Special Contracts

Contract of Agency
• Chapter X – Sections- 182 to 238 of ICA
• Who is an “Agent”?
• Agency in law connotes the relation which exists where one person
has an authority or capacity to create legal relations between a
person occupying the position of principal, and third parties.
• The essential feature of an agent is his power of making the
principal answerable to a third person, viz. enabling the principal to
sue third parties directly, or render him liable to be sued directly by
the third party.
• Certain persons are referred to in common parlance as “agents”
even though they may not really have this power of changing their
principal’s relations with third parties.
• A person who has the capacity to contract may enter
in to a contract with another either by himself or
through another person
• Who is an “Agent”? (As per the ICA)
• Section 182
• 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 act is done,
or who is so represented, is called the ‘principal.’
Essentials of relationship of agency
• Agreement between principal and agent
• Intention of the agent to act on behalf of the principal
• Rules of agency- whatever a person can do personally,
he can do through an agent
• Exceptions- when the act to be performed is personal
in character
• He who does an act through another does it by
himself
• Acts of the agent are acts of the principal-sec-226
 Test of Agency
• The test of agency is whether the person is purporting to enter
into transactions on behalf of the principal; i.e. to create, modify
or terminate contractual obligations between his principal,
whom he represents, and some third person. To reframe, the
true test of agency is whether a person could represent this
another person to a third party so as to bind this another
person.
• Note: Just because the parties have called their relationship as
that of an “agent” and “principal” is not conclusive. You must
examine the true nature of the relationship.
• Note: Also, the fact that a person is paid “commission” for his
work is not by itself enough to constitute agency.
• Example: A finds an old Apple I computer
lying in his house that was released by the
then Apple Computer (now Apple Inc.) in
1976. He approaches an auction house to sell
the said antique on his behalf. The auction
house demands a commission of 5% of the
total sale proceeds. A agrees. The Apple I is
put to auction. Is the auction house an agent
of A?
• Example: A Pvt. Ltd. appointed B Pvt. Ltd. as a
distributor for the sale of Diesel Engines,
Pumps and Pumpsets. Under the agreement
between the two, B Pvt. Ltd. would first
purchase Diesel Engines, Pumps and Pumpsets
from A Pvt. Ltd. and then sell it off to a third
person at a margin. Is there a relationship of
agency between A & B?
 Difference between “a servant” and “an
agent”
• Lakshminarayan v. Govt. of Hyderabad AIR 1954 SC 364
• (a) Generally, a master can tell his servant what to do and
how to do it; (b) Generally, a principal cannot tell his agent
how to carry out his instructions; (c) A servant is under
more complete control than an agent;
• Generally, a servant is a person who not only receives
instructions from his master but is subject to his master’s
right to control the manner in which he carries out those
instructions. An agent receives his principal’s instructions
but is generally free to carry out those instructions
according to his own discretion.
• Generally, a servant has no authority to make
contracts on behalf of his master. Generally,
the purpose of employing an agent is to
authorise him to make contracts on behalf of
his principal.
• Generally, an agent is paid by commission
upon effecting the result which he has been
instructed by his principal to achieve.
Generally, a servant is paid by wages or salary
• A principal has the right to direct what work
the agent has to do; but a master has the
further right to direct how the work is to be
done.
• An agent is to be distinguished… from a
servant… A servant acts under the direct
control and supervision of his master, and is
bound to conform to all reasonable orders
given to him in the course of his work;
• An agent, though bound to exercise his authority
in accordance with all lawful instructions which
may be given to him from time to time by his
principal, is not subject in its exercise to the
direct control or supervision of the principal.
• An agent, as such is not a servant, but a servant is
generally for some purposes his master’s implied
agent, the extent of the agency depending upon
the duties or position of the servant.
 Who may employ an agent?
• Section 183 Any person who is of the age of
majority according to the law which he is
subject, and who is of sound mind, may
employ an agent.
• This section provides that a person can
employ an agent only if: (1) he is a major, and
(2) of sound mind.
 Who may be employed as an agent?
• As the agent does not make contracts on his
own behalf, it is not necessary that he should
have contractual capacity. Even a minor may be
an agent,
• The principal is liable to the third party for the
acts of the agent
• No person who is not of the age of the majority
and of sound mind is responsible to his
principal
• Sec-184. Who may be an agent.—As between
the principal and third person any person may
become an agent, but no person who is not of
the age of majority and of sound mind can
become an agent, so as to be responsible to
his principle according to the provisions in that
behalf herein contained.
 No consideration required
• Section 185- No consideration is necessary to create
an agency.
• Lack of consideration will not void an agency. Once
an agent accepts the employment of agency, he
immediately becomes liable for the agent’s duties.
• The very fact of employment and the credit gained
thereby on the one hand, and the promise to act on
the other are sufficient to constitute the
employment of agency.
 What can an agent do?
• Section 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.
• An agent having an 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.
• Ilustration: A is employed by B, residing in London, to
recover at Bombay a debt due to B. A may adopt any legal
process necessary for the purpose of recovering the debt,
and may give a valid discharge for the same.
• Generally speaking, the authority of an agent will extend not
only to acts expressly authorised, but also to subordinate acts
which are necessary or ordinarily incidental to the exercise of
the express authority.
• Both general and special agents who are authorised to act for
the principal have implied authority to do what is incidental
to the ordinary conduct of such a trade or business or is
within the scope of that class of acts, and also whatever is
necessary for the proper and effective performance of duties.
• If the act is not lawful or is not necessary or is not usual in
such matters, that would fall outside his authority.
• Section 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.
• In an emergency, an agent has the power to do all acts
as may be necessary only for the purpose of protecting
his principal from loss, such acts being done prudently,
as an ordinary prudent man may do in his own case
under similar circumstances.