Contract of Agency

GHULAM MURTAZA KORAIIOBM

CONTRACT OF AGENCY

BASIC CONCEPTS OF AGENCY

Since it is not always possible for a person to do everything by himself, it becomes necessary to delegate some of the acts to be performed by another person. Such another person is called an agent. The person represented is called the principal.

BASIC CONCEPTS OF AGENCY

AGENT: An agent is a person employed to do any (lawful) act for another or to represent another in dealings with third persons.

Principal: The person for whom such act is done, or who is represented is called the principal.

The essence of the matter is that the principal authorized the agent to represent or act for him in bringing the principal into contractual relation with a third person.

WHO APPLY EMPLOY AN AGENT

An agency being a contract of employment to bring the principal into legal relations with third party, the first requisite is that the principal must be competent to enter into a contract. It follows that a minor cannot appoint an agent.

The appointment of an agent involves a contract and a minor’s agreement is void.

AUTHORITY OF AGENT (CREATION OF AGENCY)

There are three types of agency (a) Agency by Express Authority, (b) Agency by Implied Authority, and © Agency by Ratification.

Agency by Express Authority: Where the authority is given by words, spoken or written, is called express authority. For Example, a power of attorney which is a kind of deed and authorizes the agent to do certain acts is an illustration of express authority.

The scope of express authority is worked out by construction of the words used in the document.


Implied Authority: An authority is said to be implied when it is to be inferred from the circumstances of the case, things spoken or written or the ordinary course of dealing. For Example A owns shop in Quetta, living himself in Karachi and visiting the shop occasionally. The shop is managed by B, and he is in the habit of ordering goods from C in the name of A for the purposes of the shop, and of paying for them out of A’s funds with A’s knowledge. B has an implied authority from A to order goods from C in the name of A for the purposes of the shop.


Agency by Estoppel: Agency by estoppel arises where a person by his words or conducts induces third person that a certain person is his agent. For example A tells B in the presence and within hearing of C that he (A) is C’s agent, C does not contradict his statement.. Later B enters into a contract with A believing that A is C’s agent. In such a contract C is bound by this contract.


Agency by Holding Out: Such agency arises when a third person by his past affirmative or positive conducts leads third person to believe that person doing some act on his behalf is doing with authority. For example A allows his servant B to purchase goods for him on credit from C and later on A pays for them. One day A pays cash to B to purchase goods, B misappropriates the money and purchases goods on credit from C, C can recover the price of his goods from A because A had held out B as his agent on earlier occasions.


Agency by Necessity: Agency by necessity arises under the following conditions:

I. There is an actual and definite necessity for acting on behalf of the principal,

II. It is impossible to communicate the principal and obtain his consent, and

III. The act must have done in the best interest of the principal. For example A consigned some vegetables from Sukkur to

Karachi by a truck. The truck met with an accident. The vegetables were being perishable were sold by the transporter. The sale is binding on A. In this case the transporter became an agent by necessity and he acted by fulfilling all the conditions for the benefit of principal.


Agency by Ratification: Agency by ratification is said to arise when a person, on whose behalf the acts are done without his knowledge or authority, expressly or impliedly accepts such acts. Thus, when the principal approves an act of the agent who never had authority to undertake such an act, it is called Ratification. This type of agency has retrospective effects. For example A the managing director of a company, without prior authority from the company accepted an offer made by B on behalf of the company. B later revoked the offer but the company ratified A’s acceptance. It was held that B is bound by ratification because ratification related back to the time of A’s acceptance.


Agency by Operation of Law: Agency by operation of law is said to arise where the law treats one person as an agent of another.

For Example: On formation of Partnership, every partner becomes the agent of the other partner. Such agency is said to be arisen by operation of law.

CLASSIFICATION OF AGENTS

GENERAL AGENT: A general agent has an authority to act for his principal in all matters concerning particular business in ordinary course of business..

SPECIAL AGENT: A special agent has only authority to do some particular transaction not being in the ordinary course of his trade, profession or business as an agent. The authority of special agent is limited to that particular act only.

UNIVERSAL AGENT: An agent empowered to do all the acts which the principal can lawfully do and can delegate, to transact all the business of the principal of every kind.


BROKER: A broker is one who negotiates and makes contracts between the principal and the third party. He is not entrusted with the possession of goods and hence he has no lien on the goods.

FACTOR: A factor is one who is entrusted with the possession of goods and who has the authority to buy, sell or otherwise deal with the goods. He has general lien on the goods.

AUCTIONEER: An auctioneer is one who is entrusted with the possession of goods for sale at a public auction. He has only a particular lien on the goods for his charges.


COMMISSION AGENT: The term commission agent is a general term which is used in practice even for a factor or broker.

EXTENT OF AGENT’S AUTHORITY

An agent’s authority means the capacity of the agent to bind his principal.

Extent of Agent’s Authority Under Normal Circumstances: An agent having an authority to do every act which is necessary in order to do such act. Examples are already given.

Extent of Agent’s Authority in Emergency: An agent has authority to do all acts for the purpose of protecting his principal from loss. Examples are already given

RIGHTS OF AN AGENT

Right of Retainer: An agent has the right to retain, out of any sum received on account of principal in the business of the agency, all money due to himself in respect of the following: (i) advance made by him; (ii) expenses properly incurred by him in conducting such business; (iii) such remuneration as may be payable to him for acting as agent.

Right to Receive Remuneration: The agent has the right to receive agreed remuneration or usual remuneration as per the custom of the trade in which he has been employed.

RIGHTS OF AN AGENT

Right of Particular lien: An agent has a particular lien on the property of the principal until the amounts due in respect o commission, disbursement and service are paid to him or accounted for to him.

Right to Indemnify for Lawful Acts: An agent has a right to be indemnified against the consequences of all lawful acts done by him in exercise of the authority delegated to him.

Right to Indemnify for Acts Done in Good Faith: An agent has a right to be indemnified against the consequences of act done in good faith though it causes an injury to the rights of third persons.

RIGHTS OF AN AGENT

Right to Compensation: An agent has a right to be compensated in respect of injury caused to him by the principal’s neglect or want of skill.

DUTIES OF AGENT

Duty to perform agreed undertaking: The first and the foremost duty of every agent is to carry out the mandate of his principal. He should perform the work for which he has been appointed to do.

Duty to Act with Reasonable Care and Skill: It is the duty of an agent to conduct the business of agency with reasonable diligence and skill.

Duty to Maintain Accounts: It is the primary duty of an agent to be accountable to the principal, to render account to the principal when demanded.

DUTIES OF AGENT

Duty to Communicate: It is the duty of an agent to keep his principal fully informed. It is the duty of an agent to communicate with the principal about the matters of the agency and to obtain his instructions.

Duty not to Make Secret Profits: Duty to Disclose all Material Circumstances

and to obtain Principal’s consent in Personal dealings: In other words he is to avoid conflict of interest and not to deal on his own in the business of agency without the consent of the principal.

DUTIES OF AGENT

Duty to Pay Sums Received for Principal: Duty not to delegate Authority: The agent

should do all the acts for the business of agency personally and should not appoint sub agent without the consent of the Principal.

Duty in case of Emergency to Protect and Preserve the interest of the Principal:S

Documents

Contract of Agency