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A contract of agency is a legal agreement where one party, known as the principal, appoints another party, known as the agent, to act on their behalf in dealings with third parties. This relationship is governed by specific legal principles and statutes, ensuring that the agent acts within the scope of authority granted by the principal.
The contract of agency can be either express or implied, and it establishes a fiduciary relationship between the principal and the agent.
Definition and Roles
Agent: An agent is a person employed to do any act for another or to represent another in dealings with third persons (Section 182). The agent acts on behalf of the principal and is a conduit between the principal and third parties.
Principal: The principal is the person on whose behalf the agent acts. The principal is bound by the acts of the agent, provided the agent acts within the scope of their authority.
Competence to Appoint and Become an Agent
Competence to Appoint an Agent: According to Section 183, any person who is of the age of majority and of sound mind can appoint an agent. Minors and persons of unsound mind cannot appoint agents.
Competence to Become an Agent: A person who is not competent to contract (like a minor or a person of unsound mind) can still be appointed as an agent (Section 184). However, such an agent cannot be held liable for their actions, and the principal cannot hold them accountable for misconduct or negligence.
Debenham vs Mellon: In this case, the court examined the implied authority of a wife to bind her husband for necessaries. The husband was not liable for the wife's debts because he had expressly forbidden her from incurring them. This case underscores that a principal must be competent to appoint an agent, and the agent's authority can be limited by the principal's explicit instructions.
Types of Agents
Agents can be broadly classified into:
Special Agents: Appointed for a specific task or transaction.
General Agents: Authorized to act on behalf of the principal in all matters concerning a particular business.
Mercantile Agents: Include brokers, commission agents, factors, del credere agents, auctioneers, bankers, and others involved in commercial transactions.
Non-mercantile Agents: Include advocates, attorneys, estate agents, and others not involved in commercial transactions.
Creation of Agency
A contract of agency can be created through various methods, each with its own legal implications and requirements. Below are the detailed methods by which an agency can be established:
1. Express Agency (Section 187)
An express agency is created when the principal explicitly appoints an agent through a written or verbal agreement. This type of agency is straightforward and involves clear communication of the agent's authority.
Case Law: In the case of Bolton Partners vs Lambert, the managing director accepted an offer without authority, but the company later ratified the acceptance. This case illustrates that even if the initial authority is not explicit, subsequent ratification can validate the agency.
2. Implied Agency (Section 187)
An implied agency arises from the conduct, situation, or relationship of the parties, rather than from explicit words. The actions of the principal and agent suggest that an agency relationship exists.
Case Law: In Great Northern Railway vs Swaflield, the station master acted as an agent of necessity by feeding a cow that was not collected by the consignee. The court held that the principal must reimburse the station master for the expenses incurred, illustrating implied agency by necessity.
3. Agency by Estoppel (Section 237)
Agency by estoppel occurs when a person, by their words or conduct, induces a third party to believe that another person is their agent. The principal is then estopped (prevented) from denying the agency relationship.
Case Law: In Debenham vs Mellon, the court examined the implied authority of a wife to bind her husband for necessaries. The husband was not liable for the wife's debts because he had expressly forbidden her from incurring them, highlighting the limits of agency by estoppel.
4. Agency by Holding Out
Agency by holding out is a subset of agency by estoppel, where the principal's affirmative conduct leads third parties to believe that a person is their agent.
Case Law: This concept is similar to the principles discussed in Debenham vs Mellon, where the husband's conduct could have implied the wife's authority if not expressly forbidden.
5. Agency by Necessity
Agency by necessity arises in emergency situations where urgent action is required, and it is not possible to obtain the principal's instructions. The agent acts out of necessity to protect the principal's interests.
Case Law: In Great Northern Railway vs Swaflield, the station master acted as an agent of necessity, and the court held that the principal must reimburse him for the expenses incurred.
6. Agency by Ratification (Sections 196 to 200)
Agency by ratification occurs when the principal approves the unauthorized acts of the agent after the fact. The ratification makes the agent's actions binding on the principal as if they had been authorized from the outset.
Bolton Partners vs Lambert: In this case, Lambert made an offer to Bolton Partners, which was accepted by Bolton's managing director without having the authority to do so. Lambert withdrew the offer before the company ratified the acceptance.
However, the court held that the ratification by the company related back to the time of the acceptance, making the acceptance valid and binding on Lambert.
This case illustrates the principle that ratification can have retrospective effect, binding the principal to the agent's unauthorized acts as if they were authorized from the outset.
Kelner vs Baxter: This case involved promoters of a company who entered into a contract on behalf of a company that was yet to be formed. The court held that the company, once formed, could not ratify the contract because it was not in existence at the time the contract was made.
This case highlights that for ratification to be valid, the principal must have been in existence and competent to contract at the time the agent acted.
Duties of an Agent
An agent has several duties towards the principal, including:
Conducting Business as per Instructions: The agent must follow the principal's instructions meticulously (Section 211).
Skill and Diligence: The agent must conduct business with the skill and diligence expected from a person in their position (Section 212).
Proper Accounts: The agent must submit proper accounts to the principal (Section 213).
No Secret Profit: The agent must hand over all profits made on behalf of the principal.
Not to Deal on Own Account: The agent must not engage in transactions for personal gain without the principal's consent.
Confidentiality: The agent must not disclose any confidential information.
Case Law on Duties of an Agent
Lilley vs Doubleday: The agent was instructed to store goods in a specific warehouse but chose a different one, which was subsequently destroyed by fire. The court held the agent liable for the loss due to non-compliance with the principal's instructions. This case emphasizes the agent's duty to follow the principal's instructions meticulously.
Paul Bier vs Chottalal: The agent sold goods on credit despite instructions to sell only for cash. The court held the agent liable for the unpaid amount. This case highlights the agent's duty to adhere to the principal's instructions and the consequences of deviating from them.
Anandprasad vs Dwakanath: The agent failed to submit proper accounts with supporting vouchers. The court ruled against the agent, emphasizing the duty to provide detailed and supported accounts. This case illustrates the importance of transparency and accountability in the agent's financial dealings.
H Wilson and Co. vs Bata: The agent engaged in a transaction for personal gain without the principal's consent. The court held that the agent must hand over any profits made from such transactions to the principal. This case underscores the agent's duty not to deal on their own account without the principal's permission.
Harvalabh vs Jivanji: The agent purchased an item for personal use that he was supposed to buy for the principal. The court ruled that the agent must sell the item to the principal at the purchase price and forfeit any commission. This case highlights the agent's duty to act in the principal's best interest and avoid conflicts of interest.
Rights of an Agent
An agent enjoys several rights, including:
Right to Remuneration: The agent is entitled to remuneration as agreed or a reasonable amount if not specified (Sections 219 and 220).
Right of Retainer: The agent can retain the principal's money to cover their remuneration and expenses (Section 217).
Right of Lien: The agent can retain the principal's goods until their dues are paid (Section 221).
Right of Stoppage-in-Transit: The agent can stop goods in transit if the principal becomes insolvent.
Right to be Indemnified: The agent is entitled to indemnification for lawful acts performed on behalf of the principal (Sections 222 to 225).
Right to Compensation: The agent is entitled to compensation for any injury caused by the principal's neglect (Section 225).
Case law on Right of an Agent
Sheikh Farid Baksh vs Hasgulal Singh: The agent was entitled to remuneration for successfully finding a buyer for the principal's property. The court ruled in favor of the agent, emphasizing the right to remuneration upon completing the assigned task. This case illustrates the agent's right to be compensated for their services.
Raja Ram vs Ganesh Pd.: The agent claimed remuneration for a transaction that was the direct result of his efforts. The court upheld the agent's claim, highlighting the right to remuneration for services that directly lead to a successful transaction. This case underscores the importance of the agent's role in achieving the principal's objectives.
Roopji and Sons vs Dyer Meakin: The agent was entitled to remuneration for services rendered, even though the principal later disputed the terms. The court ruled in favor of the agent, emphasizing the right to fair compensation for services performed. This case illustrates the agent's right to be paid for their work, regardless of subsequent disputes.
Personal Liability of an Agent
An agent typically acts as a conduit between the principal and third parties, and is not personally liable for contracts made on behalf of the principal. However, personal liability arises in specific circumstances:
Breach of Warranty of Authority: If an agent acts without or beyond their authority, they are liable for any resulting damages (Yonge vs Toynbee).
Express Agreement: When an agent explicitly agrees to be personally responsible.
Negotiable Instruments: Signing in their own name without indicating agency.
Special Interest: Agents with a beneficial interest can be personally liable (Subramaniya vs Narayana).
Fraud or Misrepresentation: Agents are liable for unauthorized fraudulent acts (Section 238).
Case law on Personal Liability of Agent
Yonge vs Toynbee: The agent continued to act on behalf of a principal who had become insane, without knowing about the principal's condition. The court held the agent personally liable for breach of warranty of authority.
This case illustrates that an agent can be held liable for acting without authority, even if unaware of the principal's incapacity.
Subramaniya vs Narayana: The agent had a special interest in the subject matter of the agency and was held personally liable. This case demonstrates that agents with a special or beneficial interest in the agency can be personally liable for their actions.
Green vs Bartlett: The agent misrepresented his authority to sell property. The court held the agent personally liable for the misrepresentation. This case underscores the agent's liability for misrepresentation or fraud when acting beyond their authority.
Marsh vs Jeff: The auctioneer, acting as an agent, sold goods by private contract instead of by public auction as authorized. The court held the auctioneer personally liable. This case highlights the agent's duty to act within the scope of their authority and the consequences of exceeding it.
Termination of Agency
Termination of agency refers to the end of the legal relationship between the principal and the agent, where the agent's authority to act on behalf of the principal ceases.
The termination can occur through various means, each with specific legal implications. Below is a detailed exploration of the different methods and circumstances under which an agency can be terminated, as outlined in the provided content.
1. By Revocation by the Principal (Section 201)
The principal has the right to revoke the authority given to the agent at any time, provided sufficient notice is given to the agent. This revocation can be for any reason, but it must be communicated effectively to the agent.
Conditions:
Single Act Agency: If the agency is for a single act, the principal can revoke the authority at any time before the commencement of that act.
Continuous Agency: For continuous agencies, the principal must notify both the agent and any third parties who have acted on the agency with the principal's knowledge.
Fixed Period Agency: If the agency is for a fixed period, revocation without sufficient cause may require the principal to compensate the agent (Section 205).
Exceptions:
Agency Coupled with Interest: An agency coupled with interest cannot be revoked to the detriment of that interest unless there is an express contract to the contrary (Section 202).
Partly Exercised Authority: The principal cannot revoke the authority after it has been partly exercised concerning acts and obligations arising from acts already done in the agency (Section 204).
2. On the Expiry of Fixed Period of Time
When an agency is established for a specific period, it automatically terminates upon the expiry of that period.
Example: A contract of agency for six months: The agency ends automatically after six months, regardless of whether the tasks assigned have been completed.
3. On the Performance of the Specific Purpose
If the agency is created for a specific purpose, it terminates once that purpose is accomplished or becomes impossible to perform.
Example: A is appointed to sell a particular property: The agency ends once the property is sold or if selling the property becomes impossible due to legal or physical reasons.
4. Insanity or Death of the Principal or the Agent (Section 209)
The agency relationship automatically terminates if either the principal or the agent becomes insane or dies.
Agent's Duty: In the event of the principal's death or insanity, the agent must take all reasonable steps to protect and preserve the interests and property entrusted to him on behalf of the principal or the principal's legal representatives.
5. When the Subject Matter is Either Destroyed or Rendered Unlawful
The agency terminates if the subject matter of the agency is destroyed or if the purpose of the agency becomes unlawful.
Example: A is appointed to sell a specific car: If the car is destroyed in an accident, the agency terminates.
6. Insolvency of the Principal
The agency terminates if the principal becomes insolvent. However, the insolvency of the agent does not terminate the agency.
Example: P, a business owner, becomes insolvent: The agency relationship with A, who was managing P's business, ends.
7. By Renunciation of the Agency by the Agent (Section 205)
The agent can renounce the agency at any time by giving sufficient notice to the principal. If the agency is for a fixed period, renunciation without sufficient cause may require the agent to compensate the principal.
Example: A, appointed for a year, renounces the agency after six months: If A does not have a sufficient cause, A may need to compensate P for any losses incurred due to the premature termination.
When Does Termination of Agency Become Effective? (Section 208)
For the Agent: The termination of the agent's authority does not become effective until the agent is aware of it. This means the agent can continue to act on behalf of the principal until they receive notice of the termination.
For Third Parties: Third parties can continue to deal with the agent and bind the principal until they become aware of the termination. This ensures that third parties are not unfairly prejudiced by a termination they were unaware of.
Case Law on Termination of Agency
Great Northern Railway vs Swaflield: The station master acted as an agent of necessity by feeding a cow that was not collected by the consignee.
The court held that the principal must reimburse the station master for the expenses incurred. This case illustrates the concept of agency by necessity and the agent's right to be indemnified for actions taken in an emergency.
Weld Blundell vs Stephens: The agent disclosed confidential information, leading to a lawsuit. The court held the agent liable for breaching the duty of confidentiality. This case underscores the agent's duty to maintain confidentiality and the consequences of failing to do so.
Important for Commercial Transaction
The contract of agency is a fundamental aspect of commercial and legal transactions, facilitating the delegation of authority and representation in various dealings. Understanding the rights, duties, and liabilities of both the principal and the agent is crucial for ensuring smooth and legally compliant operations.
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