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1-CHAPTER 1.........................................................................9
1.1 Introduction..................................................................9
1.11 Background...............................................................................9
1.12 Nature of Relation....................................................................9
1.13 Creation of Agency...................................................................9
1.14 Termination of Agency..........................................................10
1.2 Scope..........................................................................10
1.21 Employer and Employees......................................................10
1.22 Principal and Agent...............................................................10
1.23 General and Special Agents.................................................11
1.24 Franchising and other relationships...................................11
1.25 Independent Contractor........................................................11
1.26 Real Estate Brokers...............................................................12
1.27 Bailees......................................................................................12
1.28 Required Act...........................................................................12
1.3 Capacity of Parties.......................................................12
1.31 Capacity to Act as Principal..................................................12
1.32 Unincorporated Associations as Principals........................13
1.33 Capacity to Act as Agent.......................................................13
1.4 Authority to Bind Principal............................................13
1.41 Authorization..........................................................................13
1.42 Express Authority...................................................................14
1.43 Implied Authority...................................................................14
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FINAL REPORT ON AGENCY LAW
1.5 Ratification..................................................................14
1.51 Agency by Ratification..........................................................14
1.52 Intention to Ratify..................................................................15
1.53 Conditions for Ratification....................................................16
1.54 Effect of Ratification..............................................................16
2-CHAPTER 2.......................................................................17
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3-CHAPTER 3.......................................................................25
4-CHAPTER 4.......................................................................27
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5-References.......................................................................33
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INTRODUCTION
Background
Agency law grew out of the desire of people to extend their activities beyond the physical
limits of their own bodies. In simple societies this desire was primarily for additional
labor through slaves or servants, but leaders also deputized others to transact business for
them. As commerce grew in importance, merchants and leaders also began to transact
business through others.
Brokers and factors began to play a prominent role in business in England by the latter
part of the 17th century. Such persons are now typical examples of agents but were
originally treated by the English courts as servants. It was not until the 19th century that
the law began to distinguish between servants and agents.
Nature of Relation
An agency relationship is based upon the mutual consent of the two parties. Once the
relationship is found to exist, the law defines the rights and liabilities of the parties with
respect to each other and to third persons. The fact that the agent is acting without
compensation and there is no enforceable contract of agency does not substantially affect
those rights and duties nor the validity of contracts negotiated by the agent in the name of
the principal.
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Creation of Agency
The agency relationship arises when two people consent that one shall act for the benefit
of the other and under the latter’s direction. Whether an agency exists is a question of
fact. If from all of the circumstances it appears that one person is acting for the benefit
and under the control of another, courts will hold that an agency relationship exists. The
legal relationship of agency may be created without either party being aware of its
existence and even though the parties have expressly stated that they do not intend to
create it.
No formality is required except in a few instances. For example, in many states authority
given to an agent to sell or otherwise act for the principal in transactions involving real
estate must be in writing. However, it is desirable in order to avoid later disputes that an
express agency agreement is entered into and that it is reduced to writing.
[2] Part 4; Chapter No.16; Page No.285-286
Termination of Agency
Although termination of an agency may involve a breach of contract, generally either
party has the power to terminate it at will. Unless notice is given to third parties who have
dealt with the agent, liability of the principal for the agent’s acts may continue, on the
ground of apparent agency, after termination of the agency. An agency based on express
contract will be terminated in accordance with its conditions, or upon its full
performance. In other cases, agency is terminated by the principal revoking the authority
given. Agency is also terminated by operation of law in a number of situations including
the death, insanity or bankruptcy of either party.
[1] Part 5; Chapter No.24; Page No.858
SCOPE
Differences in the nature of the services rendered and the degree of control that the
dominant person in the relationship is entitled to exercise have led to classifications of
parties that are sometimes confusing.
Example
The driver of a milk delivery truck is an agent, as well as an employee. He is an agent
while making contracts between the milk company and its customers. But is only an
employee with respect to the work of delivering milk.
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The term agency may, in its broadest legal sense, include an employee who does nothing
but manual labor. However, it is usually applied to one who conducts business
transactions for his/her principal. Such an agent may be one who is an employee of a
corporation or a person who is an independent business person, perhaps employing other
people. Agents of the latter type are sometimes called professional agents.
Example
Manufacturers’ representatives, realtors, stockbrokers, auctioneers, and attorneys fall into
this category. With respect to these agents the principal’s control is limited to determining
the objectives and limitations of the agent’s authority in the business the agent is
transacting for the principal, and the principal has no right to control the agents’ physical
acts. Whether the agent travels by automobile or airplane or takes three hours for lunch is
not within the realm of control by the principal.
Example
For example, a merchant who has a franchise to sell the products of the Ford Motor
Company is often referred to as a Ford agent, and the business is referred to as a Ford
agency; but the merchant is not an agent of the Ford Motor Company, and the relationship
between the Ford Motor Company and the merchant is not that of agency. The franchisee
is an independent contractor dealing in the franchisor’s (Ford Motor Company) products.
Independent Contractor
The term independent contractor is used in contrast to that of employee (or servant). An
independent contractor includes an individual, or a partnership or corporation, who
contracts to do something for another but who is not an employee. The distinction
between employee and independent contractor is based upon the degree of control over
the physical conduct of the one performing the service, and the principal is generally not
liable for the torts of an independent contractor. The relationship is especially common in
the building trades.
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Example
If Ahmed needs a new machine, he may build it in his own shop, in which case those
persons who build the machine will be Ahmed’s employees. Ahmed may submit the
specifications for the machine to Bashir, who will contract to build the machine according
to the specifications and for an agreed price. In this case, Bashir will not be an employee
of Ahmed, since Bashir has contracted to produce a result and is free to proceed by
whatever method he may wish in producing that result. Bashir’s physical conduct is not
under the control of Ahmed. Bashir is an independent contractor. The employee is subject
to the direction of his/her employer; the independent contractor is obligated to produce a
result and is free to pursue self-chosen methods in the performance of the work.
[2] Part 4; Chapter No.16; Page No.286-288
Real Estate Brokers
A real estate broker is generally not an agent with authority to make a contract with a
third person which will bind the broker’s client. Typically, the broker’s authority is
limited to locating a seller or buyer and bringing the parties together but does not extend
to making a contract. Even when the third person and the broker sign a “contract”, it is
generally only an offer by the third person which does not become a binding contract
until accepted by the client of the broker.
Bailees
When personal property is delivered to another under an agreement that the property will
be returned to the deliverer or transferred to a third person, a bailment arises. The person,
to whom the property is delivered, the bailee, is not an agent because the bailee has no
authority to act for or make any contract on behalf of the bailer.
Example
Situations commonly arise, however in which the same person is both an agent and a
bailee. A salesperson, who is loaned a company car, is a bailee with respect to the car; but
with respect to making sales contracts, is an agent.
Required Act
The mere fact one person requires another person to do an act does make the latter person
the agent of the former.
Example
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When a bank directs a borrower to obtain the signature of another person in order to
obtain a bank loan, the borrower is not the agent of the bank in contracting the other
person and procuring the required signature.
[3] Part 8; Chapter No.39; Page No.649
CAPACITY OF PARTIES
Example
A husband or wife may act as the agent of the spouse, but there is no agency merely by
virtue of the marital relationship. The liability of a husband for the necessities purchased
by his wife is an aspect of the marital relationship itself and does not constitute the wife
an agent for her husband. The same would apply to the wife’s liability under statutes
imposing liability on her for family expenses.
[2] Part 4; Chapter No.16; Page No.293-294
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Authorization
An agent is authorized to act for a principal when the principal’s representations or
conduct make it manifest to the agent that the principal intends the agent to act for the
principal. The extent of the authority of the agent to bind the principal is also based upon
the representations and conduct of the principal
In analyzing the power of an agent to bind the principal, the courts and writers have not
been consistent in the terms used. This analysis shall follow a three-part classification:
Example
For example, if the principal instructs the agent, either orally or in writing, to draw a
check payable to Tucker for a stated sum and to sign the check in the principal’s name
and deliver it to Tucker, the agent will have express authority to draw, sign and deliver
the check.
Example
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Most of the cases which established the doctrine of implied authority arose out of the
marriage relationship, and extended to a wife the implied authority to incur expense on
behalf of the husband for household goods.
The doctrine, however, extends to any existing relationship, so that an employee will have
implied authority to do what is reasonably necessary in the course of employment.
Agency by Ratification
An agent may attempt on behalf of the principal to do an act which was not authorized.
Or a person who is not the agent of another may attempt to act as such an agent.
Generally, in such case, the principal for whom the agent claimed to act has the choice of
ignoring the transaction or of ratifying it. Ordinarily any unauthorized act may be ratified.
Intention to Ratify
Ratification is a question of intention. Just as in the case of authorization, where there is a
question of whether or not the principal authorized the agent, so there is a question
whether or not the principal intended to approve/ratify the action of the unauthorized
agent.
The intention to ratify must be expressed in words or it may be found in conduct
indicating an intention to ratify, such as paying for goods ordered by the agent or
performing the contract which the agent had made and accepting payments for such
performance.
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[5] http://www.google.com/images
Example
Ratification of an earlier loan transaction is shown when the principal executes a renewal
note and papers which make an extension of the earlier loan.
The receipt, acceptance, and deposit of a check by the principal with knowledge that it
arises from an unauthorized transaction is a common example of ratification of the
unauthorized transaction by conduct.
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Effect of Ratification
When an unauthorized act is ratified, the effect is the same as though the act had been
originally authorized. Ordinarily, this means that the principal and the third party are
bound by the contract made by the agent. Conversely, when the principal ratifies the act
of the unauthorized person, such ratification releases that person from the liability which
would otherwise be imposed for having acted without authority.
[3] Part 8; Chapter No.39; Page No.652-653
[8] http://books.google.com.pk/books
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Execution of Writings
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An agent for the disclosed or partially disclosed principal need not sign an informal
writing in any particular manner in order to make the writings binding on the principal. In
the event the writing is drafted and signed in such a manner that it is not clear who the
party to the contract are, the courts will admit parol evidence to clear up the ambiguity
good business practices, however, dictate that the principal should be named in a body of
the writing, and the agent should sign it in such a way as clearly to indicate that he or she
is executing the writing for the principal in a representative capacity.
Only person whose name appears on negotiable instruments can be held as parties to
them. Therefore, the principal who is not disclosed on the instrument will not be liable on
it.
[2] Part 4; Chapter No.17; Page No.305-306
UNDISCLOSED PRINCIPAL
Nature and Relation of Liability
A principal is undisclosed if both the existence of the agency and the identity of the
principal are unknown to the third person. Under the law of agency, the undisclosed
principal is held liable as if a party to the contract provided the agent intends, in
negotiating the transaction, to the act for the undisclosed principal and has acted within
the scope of his or her powers. The liability of undisclosed principal is imposed by
operation of law.
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on groceries purchased on credit from Terman even though Prindle instructed Adams to
buy only for cash and specifically not from Terman.
Basis of Liability
In transactions negotiated by an agent, the basis of the principal’s liability is the authority
of the agent. It is sometimes difficult to determine the scope of the authority, even though
it is set out in writing. The nature of the business entrusted to the agent, standard practices
in business,, and the circumstances surrounding the transaction will be considered in
determining the scope of an agent’s authority, both implied and apparent. The third
person is bound by notice or knowledge of limitations on the agent’s authority and has the
burden of proving that the agent had authority to bind the principal.
Presumptions as to an agent’s authority or the lack of authority in relation to certain
common types of transactions have been developed by the courts. Such presumptions
apply in the absence of credible evidence as to the agent’s actual authority or lack of
authority.
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authorize the agent to sign or indorse negotiable instrument unless such acts are essential
to the carrying on the business entrusted to him or her.
Only in exceptional cases will the courts hold that an agent has apparent authority to sign
or indorse negotiable instruments. The fact is that an agent is given a special title, such as
president or secretary, treasurer, general manager, or cashier of cooperation. A member of
a partnership has the authority, under partnership law, to sign or indorse negotiable
instruments in the partnership name, unless such authority is withheld by the terms of the
partnership agreements.
[2] Part 4; Chapter No.17; Page No.309-311
Knowledge of Agent
Knowledge of the agent includes gained in transaction for the principal and knowledge
which by the exercise of reasonable prudence, the agent should have obtained.
Knowledge of facts to the agency gained during the transaction of business unrelated to
the agency may be imputed to the principal if it was present in the mind of an agent and
used to the advantage of principal during the agency. Of course the agent has no duty to
disclose confidential information obtained while serving another principal. Knowledge
gained by the agent after the termination of the agency is not binding on the principal
unless the agency is a continuing one. In such a case principal will be bound by notice
given to the agent by the third person who has dealt with the agent during the agency and
at the time of third person gave the notice was unaware of the termination of the agency.
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courts will hold that the principal is bound. If the agent and the third person is collusively
or fraudulently withhold knowledge from the principal, the principal will not be bound.
Under this rule the knowledge of agent is imputed to the principal; hence the principal’s
knowledge is constructive, not actual. Therefore, the principal will not be held liable for a
crime for which actual knowledge is essential element.
[2] Part 4; Chapter No.17; Page No.316-317
Appointment of Subagents
The liability of a principal for the torts or contracts of subagents or sub employee will
depend upon the relation between the appointing agent and the principal. The agent may
have express, implied, or apparent authority to appoint agents or employees for the
principal. Either to perform tasks delegated by agent or to do other tasks for the principal.
In such cases the agent or employee is the agent or employee of the principal. This is, of
course, the only way agents and employees of corporation are appointed. A professional
agent such as stock broker may have the authority from the principal to appoint subagents
who are employee of the agents, not employee of the principal, but who will have the
authority to bind the principal on certain kinds of contracts.
The circumstances may be such that the agent will be authorized to select agents and
employees and to delegate certain acts required in the performance of agent’s duties to the
principal. Such appointees are the agents and employees of the original agent and as such
are under his control, and he is liable for their acts. However, the original principal is
liable indirectly for their acts which are done at the direction of or are delegated to them
by the original agent, provided such acts are within the scope of authority of the original
agent.
Example
For example, suppose Ali is the agent of perfect insurance company and he appoint
Tanweer as his agent, authorizing him to prepare and execute insurance policies in
fulfillment of applications for insurance which Ali has approved. If Tanweer prepares and
delivers a policy of insurance in the name of perfect insurance company which is issued
within scope of Ali’s authority, perfect insurance company will be liable on the policy.
But suppose Tanweer, when on his way to deliver the policy, operates his automobile in a
negligent manner and injures pedestrian, since Tanweer is not an employee of perfect
insurance company.
[2] Part 4; Chapter No.17; Page No.318-319
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Example
If the truck driver while making deliveries takes a one or two block detour and stop only
briefly at the home of a friend, the employer would be liable for damages due to injuries
suffered by the pedestrian resulting from negligent driving of the truck just before the
trucker reaches the friends house they decided to go fishing and they have started off in
the employer’s truck in a new direction towards a lake at the time of pedestrian is struck,
the employer would not be liable.
There is considerable diversity in the decision as to when the employee has turned to his
employment after a temporarily abandonment. In the fishing trip example, some courts
would hold that the driver has returned to his employment as soon as he started towards
the next deliver. Others would hold that he had not returned until he was at or near a point
on his original route.
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as negligence in driving his or her automobile, but the principle may be liable for other
torts committed in the course of negotiation of the principle’s business.
[4] Part 3; Chapter No.12; Page No.174
Liability for Deceit of an Agent
The trends of court decision has been towards holding the principal liable for fraudulent
representations when it is usual in a trade for agents to make representations or when the
agent commits the deceit while apparently acting with in his or her authority unless the
reliance upon the representation by the third party was unreasonable.
Example
A number of cases have been held banks liable for fraudulent schemes of their officer,
such as the sale of stolen negotiable bonds, perpetrated on customer of the bank even
though the bank had no material connection with the scheme except for the position of
officers and wrongful use of its name. There is, of course, no doubt the principal is liable
for any deceit which he or she directs, causes, or participates in. Likewise, if the principal
ratifies an unauthorized transaction in which a tortious act occurred, the principal is liable
for the tort (assuming the principal has knowledge of the tort).
Intentional Torts
In the past, the employer was generally held not liable for an intentional physical act of
an employee which was tortious, such as striking or shooting a third person, unless the
employer authorized the act. However, courts today are much more likely than earlier to
find an employer liable for the intentional tort. If use of force is foreseeable by the
employer, this is generally sufficient for liability, and some courts let the question of
scope of employment go to the jury without regard to foresee ability.
Crimes
The older view was that an employer could not be liable for crimes committed by an
employee unless the employer directed or participated in the crime at least to the extent of
being an accessory. Recently updated criminal codes and some recent court decisions
have held the employer guilty of crimes requiring intent where the person who did have
requisite intent was a decision making managerial employee. Where no intent is required,
and particularly in case of crimes defined by statute such as in antitrust laws, the statutory
penalties may be imposed on the principal for the criminal act of the employee or agent.
[2] Part 4; Chapter No.17; Page No.320-322
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Unauthorized Action
If a person makes a contract as agent for another but lacks authority to do so, the contract
does not bind the principal. When a person purports to act as agent for a principal, an
implied warranty arises that such person had authority to do so. If the agent lacks
authority there is a breach of this warranty and if the agent’s act causes loss to the third
person, that third person may generally hold the agent liable for the loss.
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Disclosure of Principal
There are three degrees to which the existence and identity of the principal may be
disclosed or not disclosed. An agent’s liability as a party to a contract with a third person
is affected by the degree of disclosure.
Assumption of Liability
Agents may intentionally make themselves liable upon contracts with third persons. This
situation frequently occurs when the agent is a well-established local brokerage house or
other agency and the principal is located out of town and is not known locally.
Example
If an agent is guilty of fraud, the third person may avoid the transaction, without regard to
whether the circumstances are such that principal would be liable for damages.
[3] Part 8; Chapter No.41; Page No.678-681
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An agent has no fixed right to remuneration for services performed. The ability to claim
such payment will depend upon the terms, express or implied, of the agency arrangement.
The principal is, however, obliged to reimburse the agent for the express incurred in
performing the agency, provided, of course, the agent has acted within authority.
AGENT’S AUTHORITY
The facts that one person is the agent of another does not dispose of all questions. It is
necessary to determine the scope of the agent’s authority.
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FINAL REPORT ON AGENCY LAW
manager has the power to make any contract necessary for the usual and ordinary conduct
of business.
An agent with express authority to receive checks in payment does not have implied
authority to cash them. An employee’s authority to indorse checks payable to an
employer does not includes authority to indorse and those checks into the employee’s
personal bank account. Authorization to a lawyer to settle a client’s claim does not
authorize the lawyer to indorse the clients name on a check given in settlement of the
claim.
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that the agent may be acting without authority and that they are dealing with the agent at
the peril.
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For example, an agent who is appointed to adjust claims against an insurance company
cannot delegate the performance of that duty to another.
Agents however may authorize others to perform their work for them in the following
circumstances.
1. When the act to be done involve only mechanical or ministerial duties.
2. When a well known custom recognizes such appointment.
3. When the appointment is justified by necessity or sudden emergency and it is
impractical to communicate with the principal, and the appointment of a subagent
is reasonably necessary for the protection of the interests of the principal entrusted
to the agent.
4. When it is contemplated by the parties that subagents would be employed.
[3] Part 8; Chapter No.40; Page No.662-665
(4) Accounting
An agent must account to the principal for all property or money belonging to the
principal that comes into the agent’s possession. The agent should, within the responsible
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FINAL REPORT ON AGENCY LAW
time, give notice of collections must made and render an accurate account of all receipts
and expenditures. The agency agreement may state at what intervals or on what dates
such accountings are to be made.
(5) Information
It is the duty of an agent to keep the principal informed of all facts relating to the agency
which are relevant to protecting the principal’s interests. In consequence, a principal’s
promise to pay a bonus to an agent for information secured by the agent in the course of
duty is not enforceable because the principal was entitled to that information anyway. The
promise of the principal is unenforceable because it is not supported by consideration.
(b) Compensation
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The principal must pay the agent the compensation agreed upon. If the parties have not
fixed the amount of the compensation by their agreement but intended that agent should
be paid, the agent may recover the customary compensation for such services. If there is
no established compensation, the agent may recover the reasonable value of the service
rendered.
(c) Reimbursement
The principal is under a duty to reimburse the agent for all disbursements made at the
request of the principal and for all expenses necessarily incurred in the lawful discharge
of the agency for the benefit of the principal.
(d) Indemnity
It is the duty of the principal to indemnify the agent for any losses or damages suffered on
account of the agency which were not caused by the agent’s fault. When the loss
sustained is not the result of obedience to the principal’s instructions but of the agent’s
misconduct, or of an obviously illegal act, the principal is not liable for indemnification.
[3] Part 8; Chapter No.40; Page No.666-670
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Books
[1] Business, Law and Society by Andrew Terry and Bes Guigni
[2] Business Law: Principles and Cases by Lusk, Hewitt, Donnell and
Barnes, 4th UCC edition 1978, ISBN: 0-256-02021-3
Websites
[5] http://www.google.com
[6] http://www.enwikipedia.org
[7] http://www.leg.wa.gov/lawsandagencyrules/Pages/default.aspx
[8] http://books.google.com.pk/books
[9] http://www.scribd.com
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