Contract of Agency

Business Law
Session 12
Instructor: Malik Nizar Ali
 Agent
• Section 182 of the [Indian] Contract Act, 1872
defines Agent as “a person employed to do any
act for another or to represent another in
dealings with third persons”.
• Acts of the agent are act of the principal.
• The person for whom act is done by an agent or
who is represented in dealings with third persons
by an agent is called the Principal.

Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Capacity to form agency
• Any person, who is of the age of majority according to
the law to which he is subject, and who is of sound mind,
can employ an Agent.
• As between Principal and third person, any person may
become an Agent, whether or not he has contractual
capacity. However, in this case agent is not responsible
to his principal as he does not have contractual capacity.
• No consideration is necessary to create an agency.
• The authority of an Agent may be express or implied. An
authority is said to be express when it is given by words,
spoken or written. An authority is said to be implied when
it is to be inferred from the circumstances of the case
and things spoken or written or in the ordinary course of
dealing may account for the circumstances of the case.
Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Modes of creation of an agency
1. By express authority
2. By implied authority-Inferred from conduct or behaviour
a. Agency by Estoppel
when a principal acts in such a way as to lead a third party to
reasonably believe that another is the principal's agent and the third
party is injured by relying on and acting in accordance with that belief
A principal has a duty to correct a third party's mistaken belief in an
agent's authority to act on the principal's behalf. If the principal could
have corrected the misunderstanding but failed to do so, he or she is
estopped from denying the existence of the agency and is bound by
the agent's acts in dealing with the third party.
b. Agency by necessity
Agency of necessity arises wherever a duty is imposed upon a person
to act on behalf of another apart from contract, and in circumstances
of emergency, in order to prevent irreparable injury

Contract of Agency
Business Law
Instructor: Malik Nizar Ali
3. By Ratification/ Ex-post facto agency
.
It arises when a person on whose behalf the
acts are done without his knowledge or
authority, expressly or impliedly accepts such
act. The approval by principal of unauthorized
act of agent is called reification.
Ratification is tantamount to prior authority that
is agency is created from date of act and not
from date of ratification.
4. By operation of law when law treat one person
as agent of another e.g. partners in partnership
agreement

Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Essentials of valid Ratification
1. Full knowledge of material facts
2. Whole transaction
3. No damage to third party
4. Act on behalf of another person and not by agent in his own
name
5. Existence of principal at time of act
6. Contractual capacity of principal both at time of act and
ratification
7. Within reasonable time
8. Lawful act
9. Act within principal’s power that is it should not be ultra-virus
10. Communication to the third part to make it binding

Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Classification of Agents
1. On basis of extent of authority
a. General Agent
b. Special Agent
c. Universal Agent
2. On basis of nature of work
a. Mercantile Agent
eg. Broker, Factor, Auctioneer, Del-credere,
Banker
b. Non-Mercantile Agent
eg. Attorneys, wife, election
Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 On basis of extent of authority
There are three broad classes of agent
1. Universal agents hold broad authority to act on
behalf of the principal, e.g. they may hold a
power of attorney (also known as a mandate in
civil law jurisdictions) or have a professional
relationship, say, as lawyer and client.
2. General agents hold a more limited authority to
conduct a series of transactions over a
continuous period of time; and
3. Special agents are authorized to conduct either
only a single transaction or a specified series of
transactions over a limited period of time.

Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Sub agent
Person employed by the original agent and act under his control.
A delegate cannot further delegate. Agent cannot lawfully employ
another to perform acts which he has expressly or impliedly
undertaken to perform personally. However, there are exceptions to
this general rule:
1. Where custom of a trade permits
2. Where nature of agency requires delegation
3. Where principal permits delegation
4. Where principal knows that agent intends to delegate but he does not
object to it
5. Where emergency requires delegation
6. Where duties of agent do not require personalized skills and involve
work of routine nature

Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Substituted Agent
• Person who is named by the agent holding
an express or implied authority to name
another person, to act for the principal in
the business of agency.

Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Rights of an agent
1. Right of retainer
2. Right to receive remuneration on completion in
absent to contract to the contrary but is not
entitled for business misconducted
3. Right of lien
4. Right to be indemnified against consequences
of lawful acts-No liability of principal against
criminal act
5. Right to be indemnified against consequences
of acts done in good faith
6. Right to receive compensation in case of injury
cause by Principal’s negligence
Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Duties of an agent
1. Act according to directions of principal or custom of
trade
2. Act with reasonable care and skill
3. Duty to render accounts to his principal
4. Communicate with principal for instructions
5. Disclose all material facts and obtain principal
consent’s in personal dealing
6. Duty to pay sum received for principal
7. Protect & preserve the interest in case agency is
terminated due to death of principal or becoming of
unsound mind
8. Do not delegate authority unless customs permits or
nature of agency so requires
Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Personal liability of agent
Agent is not personally bound nor he enforce the
contract entered on behalf of principal. However, there
are exceptions as under:
1. Foreign Principal
2. Undisclosed principal
3. Incompetent principal
4. Non existence of principal
5. When act not ratified by principal
6. Act in his own name
7. In case of express agreements
8. In case of custom or usage of trade

Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Termination of agency
1. By act of parties
a. by mutual agreement
b. by revocation of authority by principal
c. by renunciation of agency by the agent
2. By operation of law
a. on completion of business of agency
b. on death/ becoming of unsound mind of agent/ principal
c. on insolvency of principal
d. on expiry of fixed period
f. on destruction of subject matter
g. on dissolution of company
h. on principal becoming alien enemy

Contract of Agency
Business Law
Instructor: Malik Nizar Ali
 Circumstances when agency is
irrevocable
1. When the agency is coupled with interest
2. Where agent has partly exercised his
authority
3. Where agent has incurred a personal
liability.

Contract of Agency
Business Law
Instructor: Malik Nizar Ali