power of attorney. The revocation of the power of attorney does not affect the transactions already created. (2) Where the agency is for a fixed period, the principal may revoke the agency before the expiry of that period. But there should be a sufficient cause for this. If the principal terminates the agency without any sufficient cause than he must make compensation to the agent for its premature termination. (3) Where the agency is continuous (i.e. for a number of acts) or for a fixed period, the principal may revoke the agency but he should give reasonable notice of revocation of premature agency to the agent. If he does not give than he will be liable to compensate (e.g. Pay three month salary as compensation in lieu of reasonable notice) the agent for any loss suffered by him. What should be the length of notice: - It depends, among other things, upon the length for which the agency has continued. (4) Where the agent himself has some interest in the subject matter of agency, the agency cannot be revoked unless there is an express contract permitting the termination of agency. 2:-Renunciation of agency business by the agent:-

The agent can renounce the agency business because a person cannot be compelled to continue as agent against his will. The renunciation may be express or implied. EXAMPLE:-Ram appointed Kishore for the purpose of selling 100 bales of cotton. Later on, Kishore renounced the business of agency by tendering his resignation to Ram (EXPRESS TERMINATION). It should be noted if the agency is created for a fixed period and the agent renounces the business before the expiry of the fixed period then the agent must make compensation to the principal for the premature termination. Further, the agent can renounce the business after giving Reasonable notice to the principal otherwise, he will be liable to the principal for any loss suffered by him. TERMINATION OF AGENCY BY THE OPERATION OF LAW:(1) COMPLETION OF AGENCY BUSINESS:-

The agency is terminated on the completion of agency business. EXAMPLE:-Shanu appointed Yogesh for the purpose of selling his goods. Yogesh sold his goods as per the terms of agency. In this case,the agency is terminated as soon as the sale is completed.

(2)

Death/Insanity of the principal or the agent:-

EXAMPLE:Paresh appointed Kamal as his agent for the purpose of collecting rent. Before Kamal could collect the rent, Paresh dies. In this case, the agency is automatically terminated. EXAMPLE:Paresh appointed Kamal as his agent for the purpose of selling his goods. Before the goods could be sold, Kamal died. In this case, the agency is automatically terminated. It is to be noted that in case of termination of agency by death/insanity,the acts done prior to death/insanity remain valid (3) INSOLVENCY OF PRINCIPAL:

The agency is terminated when the principal is declared insolvent.

The insolvency of an agent also terminates the agency. (4) Expiry of the fixed time:- If the agency is created for the fixed period of time then the agency is terminated after the expiry of that fixed period whether the purpose of agency is fulfilled or not within that fixed period. EXAMPLE: Pratham appointed Kunal for the purpose of selling his second hand goods within a period of 6 months. In this case, the agency is automatically terminated on the expiry of 6 months. And thereafter, Kunal will have no authority to sell the goods even he has not sold the entire goods within the period of 6 months. (5) Destruction of Subject matter:-

EXAMPLE:-Paresh appointed Kunal for the purpose of purchasing particular house. Before the purchase, the house was completely destroyed by Municipal Corporation. In this case, the agency is terminated and Kunas authority to purchase the house comes to an end.

(6)

Subsequent event rendering the agency unlawful:-

Sometime the agency is valid when it is created but it becomes unlawful by the happening of some subsequent event. EXAMPLE:(1) Agency may be declared unlawful by the act of legislature. E.G. Anuj is a wine merchant. He appointed Anand as his agent for the purpose of selling wine for him for one year. Subsequently, the distillation of the liquor was prohibited by the act of Parliament and its sale and purchase was also banned. In this case Anand authority comes to an end. (2) Where the principal resides in India and agent resides in Pakistan. A war is declared between these two countries. The contract of agency becomes unlawful. EFFECTIVENESS OF TERMINATION:The termination of agents authority takes effect from the time when it comes to the knowledge of the agent or third persons.(Section 208). So the termination of agency can be as under:(a) As regards to the agent:-the termination takes place from the time when the agent comes to know of the termination. (b) As regards the third persons, the termination takes effect from the time when the third parsons come to know of the termination. EXAMPLE NO 1:-

Hiten authorize Parag to sell his movables for him. Hiten agreed to give 15% commission on the price of the goods sold. Afterwards, Hiten revoked Parags authority by writing a letter. After the letter was posted but before Parag received it, Parag sold the movables for Rs 10,000/-. In this case, the sale is binding on Hiten and Parag is entitled to his commission. EXAMPLE NO 2:Ramesh residing at Delhi authorized Sanjay,an agent of Jodhpur, to sell a lot of books lying in the godown in Jodhpur. After, Ramesh revoked the authority of Sanjay by a letter. Ramesh also directed him in the same letter to send that lot of books to Jaipur. After receiving the letter of revocation, Sanjay entered into a contract with Pranav for the sale of the lot of books to him. Pranav did not know anything about of revocation and he paid the price to Sanjay who misappropriated the money. In this case, the payment made by Pranav is good and Ramesh cannot again demand the price from Pranav.

Please note:-When the agency is terminated by the death of the principal, the termination is effective only when it comes to the knowledge of the agent.
EXAMPLE:- Parth(PRINCIPAL) directed Shyam to pay Rs 2000/-to Anshul. Lateron Parth died. After the death of Parth but before hearing of the death, Shyam paid money to Anshul. In this case, the payment made by Shyam is good as against the legal representatives of Parth.