Professional Documents
Culture Documents
Unit I
Contract of Agency
Chapter X of the Indian Contract Act, 1872 (Sections 182 to 238) Agency is a contractual relation between two parties created by agreement express or implied The relationship of agency arises wherever one person called the agent has authority to act on behalf of another called the principal
Agent
Any Person may become an agent An agent to be responsible to his principal has to be of the age of majority and of sound mind. Minor can be employed as agent and the Principal shall be bound by the acts of such an agent. Principal has to be of the age of majority and is of sound mind. Minor cannot be a Principal.
Classification of Agents
Express or Implied Agents General, Special or Universal Agents Agent or Sub-Agent Mercantile (or Commercial) Agents Non-Mercantile (or Non-Commercial) Agents
Creation of Agency
By Express Agreement By Implication or law ie. From the conduct of the parties or from the necessity of the case By Ratification By Operation of law
Implied Agency
Agency by Estoppel : Implied by the conduct of parties. Principal knowingly permits a person to act in certain business in his name or on his behalf. Such principal is estopped from denying the authority of the supposed agent to bind him. 3 possible cases of agency by estoppel:
A person can be held out as an agent although he is actually not so A person acting as agent may be held out as having more authority than he actually has A person may be held agent after he has ceased to be so
Implied Agency
Agency by Holding out : Where a person permits another by a long course of conduct to pledge his credit for certain purposes, he is bound by the act of such person in pledging his credit for similar purposes, in certain cases without the previous permission. Example : Husband holds out his wife having his authority by words or conduct and a third party advances money to the wife on the faith of such conduct, the husband is liable for such debts.
Implied Agency
Agency by Operation of Law When company is first formed, its promoters and its agents are implied by operation of law A partner is the agent of the firm for the purposes of the business of the firm, and the acts of a partner, which is done to carry on in the usual way binds the firm.
Implied Agency
Agency by Necessity : Sometimes extraordinary circumstances require that a person who is not really an agent should act as an agent of another.
There should have been real and definite commercial necessity for the creating of agency Should be impossible to obtain principals instructions within the time available The person should act bonafide and in the interest of parties concerned
Implied Agency
Agency of Husband and Wife : There exists a relationship of principal and agent between spouses as long as they are living together Agency by Precedent (previous) and Subsequent (after; also known as agency by ratification) Authority
Agency by Ratification
Ratification is a kind of affirmation or approval of a previous unauthorized act or acts relating to a contract. Ratification may be express or implied by conduct of the person on whose behalf the acts are done. Example :
A without authority buys goods for B; B sells them to C on his own account afterwards. A without Bs authority lends Bs money to C. Afterwards B accepts interest on the money due from C
Rights of an Agent
Entitled to receive remuneration May retain out of any sums received on account of the principal in the business of agency due to himself in respect of advances made, expenses incurred in conducting that business and also remuneration payable to him Agent is entitled to particular lien i.e., right to retain goods, papers (documents) and other property of the principal received by him , until the amount due to him for commission, disbursements and services is paid
Rights of an Agent
Can stop goods in transit under certain circumstances The employer of an agent is bound to indemnify (Compensate for harm or loss) him against the consequences of all lawful acts done by such agent in exercise of authority conferred upon him Principal must pay compensation to his agent in respect of injury caused due to principals neglect or want of skill
Duties of an Agent
Follow instructions of the Principal; if instructions is not given according to the custom which prevails in doing business of same kind; Agent need not obey unlawful instructions of the principal. Work with reasonable skill and diligence; as is generally possessed by persons engaged in similar business; make compensation to principal in respect of direct consequences of his own neglect, want of skill or misconduct.
Duties of an Agent
Render proper accounts to his principal on demand; Agent is answerable for any secret profit which he had earned from his agency work Communicate with the principal in difficult times to obtain his instructions Should not deal on his own account without obtaining the consent of his principal and acquainting him with all material circumstances; if done without the knowledge of principal then benefit which has resulted can be claimed by principal.
Duties of an Agent
Pay all sums to his principal which are received for principal; entitled to deduct his lawful charges It is the duty of the agent not to set up adverse title (A title set up in opposition to or in defeasance [the action or process of rendering something null and void] to another title is adverse title) Should not delegate authority (few exceptions are there) Should not use agency informations against principal; principal can restrain him by an injunction (authoritative warning or order) from court
Duties of an Agent
When agency is terminated by death or insanity of principal, agent shall take all reasonable steps (on behalf of the representatives of late principal) for protection and preservation of the interest entrusted to him When under duty an agent should act in the interest of the principal; Duty to the principal and his personal interest conflict should not come in the due course. Eg. P employed A, a stock broker to buy some shares and A sold his own shares to P without disclosing. P could rescind the contract.
Liability of Agent
Misrepresentation and Fraud by Agents (if done in the course of business for their principals - same effect as if done by principal; if done out of the scope of authority - does not affect principal) Money received by agent and paid to principal by playing fraud on third person; third person cannot sue the principal unless principal is aware of the fraud
Termination of Agency
Termination by Acts of Parties
By Agreement between principal and agent By revocation of agents authority by principal By renunciation of business by the agent
Termination of Agency
When termination is effective To Agent : When it becomes known to the Agent To Third parties : When it becomes known to them
Irrevocable Agency
Agency coupled with interest
Agency is created for the purpose of securing some benefit over and above his remuneration as an agent Eg. A gives authority to B to sell As land and to pay himself out of the proceeds the debts due to him from A. A cannot revoke this authority nor can it be terminated by his insanity or death Rule will not apply if interest of agent arises after creation of agency Object of creating agency to secure gain or benefit to the agent; not sufficient if it is incidental
Irrevocable Agency
Agent has incurred a personal liability for the principal
Agent cannot be permitted to withdraw, leaving the agency exposed to risk or liability he has incurred