The Indian Contract Act,

1872

CA. Manish Dafria

Chapter 1

Unit 9

Agency

Contracts

IPCC Paper 2 Business Laws, Ethics & Communication

Learning Objective

Basic Concepts of Law of Agency

Modes of Creating Agency

Extant of Agent’s Authority

Duties and Obligations of Agent

Rights of an Agent

Termination of Agency

Basic Concepts

Definitions (Sec 182)

Agent

• Is a person employed -

• to do any act for another, or

• to represent another in dealings with third parties

Principal

• Is the person - • for whom such act is

done, or • who is so

represented

Law of Agency-Basic Rule

For any act of agent, principal is responsible as if

the act has been done by the principal himself.

Who Can Appoint Agent (Sec 183)

• Any person who – Has attained the age of majority and – Is of sound mind, can appoint another person as his agent

to act on his behalf with an authority to bind him.

Consideration for Contract of Agency

• No Consideration is necessary for a contract of agency. (Sec. 185)

Modes of Creation of Agency

Modes of Creation of Agency

Express Authority

Implied Authority

• Agency by Estoppel • Agency by Holding Out

Agency in case of Necessity

Agency by Ratification

By Operation of Law

Express Authority

n A residing in Delhi and has a house at Kolkata. He appoints B in Kolkata, by a Power of Attorney, as a caretaker of his house.

n This is agency by express authority.

Implied/Ostensible Authority

• Agency by Estoppel : – If a person permits other to act on his behalf so

that a reasonable person would believe that relationship of principal and agent has been created, he would be estopped from denying agent’s authority.

Raju informs Hari in the presence of Kishan that Kishan is Raju’s agent. Later on Hari enters into a contract with Kishan thinking that Kishan is acting on behalf of Raju. In this case neither Raju nor Kishan can refuse the obligation under the contract.

Implied/Ostensible Authority

• Agency by Holding Out – If any person holds himself out as an agent of

another and that another does not deny it, then a relationship of agent and principal gets created.

Agency In Case Of Necessity

n Some times circumstance create a relation of agency.

n A horse sent by rail was not taken delivery at the destination. The station master has to feed the horse. The Station master becomes an agent by necessity and hence the owner shall compensate him.

Agency by Ratification (Sec. 196)

• When a person does some act on behalf of another without such other’s knowledge, the act may be ratified or disown by the other person.

• When he opts to ratify the same, he is bound by the acts as if he had expressly authorised the person to do the act on his behalf.

A without authority, buys goods, for B. Later B sells them to C on his own account. B’s conduct implies a ratification of purchase made for him by A.

Agency By Operation of Law

• In certain cases, it is law which creates the relationship of Agent and Principal. – For example : Partners are considered as Agents

of each other and also of the Firm.

Extant of Agent’s Authority

Agent’s authority in normal circumstances (Sec. 188) • An agent, having an authority to do an act, has

authority to do every lawful thing which is necessary in order to do such act.

A is employed by B, residing in London, to recover at Bombay a debt due from B. A may adopt any legal process necessary for the purpose of recovering the debt, and may give a valid discharge for the same.

Agent’s authority in normal circumstances (Sec. 188) • An agent having all authority to carry on a business,

has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.

A constitutes B his agent to carry on his business of a shipbuilder. B may purchase timber and other materials, and hire workmen, for the purpose of carrying on the business.

Agent’s authority in an emergency (Sec. 189)

An agent has authority, in an emergency,

to do all such acts for the purpose of

protecting his principal from loss

as would be done by a person of ordinary

prudence, in his own case under similar

circumstances.

An agent for sale may have goods repaired if it be necessary.

Notice Given To Agent (Sec. 229)

• Any notice given to or information obtained by the agent shall be deemed to be given to the principal.

• Thus where an agent negotiates with a client, principal is deemed to be aware of the fact.

Duties and Obligations of Agent

Agent's Duty in Conducting Principal's Business (Sec. 211)

An agent is bound to conduct the business of his principal according to the directions given by the principal.

In the absence of any such directions, agent is bound to conduct the business according to the customs which prevails in doing business of the same kind at the place where the agent conducts such business.

Agent's Duty in Conducting Principal's Business When the agent acts otherwise, • if any loss be sustained, he must make it good

to his principal . • if any profit accrues, he must account for it.

n B, a broker in whose business it is not the custom to sell on credit, sells goods of A on credit to C, whose credit at the time was very high. C, before payment, becomes insolvent. B must make good the loss to A.

Skill And Diligence Required From Agent (Sec. 212) • An agent is bound to conduct the business of

the agency with as much skill as is generally possessed by persons engaged in similar business.

• He would otherwise be responsible to compensate the principal for any loss suffered by the principal for want of his skill. A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit, without making the proper and usual enquiries as to the solvency of B. B at the time of such sale is insolvent. A must make compensation to his principal in respect of any loss thereby sustained.

Agent’s Accounts (Sec. 213)

• An agent is bound to render proper accounts to his principal on demand.

Agent’s duty to communicate with principal (Sec. 214)

It is the duty of any agent in cases of difficulty,

to use all reasonable diligence

in communicating with his principal, and to obtain his instructions.

Agent Dealing On His Own Account In Business Of Agency (Sec. 216)

the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.

deals in the business of the agency on his own account instead of on account of his principal,

If an agent, without the knowledge of his principal,

A directs B, his agent, to buy a certain house for him. B tells A it cannot be bought, and buys the house for himself. A may, on discovering that B has bought the house, compel him to sell it to A at the price he gave for it.

Rights of an Agent

Agent To Be Indemnified Against Consequences Of Lawful Acts (Sec. 222)

The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him.

B, at Singapore; under instructions from A of Calcutta, contract with C to deliver certain goods to him. A does not send the goods to B, and C sues B for breach of contract. B informs A of the suit, and A authorises him to defend the suit. B defends the suit, and is compelled to pay damages and costs, and incurs expenses. A is liable to B for such damages, costs and expenses.

Agent To Be Indemnified Against Consequences Of Acts Done In Good Faith (Sec. 223)

the employer is liable to indemnify the agent - against the consequences of

that act, though it may cause an injury to the rights of third persons.

and the agent does the act in good faith,

Where one person employs another to do an act, B, at the request of A, sells goods in the possession of A, but which A had no right to dispose of. B does not know this, and hands over the proceeds of the sale to A. Afterwards C, the true owner of the goods, sues B and recovers the value of the goods and costs. A is liable to indemnify B for what he has been compelled to pay to C, and for B’s own expenses.

Agent Not To Be Indemnified Against Criminal Acts (Sec. 224)

Where one person employs another to do an

act which is criminal,

the employer is not liable to the agent,

to indemnify him against the consequences of that

Act.

A employs B to beat C, and agrees to indemnify him against all consequences of the act. B thereupon beats C, and has to pay damages to C for so doing. A is not liable to indemnify B for those damages.

Right of Retention (Sec. 217)

all moneys due to himself in respect of advances made

or expenses properly incurred by him in conducting

such business,

and also such remuneration as may be payable to him for

acting as agent.

An agent may retain, out of any sums received on account of the principal in the business of

the agency,

Right of Lien (Sec. 221)

In the absence of any contract to the

contrary,

an agent is entitled to retain goods, papers, and other property, whether movable or

immovable of the principal received by

him,

until the amount due to himself for commission, disbursements and services in respect of the same

has been paid to him.

Termination of Agency

Termination of Agency the principal

revoking his authority,

the agent renouncing the business of the

agency;

the business of the agency being completed;

either the principal or agent dying or becoming of unsound mind;

the principal being adjudicated an

insolvent

An agency is terminated

by

Summary

For any act of agent, principal is responsible as if the act has been done by the principal himself.

No Consideration is necessary for a contract of agency.

Agency may be created by -

• Express Authority • Implied Authority • Agency in case of Necessity • Agency by Ratification • By Operation of Law

Summary

An agent, having an authority to do an act, has authority to do every lawful thing which is necessary in order to do such act.

The Contract act provides for various duties of agent in conducting principal's business.

Similarly various rights have been given to agent with respect to his dealings for the principal.

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