LAW OF AGENCY*

Why agency is to be created?Today the business is full of complexities and the modern businessman is not in a position to go and attend personally in all matters which is necessary to him so he must depend on services of other persons in order to run his day to day business affairs such persons are called agents*

Definition of agent and principalAn agent is a person employed to do any act for another or to represent another in dealings with third parties. The person for whom such act is done or who is so represented is called the principal .E.G- A appoint B to buy 100 bales of cotton on his behalf .A is the principal and B is the agent . The relationship between A and B is called agency*

Essentials of relationship of agency1.Agreement between the principal and agent 2.Intention of the agent to act on behalf of the principal

Who can employ an agent?Any person may become an agent .In other words even minor can become an agent .But the minor agent will not be responsible to his principal .Thus if an agent is to be held liable to his principal ,he must be a major and is of sound mind (sec184)

Who may be a principal?Any person who is of age of majority and is of sound mind can become principal(sec 183)*

Distinction between agent and servantAgentservant1.He has authority to actNo authority to act2.He receives commission The servant is paid wages3. principal is liable for the Master is liable for the agent's act. servants Act. 4. principal has right to what Master has right to what is to be done is to be done and how it is to be done.5. Agent may work for many Servant usually serves only principalsOne master*

Creation of an agencyAgency is the legal relationship which exists between an agent and his principal, to bring the principal into legal relationship with third parties.Methods to create an agency1.Agency by express agreement.2.Agency by implied agreement.(a)agency by estoppel(b)agency by holding out.(c) agency by necessity3.Agency by ratification4.Agency by operation of law *

1.Agency by express agreementAgreement may be written or oral.It is usual in many cases to appoint agents by executing formal power of attorney on a written and stampedThe power of attorney may be general (empowers the agent to represent the principal generally)and special( authorizes the agent only to do particular transaction) .2.Agency by implied agreementIt may be implied under certain circumstances from the conduct of the parties or the relationship between them (e.g) partners,wives*

(a)Agency by estoppelWhere the principal by his conduct or statement wilfully induces another person to believe that a certain person is his agent, he is subsequently prevented or estopped from denying the fact of agency (e.g) A tells B within hearing of C that he is the agent of C, C doesnot object to this statement of A. later on B supplies certain goods to A. Now C is liable to pay the price to B.

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(b)Agency by holding outIn this case a prior and positive affirmation act on the principal is required to establish agency subsequently.(e.g)P allows his servant habitually to purchase goods from a local dealer and pays them. one day he terminated from the services with out the notice to the dealer .The servant purchased goods worth Rs200 from the same dealer on credit .P liable to pay the amount to local dealer .(c) Agency by necessityIn certain circumstances law confers authority upon a person to act as agent for another without requiring the consent of that other person

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3) Agency by ratification(expost facto agency)An agent may act on behalf of the principal either with or with his authority .Acts performed by an agent beyond the scope of his authority are not binding upon the principal. However the principal may in such a case either adopt or reject the act of the agente.g-A buys 5 bags of rice on behalf of B.B did not appoint A as his agent .B may upon hearing of the transaction ,accept it or reject it ,If B accepts it,the act is ratified and A becomes his agent .4.Agency by operation of lawSometimes agency created by operation of law. When a company is first formed ,its promoters are its agents by operation of law. Similarly partners act as agent in partnership concern *

Definition of ratification;Ratification is an approval a previous unauthorized act or contract. It is thus a kind affirmation of unauthorized acts.Section 196 of the contract act provides that where acts are done by one person on behalf of another ,but without his knowledge authority ,he may elect to ratify or to disown such acts. If he ratifies them ,the same effects will follow as if they had been performed by his authority William vs north china insurance companyIn this case, an agent insured the goods of the principal without authority. Later the principal ratified his agents act of insurance .The parties were bound by the contract.

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Essentials of valid ratification1.Agent must act in behalf of the principalThe act must be done in the name of the principal. If the agent acts in his own name ratification does not become valid.2.Principal must be in existenceThe principal must be existence at the time when the act was done .A contract cannot be ratified if the principal does not in existence.3.Contractual capacity of the principalThe principal must have contractual capacity at the time of making the contract and also at the time of the contract.*

4.Void actsAn act which is void from the very beginning cannot be ratified .e.g- payment of dividend out of capital is void and cannot be ratified.5.Legal actsThe act to be ratified must be legal and lawful.It must not be unlawful and criminal.E.g-forgery cannot be ratified because it is a crime.6.No partial ratificationRatification must relate to the whole act or transaction and not the part of it. There cannot be partial ratification and partial rejection. *

7.Full knowledge of material factsNo valid ratification can be made by a person whose knowledge of facts of the case is materially defective.(e.g.) A has an authority from P to buy certain goods at the market rate. He buys at a higher rate but P accepts the purchase. Afterwards P comes to know that the goods purchased by A for P belonged to A himself. The ratification is not binding on P.8.Reasonable timeRatification must be made within a reasonable time after the original contract is made.9.CommunicationRatification must be communicated within a reasonable time. Uncommunicated ratification is not valid.

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10.Power of the principal to ratifyRatification can be made of those acts alone which the principal had the power to do.(e.g) A company cannot ratify the acts of the directors which are ultra vires the powers of the company.11.Third parties rightRatification must not cause loss to a third party. An act which puts the third party to damage cannot be ratified(e.g) A gave his house to B on a lease terminable by a 3months notice. X was his agent to collect rents. X gave a 3 months notice to B on behalf of A terminating the lease. Later A ratified it. Held that the ratification was not valid as the notice of termination was prejudicial to B *

12. Nature of ratificationIt may be expressed or implied.Classification of agentsA general classification of agents from the point of view of the extent of their authority1.Special agent- who is appointed to perform a particular act or to represent his principal in some particular transaction.2.general agent- who has authority to do all acts connected with a particular trade,business or employment.3.universal agent-whose authority to act for the principal is unlimited. He has authority to act provided(i)is legal and(ii) agreeable to law of the land *

Another classification from the point of view of the nature of work performed by them as follows1.Mercantile agent according to sec 2(9) of the sale of goods act 1930 means a mercantile agent having in the customary course of business as such agent, authority either to sell goods ,or to consign goods for the purpose of sale or to buy goods or to raise money on the security of goods . This definition does not cover all kinds of mercantile agents are as follows(a) factor entrusted with the possession of goods for the purpose of selling them.(b) auctioneer-an agent is appointed by a seller to sell his goods by public auction for a reward generally in the form of commission *

(c) Broker an agent who is appointed to buy and sell goods on behalf of another .He is not entrusted with the possession of the goods which he deals.(d) Commission agent- an agent is appointed to buy and sell the goods or transact business generally for other persons receiving for his labour and trouble a money payment called commission (e)Del credere agent-One who is consideration of an extra commission guarantees his principal that the persons with whom he enters in to contract on behalf of the principal ,shall perform their legal obligations.2. BankerThe relationship between banker and customer is really a debtor and creditor3.Non mercantile agents-attorneys, insurance, agents, wife *

Rights and duties of principalRights of principal1.To recover damages2.To obtain an account of secret profits and recover them and resist a claim.3.To resist agents claim for indemnity against liability incurred .Duties of principal1.To indemnify the agent against the consequences of all lawful acts.2.To indemnify the agent against the consequences of acts done in good faith3. To indemnify agent for injury caused by principals neglect4.To pay the agent the commission or other remuneration*

Rights and duties of agentRights of an agent1.Right to receive remuneration.2.Right of retained-Principals money3.Right of lien-Retain goods of principal.4.Right of indemnification-compensate against consequences of all lawful acts done by the principal.5.Right to receive compensation.- For any injuries caused by the principal. Duties of an agent1.To act according to principals directions.2.To act with reasonable skill and diligence.3.To render accounts to the principal.4.To communicate with the principal.5. Not to deal on his account.6. Not to make secret profits from agency.7.To pay sums received for the principal. 8. Not to disclose confidential matters.9.Not to setup adverse title.10.Not to delegate authority.

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Termination of agencySection 201 of the contract act lays down the various modes in which the authority of the agent mat be terminated .The different ways in which agent is terminated(a) By the act of the partiesA contract of agency may come to an end either on account of the act of the principal or agent or both. Thus agency may be terminated by the act of the parties in the following cases:1) By the agreement between the partiesThe agency may be terminated at any stage by mutual agreement between principal and agent2)By revocation of the principalThe principal may revoke an agency at anytime by giving a notice an agent.(sec 207).*

3.By renunciation of business by the agentsection 201 of the act empowers the agent to renounce his authority .After giving reasonable notice to the principal ,may renounce the business of agency. In case of premature renunciation ,the agent will be liable in damages to the principal. B)By operation of law(a) By completion of the agency businessWhen the business of agency gets completed the agency comes to an end (e.g) when the lawyer is appointed to plead in a suit his authority comes to end with the judgement.(b)By the expiry of timeWhen the agent is appointed for a fixed period of time ,the agency comes to end after the expiry of fixed period of time even if the work is not completed. *

*c)By the death or insanity of the principal or agentDeath or insanity of the principal or agent terminates the agency .On the death or insanity of the principal ,the agent has a duty to protect the estate of the principal by taking reasonable steps.d)By insolvency of the principal The insolvency of the principal puts an end to agency. The insolvency of agent also terminates the agency.e) By destruction of subject matterWhere the subject matter for which the agency was created has been destroyed ,the agency comes to end.f)By the principal becoming an alien enemyWhen the principal and agent are alien enemy the contract of agency is terminatedg) By the dissolution of the company

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