LEGAL ASPECTS OF BUSINESS

REPORT ON
“CONTRACT OF AGENCY”

SUBMITTED TO- SUBMITTED BY-

Miss Shinu Vig GROUP-5
Kushagra Kansal (BM-018253)
Ritu Sharma (BM-018263)
Sagar Bhardwaj (BM-018273)
Sanyam Goel (BM-018283)
Shikha Singh (BM-018293)
Shobha Akhuli (BM-018303)
 Introduction to Agency law

• Agency refers to the relationship between a person or agent that acts on behalf of
another person, company, or government, usually called the master or principal.

• An agency is formed when a principal asks an individual to make a delivery or names

someone as an agent through a contract leading to the responsibility of the principal
for actions made by the agent while the agent's actions are akin to those of the
principal.

• The form of agency can be, and often is, enforced by written agreements made
through a power of attorney.

• An agency relationship is generated by the consent of both the agent and the principal.
No person can unwittingly become an agent for another.

• A written contract is common, but not necessarily essential when it is clear that both
parties intend to act in their respective. The intent of the parties can be inferred from
their words or implied by their actions.

Types Of Agency

• 1. By express agreement – authority is given to an agent in written or by words of

mouth. He can bind the principal to the third parties by his acts to the extent he is
delegated with the authority.

• 2. By implied agreement

• a. Agency by Estoppel – Where a person permit another to act on his behalf.

Principal is estopped from denying his agent’s authority.

Example- A tell B in the presence of P that A is the agent of P. P does not contradict the
statement. B enter into the contract with P on the belief that A is P’s agent. In such case P
would be bound by the contract.

• He is not the agent

• He ceases to be an agent
• b. Agency by holding out – Some positive conduct of the principal indicates that a
particular person is his agent. P sends A to buy goods on credit from C. A buys goods
on credit for himself & refuses to pay. C sue P. P cannot plead that A had no
authority.

• 3. Agency by necessity – When an agency is created by the circumstances. The

impossibility of getting the instructions from the principal is the basis of creation of
agency by necessity.

Example- X sent some horses to Y through a railway company. But Y did not take the
delivery of the horses at the destination with the result the railway company had to feed
the horses. Held, the railway co. was an agent of necessity & could recover the amount
spent on feeding the horses.

4. Agency by ratification – Ratification means subsequent adoption or acceptance by

a person of an unauthorized act done by another on his behalf without any authority.

X buys 5 bags of wheat on behalf of Y without his knowledge or authority. Y would

be bound by the contract, if he ratify or accept the same. It can be expressed or
implied

To test whether a person is or not an agent…

• The essential condition is that whether he is clothed with a necessary authority by

another (principal) to bind him & make him (principal) answerable to the third
persons & thus establishing a privity contract between that third person & the
principal.

• If this condition is satisfied then a person is considered as an agent.

 Classification of agents

Special Agents – who is employed to do some particular act or represent his principal
in some particular transaction. As soon as the act is performed the authority of agent
comes to an end. E.g. An agent engaged to sell a house.

General Agent – who is employed to do all such acts which are connected with the
business of trade of his employer. If principal limits authority secretly, he
himself will be bound

Universal Agent – is one who is employed to all such act which a principal can
lawfully do & can delegate. Agent has unlimited authority.

FROM THE POINT OF VIEW OF NATURE OF WORK TO BE

PERFORMED:

1. Factors – is a mercantile agent to whom the possession of goods are given for the
purpose of selling them. He usually sells the goods in own name. He can exercise a
general right of lien on the goods delivered to him for balance of payment if any.

2. Auctioneer – is an agent who is appointed by the principal to sell the goods on his
behalf at a public auction for a reward in form of commission. Example- reserve price

3. Broker – is an agent appointed by the principal for the purpose os selling or buying
goods on his behalf. He do not have possession of goods nor he can contract in his
own name. He bring seller & buyer together to bargain. He gets commission (
brokerage ).

4. Commission Agent – is a mercantile agent who is employed to buy & sell goods
for his principal on best possible terms. He transact in his own name. He is entitled to
commission. He may or may not have possession.

5. Del credere Agent – is one who guarantees to his principal, the performance of the
financial obligation by party with whom he enters into a contract on principal behalf,
in consideration of an extra commission. He becomes surety & become liable on the
default of third party.
6. Banker – act as a mercantile agent on behalf of his customer when he collects
cheques, drafts, bills & pay insurance premium & buy or sells ecuritie

Duties of an Agent
1. Duty in conducting principal’s business- The agent should conduct the business
of the principal as per the directions of the principal or in the absence of any direction
as per the custom prevalent in the business.
2. Duty to carry out the work with reasonable skills and diligence- The agent must
conduct the business of the agency with as much skill as is generally possessed by
persons engaged in similar business, unless the principal has notice of his want of
skill. Further, the agent must act with reasonable diligence and to the best of his skill.
Example- ‘A’ acts an agent for ‘B’ and sells rice to ‘C’ in the usual course of
business without verifying about C’s solvency and if ‘C’ goes insolvent, then ‘A’ is
responsible for loses arising to ‘B’.
3. Duty to render account- It is the duty of an agent to keep proper accounts of his
principal’s money or property and render them to him on demand, or periodically if so
provided in the agreement.

4.Duty to communicate- It is the duty of an agent, in cases of difficulty, to use all

reasonable diligence in communicating with his principal, and in seeking to obtain his

instructions, before taking any steps in facing the difficulty or emergency

5. Duty not to deal on his own account- An agent must not deal on his own account
in the business of agency; i.e., he must not himself buy from or sell to his principal
goods he is asked to sell or buy on behalf of his principal; without obtaining the
consent of his principal after disclosing all material facts to him.

Example- ‘A’ directs ‘B’ to sell his estate. ‘B’ buys the estate for himself in the name
of ‘C’. ‘A’, on discovering that ‘B’ has bought the estate for himself, may repudiate
the sale, if he can show that ‘B’ has dishonestly concealed any material fact or that the
sale has been disadvantageous to him.
6. Duty not to make any profit out of his agency except his remuneration- An
agent stands in a fiduciary relation to his principal and therefore he must not make
nay profit (secret) out of his agency. He must pay to his principal all moneys received
by him on principal’s account. He can, however, deduct all money due to himself in
respect of his

remuneration or/and expenses properly incurred.

7. Duty on termination of agency by principal’s death or insanity- When an

agency is terminated by the principal dying or becoming of unsound mind, the agent
must take, on behalf of the representatives of his late principal, all reasonable steps for
the protection and preservation of the interests entrusted to him.

8. Duty not to delegate authority- An agent must not further delegate his authority
to another person, but perform the work of agency himself.

Rights of an Agent

1. Right of Retainer: Agent has right to deduct the amount which is due to him by
principal, from amount payable to principal.
2.Right of stoppage in transit: In case where agent is personally liable, he has right
to stop the goods in transit. The good may be moving towards customer or principal
3. Right to claim Remuneration: As per the terms of agency contract, agent has
rights to claim remuneration.
4. Right of Indemnity: Principle of indemnity gets operated between principal and
agent where principal is implied indemnifier and agent is implied indemnity holder.
So agent can make principal answerable for all types of sufferings.
5. Right of lien: Agent can exercise right of lien but contract act has not specified
whether it is general lien or particular lien.Therefore the nature of agent’s lien
depends upon mutual understanding.