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

2. 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

3. 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

4. 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.
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Dr. G. MAHESWARAN/AP

5. 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
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6. 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.
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7. 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
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Dr. G. MAHESWARAN/AP

8. 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
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Dr. G. MAHESWARAN/AP

9. 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
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Dr. G. MAHESWARAN/AP

10. 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.
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11. 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

12. 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
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13. 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.
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14. 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
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15. 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
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16. 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

17. 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
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18. 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
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Dr. G. MAHESWARAN/AP

19. 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

20. 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
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21. 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
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22. 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
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23. 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
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Dr. G. MAHESWARAN/AP

24. 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.
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25. 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
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Dr. G. MAHESWARAN/AP

26. 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
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Dr. G. MAHESWARAN/AP

27. 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
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Dr. G. MAHESWARAN/AP

28. 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
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Dr. G. MAHESWARAN/AP

29. 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

30. 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
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Dr. G. MAHESWARAN/AP

31. 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
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Dr. G. MAHESWARAN/AP

32. 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
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Dr. G. MAHESWARAN/AP

33. 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

34. Bibliography Elements of Mercantile law Author :- N.D. Kapoor
Publisher :- Sultan chand & Sons
6/15/2018
Dr. G. MAHESWARAN/AP

35. 6/15/2018
Dr. G. MAHESWARAN/AP