UNIT – I CONTRACT OF AGENCY DEPARTMENT OF MANAGEMENT STUDIES UNIT – I CONTRACT OF AGENCY 6/15/2018 Dr. G. MAHESWARAN/AP

Definition of Agent & Principal An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such acts are done or who is represented is called the principal. The contract which creates relationship of principal & agent is called an agency. 6/15/2018 Dr. G. MAHESWARAN/AP

Essentials and legal rules There should be an agreement between the principal and the agent :Agreement may be: Express or implied The agent must act in the representative capacity. The principal must be competent to contract. The agent need not be competent to contract. Why? But in the interest of the principal? The consideration is not necessary. 6/15/2018 Dr. G. MAHESWARAN/AP

General rules of agency Whatever a person can lawfully do himself, he may also do the same through an agent He who acts through another, does by himself Distinction b/w agent & servant. 6/15/2018 Dr. G. MAHESWARAN/AP

Conti… Who may employ an agent? Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent. Who may be an agent? As between the principal and third persons any person may become an agent 6/15/2018 Dr. G. MAHESWARAN/AP

He ordinarily has no such authority. Agent Servant He has the authority to create commercial relationship between the principal & the third party He ordinarily has no such authority. He may work for several principal at a time. He ordinarily work for only one master at a time. He usually get commission He usually get salary or wages. 6/15/2018 Dr. G. MAHESWARAN/AP

TEST OF AGENCY The question as to whether a particular persons is an agent can be verified by finding out if his acts bind the principal or not 6/15/2018 Dr. G. MAHESWARAN/AP

Creation of agency Agency by express agreement Agency by implied agreement Agency by ratification A. Agency by express agreement Appointment in writing or by words of mouth Usual form of a written agreement : Power of attorney – General power of attorney or Special PA 6/15/2018 Dr. G. MAHESWARAN/AP

B. Agency by implied agreement Due to the conduct of the parties or the course of dealing between the parties or the situation of a particular case. Agencies by an implied agreement includes: Agency by estoppel Agency by holding out Agency by necessity 6/15/2018 Dr. G. MAHESWARAN/AP

Conti… Agency by estoppels : Where a person by his words or conduct has willfully led another to believe that certain set of circumstances or facts exist, and the other person has acted on that belief, he is estopped from denying the truth of such statements although such a state of things did not in fact exist. 6/15/2018 Dr. G. MAHESWARAN/AP

Conti… Agency by holding out: More than estoppel – positive or affirmative conduct of the principal is required Agency by necessity: Due to extraordinary circumstances, person may be compelled to act without requiring the consent or authority 6/15/2018 Dr. G. MAHESWARAN/AP

Conti… Conditions: There must be real emergency to act on behalf of the Principal. Agent not in a position to obtain instructions Acting honestly and in the interest of the Principal Adopting reasonable and practicable course of action 6/15/2018 Dr. G. MAHESWARAN/AP

Conti… Cases: 1.Where the agent exceeds his authority bonafide in an emergency 2.Where the carrier of goods acting as a bailee, does anything to protect or preserve the goods. 3.Where husband improperly leaves his wife without providing proper means for her sustenance. 6/15/2018 Dr. G. MAHESWARAN/AP

C. Agency by ratification A person does some acts on behalf of another person without his knowledge or authority Another person subsequently accepts the acts Then: Agency by ratification Also known as ex-post facto agency (agency arising after the event) 6/15/2018 Dr. G. MAHESWARAN/AP

Conditions for valid ratification The agent must act on behalf of the principal The principal must be competent to contract and in existence at the time of contract by the agent There should be an act capable of ratification The principal must have full knowledge of the material facts. Whole transaction must be ratified Within a reasonable time. Ratification must not injure a third party. 6/15/2018 Dr. G. MAHESWARAN/AP

Kinds of agents From the point of view of the extent of their authority : 1.General Agent- Is one employed to do all the acts connected with a particular business or employment Eg: manager of a firm. 2. Special Agent – employed to do some particular act or represent his principal in some particular transaction. Eg: agent employed to sell a motor car. 3.Universal Agent – Whose authority is unlimited. He enjoys extensive powers to transact every kind of business on behalf of principal. 6/15/2018 Dr. G. MAHESWARAN/AP

Conti… II. From the point of view of the nature of work performed by them: Mercantile agent- An agent dealing in the buying and selling of the goods An agent who has the authority either to sell the goods, or to consign the goods for the purpose of sale, or to buy the goods or to raise the money on the security of the goods on behalf of his principal 6/15/2018 Dr. G. MAHESWARAN/AP

Types of Mercantile Agents Factor: possession of the goods is given for the purpose of selling the same – sells in his own name – has general lien – usually sells in his own name Broker: appointed to negotiate and make contracts for the sale and purchase on behalf of the principal – not given possession – not in his own name Commission agent: buys and sells and receives commission 6/15/2018 Dr. G. MAHESWARAN/AP

Conti… 4.Del credere agent: One who in consideration of an extra commission, guarantees his principal that the third persons with whom he enters into contracts on behalf of the principal shall perform their financial obligations i.e. if the buyer does not pay , he will pay. II. Non- mercantile agents : Does not usually deal in the buying or selling of the goods. They include Insurance agents ,Counsels or advocates, wife,etc. 6/15/2018 Dr. G. MAHESWARAN/AP

Duties of an agent Duty to follow the instructions of the principal – if not.. Duty to carry out the work with care and skill Duty to render accounts to the principal Duty to communicate with principal – if no time Duty not to deal on his own account Duty not to make secret profits from agency Duty to pay the amount received for the principal 6/15/2018 Dr. G. MAHESWARAN/AP

Conti… 8. Duty not to use the information, received in the course of agency, against the principal 9. Duty to protect the interest of the principal in case of his death or insanity 10. Duty not to delegate authority 6/15/2018 Dr. G. MAHESWARAN/AP

Rights of an agent Rights to retain money due from the principal Right to receive remuneration Right of lien – The agent has the right to retain goods, papers and other property- only particular lien Right to be indemnified against consequences of lawful acts. Right to compensation Right to be indemnified against consequences of acts done in good faith Right of stoppage of goods in transit. Principal becomes insolvent Agent has bought goods out of his own money 6/15/2018 Dr. G. MAHESWARAN/AP

Rights of principal Recover damages from agent if he disregards directions of Principal Obtain accounts from Agent Recover moneys collected by Agent on behalf of Principal Obtain details of secret profit made by agent and recover it from him Forfeit remuneration of Agent if he misconducts the business 6/15/2018 Dr. G. MAHESWARAN/AP

Duties of principal Pay remuneration to agent as agreed Indemnify agent for lawful acts done by him as agent  Indemnify Agent for all acts done by him in good faith Indemnify agent if he suffers loss due to neglect or lack of skill of Principal. 6/15/2018 Dr. G. MAHESWARAN/AP

Delegation of authority by an agent General rule: “ Delegatus non-protest delegare” i.e. a delegate cannot further delegate But in exceptional cases sub-agent can be appointed Cases: Express authority from the principal Where the principal has impliedly, by his conduct allowed such delegation of authority. Ordinary Custom of a particular trade Nature of the work Acts which do not require personal or professional skill Due to unforeseen emergencies 6/15/2018 Dr. G. MAHESWARAN/AP

Relations of principal with third parties Scope and extent of agent’s authority Principal and the third party Personal liability of the agent Agent’s authority Power or capacity to bind the principal with the third party Two types of authority Actual or real authority Ostensible or apparent authority 6/15/2018 Dr. G. MAHESWARAN/AP

2.Ostensible or apparent authority 1.Actual or real authority Authority conferred upon the agent by his principal Two kinds: Express authority Implied authority: conferred upon the agent by the conduct of the principal 2.Ostensible or apparent authority The act is in excess of the actual authority Authority due to the appearance created by the principal 3.Authority in necessity 6/15/2018 Dr. G. MAHESWARAN/AP

Relationship between principal and sub-agent Discussed under two heads: Where the sub-agent is properly appointed Where the sub-agent is improperly appointed 1.Where the sub-agent is properly appointed (a)The principal is bound and is liable to third parties for the acts of the sub-agent (b) Where the agent is responsible to the principal for the acts of sub-agent. (c )The Sub-agent is responsible for his acts to original agent not to principal except in fraud or willful wrong 6/15/2018 Dr. G. MAHESWARAN/AP

2. Where the sub-agent is improperly appointed The principal is not represented by sub-agent and hence he is not liable for acts of the sub-agent The agent is responsible for the acts of the sub-agent to the principal as well as to the third parties The sub-agent is not responsible to principal at all. 6/15/2018 Dr. G. MAHESWARAN/AP

Personal Liability of agent When contract expressly provides Agent acts for foreign principal Agent acts for undisclosed principal When principal can not be sued Where agent signs contract in his name Principal is not in existence Liable for breach of warranty of authority When he pays or receives money by mistake 9. Authority is coupled with interest 10. Trade makes agent personally liable 6/15/2018 Dr. G. MAHESWARAN/AP

Termination of agency End of the relationship of a principal and his agent Studied under: Termination of agency by act of the parties Termination of agency by operation of law 1.Termination of agency by act of the parties Agreement -between the principal and agent Revocation by the principal : Revocation may be express or implied – There are conditions In case of continuous agency Where an agency has been created for a fixed period of time. 3. Revocation of agency by the agent 6/15/2018 Dr. G. MAHESWARAN/AP

II.Termination of agency by operation of law Completion of agency business Expiry of time Death of the principal or the agent Insanity of the principal or the agent Insolvency of the principal Destruction of the subject-matter of the agency Dissolution of a company Principal or agent becomes alien enemy 6/15/2018 Dr. G. MAHESWARAN/AP

Effectiveness of termination: As between the principal and agent, termination of agency is effective only when it becomes known to the agent. - Third parties- when it is known to them. Irrevocable agency Where the agency is coupled with interest- where the agent has some interest over the subject matter When revocation would cause the agent personal loss When the authority has been partly exercised by the agent. 6/15/2018 Dr. G. MAHESWARAN/AP

Bibliography Elements of Mercantile law Author :- N.D. Kapoor Publisher :- Sultan chand & Sons http://www.slideshare.net/nileshmishra12979/contract-of-agency-14550183 http://www.slideshare.net/birubiru/contract-of-agency-6917166 6/15/2018 Dr. G. MAHESWARAN/AP

6/15/2018 Dr. G. MAHESWARAN/AP