LAW OF AGENCY

Who is an Agent? [Sec-182]

A person employed
to do any act for another, or
to represent another in dealing with the
third person - is an agent. [Sec 182]
Example - 1:
A asks B to go and sell 100 books to C.

Here, B is As agent because A has employed B
to create contractual relationship between A and C.

A is Bs Principal because B has been employed by A
to create contractual relationship between A and C.
Example -2:
Power of Attorney holder is an Agent acting on behalf of his
Principal who constituted him to act on his behalf, for his
inability to act himself timely.



Principal defined. [Sec 182]
Who is the Principal
He is a person
who appoints someone as his agent, or
who is represented by the Agent or
the person on behalf of whom an act
is done lawfully by Agent employed for
that purpose
In an agreement creating Agency, the
parties are:
- Principal and
- Agent

Methods of Creating an Agency.
1. Agency may be created express, if it is expressed
- in words written, or
- in words spoken [Sec-187]
2. Agency may be implied from
- the conduct of the parties, or
- Circumstances i.e. the nature of dealings
between them. [Sec-187]
Implied Agency may be of two (2) types:
- Agency by Estoppel or Holding-out
- Agency of Necessity



Agency by Estoppel or Holding-out
This type of Agency is -inferred from circumstances.
When one Person has been, for sometime, in the
habit of representing another in certain dealings,
then - the latter cannot deny that the former is his
Agent.
Example: As wife W buys articles on As credit from
the grocer G, and at the end of the month, A pays
the bill. Repeatedly, this happened for about six (6)
months by now. G can assume that W is As implied
Agent by Estoppel or Holding-out.
In trading concern, there is a authority to borrow
money, but in non-trading concern - there is no
such authority.
Trading concern is one in which goods are bought
& sold in the usual course of Business.



Agency of Necessity
At times, under the pressure of circumstances,
- one person, who is not really an agent,
should act as an agent
- in the name of another, and
- according to the nature of the transaction.
- The latter will be bound to accept that act.
The former is deemed agent of the latter. Hence,
this is called the Agency of Necessity.
Example: When P entrusts his property to A, and A
pays taxes on that property to preserve it, there
might not have been an obligation on A to incur
that expense, yet Law implies that authority on A.
Agency by Ratification
If an act done on behalf of Principal is an
unauthorised one, the Principal is not bound by
such act of the Agent.
But, the Principal may decide to accept the
unauthorised act of his Agent.
And, the adoption of the unauthorised act of the
Agent by the Principal is called as Ratification.
Once the unauthorised act of the Agent is
ratified, it binds the Principal.
An act of ratification always relates back to the
earlier date. [Sec 196]
Agency by Ratification - 2
Ratification may be expressed or implied in the
conduct of the person on whose behalf the acts
are done. [Sec 197]
No valid ratification can be made by a person
whose knowledge of the facts is materially
defective, like minor, lunatic or non-existent
person. [Sec 198]
Example: It was held that a contract entered
into on behalf of a company before its
incorporation, cannot be ratified on its behalf
before it comes into existence.
Agency by Ratification - 3
The person ratifying any unauthorised act
done on his behalf - ratifies the whole of the
transaction, of which such act formed a part.
[Sec-199]
If a third Party is placed at a disadvantage as a
result of such ratification, such ratification shall
be void. [Sec 200]
Example: T holds a land on lease from P,
terminable on three (3) months prior Notice.
A, an unauthorised person gives Notice of
Termination to T. The Notice cannot be ratified
by P so as to be binding on T.
Three General Rules
which govern Agent-Principal Relationship.
1. Whatever a person, competent to contract,
can do himself
may also get it done through his agent.
By implication: No agent can do - what his
Principal cant.

2. He who acts through an agent is himself acting.
By implication: Acts of Agent are - the acts of
his Principal. Thus they - Bind
the Principal.

3. There is no consideration in a contract creating
an agency.

Caution
The relationship between

Agent and Principal
should be distinguished from
Master and Servant.

[Ref: Lakshiminarain Ram Gopal & Sons Ltd vs.
Government of Hyderabad (AIR 1954 SC 364]
The Test of Agency
The test of agency is
1. That the Principal must be in a position to
supervise the method of work of the agent,
and
2. The agent must be entitled to bind the
principal to third parties.
Hence
1. An independent Contractor for construction
work is not an agent since his Principal does
not fulfill the first condition.
2. A servant employed at home for domestic
services is not an agent as he cannot fulfull
the second condition.







LAW OF AGENCY - 2
Who can appoint an Agent?
Any person who is
1. of the age of majority, according to the law
of which he is subject,
and 2. of sound mind may employ an Agent.
Thus a Minor cannot appoint an Agent.
Who can be appointed as an Agent?
Any person can be appointed as an Agent
Examples: - a minor
- a major,
- an unsound person
- an unqualified person etc
LAW OF AGENCY - 3
Competency of Principal is essential for
- the lawful appointment of an Agent.
On the other hand,
- Agent himself may not be competent
at all.
If that is the position of Law of Agency,
what will be the consequences that fallow:
- when Agent is a minor, not a major?
- when Agent is a major, but of unsound
mind?
- when Agent is a fully competent person?

Consequences that are likely to follow:
If the Agent is a minor
or a person of unsound mind:
Such an Agent is
Not personally responsible for anything done by
him
No matter whether he acted
within his authority
or exceeded his authority.
The Principal is liable for anything done by such
Agent.
But, If the Agent is competent, and
exceeded his powers/limits
The Agent is personally responsible
for the acts beyond his powers.





Sub-Agent and Substitute Agent
Sub-Agent defined: [Sec 191]
In the Business of Agency, a Sub-Agent is
A Person - Employed by the Original Agent, and
- acting under the control of the
Original Agent.
When can a sub-agent be appointed by an Agent:
1. When express permission of the Principal has been obtained
2. When appointment of sub-agent is the custom or usage of
the trade
3. When nature of agency business makes such appointment
imperative
4. When the work to be done by the sub-agent is of a routine
type requiring no special skills
5. When due to an unanticipated emergency, such an
appointment becomes imperative. [Sec 189 & 190]
Sub-Agent and Substitute Agent - 2
Substitute-Agent : [Sec 194 & 195]
The Principal authorises, expressly or impliedly,
his agent to name some other person
The purpose of such other person is to do a
particular thing in the business of the agency
The Agent has recommended some name to the
Principal
The Principal appoints such person as Agent
And, such an Agent is called a Substitute-Agent.
He is not sub-agent because he has been
appointed by the Principal
Such Substitute-Agent works under the Principal,
not under the Agent.

Different Types of Agents.
1. Broker: A Brokers is a middle-man
who brings the buyer and seller together
on completion of the contract, he is entitled
to remuneration
in the form of commission, on the basis of
percentage of value of transaction.
2. Commission Agent: He is almost in the same position as
brokers.
3. Mercantile Agents: He is also called as Factors. He is in
a better position than the Broker - in the sense that
he has the possession of Goods; he buys and sells in
the market on behalf of the Principal.
4. Del Credere Agent: He guarantees the payment of
transaction amount upon the Principals promise to
pay him extra remuneration.
Different Types of Agents - 2
5. Banker: The relationship between Banker and the
customer is that of Debtor and Creditor with the
super added liability on the Banker to honour the
cheques & drafts of the Customer.
6. Auctioneer: He is an Agent
- appointed by the Seller
- to sell goods by Public Auction
- for a remuneration
- in the form of Commission.
He is entrusted with the Goods
He has authority to delivery Goods against
Payment.
Termination of Agency
Agency may be terminated in the following ways:
Under Section 201
1. By the Principals Notice of Revocation
2. By the Agents Notice of Renunciation
3. By expiry of the Period of Agency
4. Upon fulfillment of the Purpose of Agency
5. On either party becoming insane
6. On Principal becoming insolvent
7. On the death of either party
8. Destruction of subject matter of Agency
9. On Principal becoming an alien enemy.
Termination of Agency - 2
Some Limitations and Restraints:
1. Agency cannot be terminated by Notice, when
the Agent has a Special Interest in it. [Sec-202]
Example: A gives authority to B to sell his land and to
pay himself out of the sale proceeds, a sum of debt of
Rs. 50,000/- due to B from A. A cannot revoke the
authority given to his Agent B; nor can the Agency be
terminated by his insanity or death.
2. Agency cannot be revoked after the Agent has
exercised his authority to bind the Principal
[Sec-203]
But Agency can be revoked for Part of the work
that remains unexecuted. [Sec-204]
Termination of Agency - 3
Some Limitations and Restraints:
3. If Agency is terminated without sufficient
cause, the party affected will be entitled to
compensation. [Sec-205]
4. If there is an understanding that the Agency
was made for a definite period, the Notice
of termination must be reasonable in point
of time. [Sec 206]
5. Notice of termination may be - in writing or
oral; it may be express or implied. [Sec-207]


Termination of Agency - 4
Some Limitations and Restraints:

6. Notice of termination of Agency takes effect
- after it becomes known to the Agent;
- after it is made known to third parties.
And, it will not take effect before. [Sec-208]
7. Termination of Agency or Agents authority
- automatically terminates all authority of
sub-agents. [Sec-210]