LAW OF

CONTRAT-II

MODULE II
LAW OF AGENCY
Chapter X of the Indian Contract Act, 1872 deals with the laws relating to Agency.

Sections- 182-238

APPOINTMENT AND AUTHORITY OF AGENT

SECTION 182-189
What is Agency?

When one party delegates some authority to another party whereby the latter performs his
actions in a more or less independent fashion, on behalf of the first party, the relationship
between them is called an agency.

-Agency between two parties.

-Authorisation is must.

Agency can be express or implied.

The law relating to agency is important because nearly all business transactions worldwide are
carried out through agency.

All corporations- big or small- carry their work out through agency.

Therefore, laws relating to the agency are an important area of Business Law.
Why Is Agency Law Important, and What Is an Agent?

An agent is a person who acts in the name of and on behalf of another, having been given and
assumed some degree of authority to do so.

Most organized human activity—and virtually all commercial activity—is carried on through
agency. No corporation would be possible without such a concept.

Example-We might say “General Motors is building cars in China,” for example, but we can’t
shake hands with General Motors.

“The General,” - exists and works through agents.

Likewise, other business organizations rely extensively on agents to conduct their business.

Indeed, it is not an exaggeration to say that agency is the cornerstone of enterprise organization.
The law of agency is an area of commercial law dealing with a set of contractual, quasi-
contractual and non-contractual fiduciary relationships that involve a person, called the agent,
that is authorized to act on behalf of another to create legal relations with a third party.

Relationships relating to principal and agent involve three main parties:-

PRINCIPLE

AGENT

THIRD PARTY
Section 182 of the Indian Contract Act defines Principal and Agent as follows :

An “agent” is a person employed to do any act for another, or to represent another in dealing with third
persons.

The person for whom such act is done, or who is so represented, is called the “Principal”.

S. 183. Who may employ agent:

Any person who is of the age of majority according to the law to which he is subject, and who is of sound
mind, may employ an agent.

S. 184. Who may be an agent:

As between the principal and third persons, 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 principal
according to the provisions in that behalf herein contained.
Illustrations-

•Naomi, a businesswomen, delegates Joseph to buy some goods on her behalf from John. Here,
Naomi is the principal and Joseph is the agent, and the person-John, from whom the goods are
bought is the ‘Third Person’.

•Joe appoints Mary to deal with his bank transactions. In this case, Joe is the Principal, Mary is
the Agent and the Bank is the Third Party.

•Lavanya lives in Mumbai, but owns a shop in Delhi. She appoints a person Susan to take care of
the dealings of the shop. In this case, Lavanya has delegated her authority to Susan, and she
becomes a Principal while Susan becomes an agent.
Illustration-

EXPRESS/IMPLIED AUTHORITY

 A owns a shop in Serampore, living himself in Calcutta, 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 Contract requires all valid essential conditions of creation of a ‘Contract.’

EXCEPTION-

Consideration is not necessary here.

The person acting as the agent maybe your friend, relative.

Example-

If you ask your friend to look for a second hand bike for you, and he finds a bike for you, got you
the deal, and you bought the bike.

Here, you never thought that you will pay any consideration to your friend.

So, even though consideration was not necessary here, but still the contract of agency was
created.
SECTION 25 ICA-

CONSIDERATION-

Agreement without consideration, void, unless it is in writing and registered, or is a promise to

compensate for something done or is a promise to pay a debt barred by limitation law.—

An agreement made without consideration is void, unless—

(1) it is expressed in writing and registered under the law for the time being in force for the
registration of [documents], and is made on account of natural love and affection between
parties standing in a near relation to each other,
S. 188. Extent of agent’s authority.—

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

Agent-
•Must have the capacity to bind the principle towards third party by taking the authority from the
principle himself
•Can create legal relation between principle and third party and establish privity of contract
between them
•Representative authority is a must- Acts as a representative of principle in business with
others- creation/modification of contractual obligations.
Illustrations

(a) 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.

(b) A constitutes B his agent to carry on his business of a ship-builder. B may purchase timber
and other materials, and hire workmen, for the purpose of carrying on the business.

The limit of the agent's express authority is what the principal has asked the agent to do, or
what authority the principal has otherwise given the agent (e.g. in bylaws, an operating
agreement, or an employment agreement).
KINDS OF AGENTS-

1)Universal Agent :

A Universal agent is one who is authorised to do all the acts which the Principal can
lawfully do and can delegate- managing all the business of the principle.

2) General :

Managing a particular business of the principle. A general agent represents the

principal in a range of activities or a particular business.

An Agent managing the garment store of the Principle-Store Head.

A broker authorized to transact all real estate transactions for a teacher.

For the teacher, his real estate transactions constitute a particular area- may constitute numerous
transactions in that particular area.
3) Special Agent:

A Special Agent is one who is employed to do some specific act or represent his Principal
in some specific transaction.- managing any sub-section of a particular business. Any specific task or
transaction.

Ex- Broker representing the buyer or seller in a real estate transaction.

A special agent is an agent hired to perform a specific duty for a client.

Ex- An Agent managing the women’s clothing section of the Principle’s garment store.

For example, A property manager, acts as a general agent if authorized to show and rent apartments,
supervise maintenance, do the bookkeeping, etc.

The general agent can be a property manager for the principal while the universal agent handles
'everything' for the principal.

Special Agent – is authorized by the principal to handle only one specific business transaction or to
perform only a specific act.
Dealing with all transactions- UNIVERSAL

Dealing with a range of related or particular activities- GENERAL

-A broker authorized to transact all real estate transactions for a teacher.

A special agent represents the principal in a specific transaction-SPECIFIC

General Agent

The general agent possesses the authority to carry out a broad range of transactions in the
name and on behalf of the principal.

The general agent may be the manager of a business or may have a more limited but nevertheless
ongoing role—for example, as a purchasing agent or as a life insurance agent authorized to sign
up customers for the home office.

In either case, the general agent has authority to alter the principal’s legal relationships with third
parties.

One who is designated a general agent has the authority to act in any way required by the
principal’s business.

To restrict the general agent’s authority, the principal must spell out the limitations
explicitly, and even so the principal may be liable for any of the agent’s acts in excess of his
authority.
The special agent is one who has authority to act only in a specifically designated instance or
in a specifically designated set of transactions.

For example, a real estate broker is usually a special agent hired to find a buyer for the principal’s
land. Suppose Sam, the seller, appoints an agent Alberta to find a buyer for his property.

Alberta’s commission depends on the selling price, which, Sam states in a letter to her, “in any
event may be no less than $150,000.”

If Alberta locates a buyer, Bob, who agrees to purchase the property for $160,000, her signature
on the contract of sale will not bind Sam.

As a special agent, Alberta had authority only to find a buyer; she had no authority to sign
the contract.

Here, the special agent- has a special duty- to merely find the buyer- but not to enter into
contract with the buyer.
Del Credere Agent: A del credere, known as ‘trust’ in Italian, agency guarantees the
creditworthiness of a buyer and, in case of default, assumes the risk posed to the seller.

He is one who in consideration of an extra commission guarantee his Principal that the third person
with whom he enters into contracts on behalf of the principal shall perform their financial obligations
that is, if the buyer does not pay, he will pay.

Thus he occupies the position of a surety as well as an Agent.

De Credere Agent, on the payment of some De Credere Commission, guarantees the performance of
contract by third person.
Factor:

As per the section 2 of sale of goods act, there is an agent known as Mercantile Agent. As the
name suggest he is the one who works for the business (merchandize) of the principal.

“Mercantile agent” means a mercantile agent having in the customary course of business as such
agent authority either to sell goods, or to consign goods for the purposes of sale, or to buy goods,
or to raise money on the security of goods.

A Factor is one type of a mercantile agent who sells goods on behalf of his principal. He has
wide authority and discretionary powers to sell goods upon such terms and conditions as he
thinks proper. He in broader terms relieves his principal from the burden of his work.
Broker: A broker is a special type of mercantile agent who acts as a middleman between the
buyer and the seller.

We can say that he is employed to bring about contractual relationship between the principal and
the third party.

He usually gets commission for the work performed.

His function ends when he brings the two parties together.

He is never in possession of the subject, therefore cannot exercise the right of lien.

Auctioneer: Auction is usually a public sale of goods made in the highest of several bidders.

An auctioneer is a mercantile agent who is appointed to sell goods on behalf of principal,

compensated in terms of commission.
S. 189.Agent’s authority in an emergency.—

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.

Illustrations

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

(b) A consigns provisions to B at Calcutta, with directions to send them immediately to C, at

Cuttack. B may sell the provisions at Calcutta, if they will not bear the journey to Cuttack
without spoiling
i) Agent’s authority in normal circumstances: An agent has the power and authority to do all acts lawful and
necessary in the normal circumstances in discharge of his functions.

For instance, where ‘A’ who lives in Andamans employs ‘B’ as his agent to collect his debts in Kanyakumari,
‘B’ has all the authority including the authority to pursue legal proceedings.

Again for example, where ‘A’ executes a power of attorney in favour of ‘B’ in running a silk factory, but
the power of attorney did not authorize ‘B’ to borrow and if ‘B’ borrowed, it was stated to be an act in
excess of his authority .

Ex-‘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.

Ex-• ‘A’, being owner of a ship and cargo, authorizes ‘B’ to procure an insurance for Rs. 4,000 on the ship.
‘B’ procures a policy for Rs. 4,000 on the ship, and another for the like sum on the cargo. ‘A’ is bound to pay
the premium for the policy on the ship, but not the premium for the policy on the cargo.
(ii) Agent’s authority in emergency: An agent has the authority in an emergency to do all such acts as a
man of ordinary prudence would, for protecting his principal from losses under similar circumstances.

A typical case is where the ‘agent’ who handles perishable goods like ‘mangoes’ can decide the time,
date and place of sale, not necessarily as per instructions of the principal but with the intention of
protecting the principal from losses. Here the agent acts in an emergency and acts as a man of ordinary
prudence.