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Module:4:Contract of Agency:
General notion/understanding of the term: Agent=? Agency=?
Case law Reference:
Delhi Electric Supply Undertaking v. Basanti Devi- AIR 200 SC 43 Chairman, life Insurance Coporation v. Rajiv Kumar Bhasker – 2005 (6) SCC 188 Harshad J. Shah v. L.I.C. of India – AIR 1997 SC 2459 Snow White Industrial Corporation v. Collector of Central Exercise –AIR 1989 SC 1555 Lakshiminarayan Ram Gopal & Sons Ltd. v. Govt. of Hyderabad- AIR 1954 SC 364 Terence Correya v. Maruti Udyog Ltd. 2005 (1) CPJ 96 P. Krishne Bhatta &Others v. Mundila Ganapati Bhatta AIR (1955) Mad 648. Pannlal Janakdas v. Mohanlal AIR (1951) SC 979 Watteau v. Fenwick (1893) 1 QB 346
Concept of Agency:
Trade and financial transactions, business ventures, etc at times requires delegation of authority or power, so that certain functions can be performed by an authorised person on behalf the principal/employer/owner.
This led to the evolution of concept of AGENCY and role of agents in various spheres of society.
Various types of Agency in Day to day life:
- ‘Next’ a large electronic retail store, he starts selling a popular particular brand SAMSUNG exclusively, and the said store is referred as an agency of the company whose brand is on sale.
- Amway- a MNC producing toiletries and personal care products, has direct selling business scheme, where various agents are employed for promoting door to door selling.
- Infotech Solutions , a call centre has taken a project from CITI Bank, credit card division and the call centre employees makes call to all those customers whose credit card payment is due, representing themselves on behalf of CITI Bank.
- Dhanalakshmi Pvt.Ltd. a financial trading firm, it buys or sells stocks on behalf of their customers as per need and request price.
- Oriflame- a MNC producing toiletries and personal care products, has direct selling business scheme, where various agents are employed for promoting door to door selling.
Analysis:
- Each situation relationship between the parties were different, buyer-seller, employee, retailer, stock broker-investor.
- Hence, the rights and the liabilities between the parties will also be different,
- (^) Contractual relationship between the parties NOT mandatory.
Judicial Interpretation: ‘Agency’
- SC – Syed Abdul Khader v. Rami Reddy (1979) 2 SCC 601 “ The expression used to connote the relationship which exists where one person has a authority or capacity to create legal relations between a person occupying the position of principal and third party.”
- Krishna v. Ganapathi – AIR 1955 Mad 648
Ramaswami J. (Mad. HC)- “ In legal phraseology, every person who acts for another is not an agent. A domestic servant renders to his master a personal service, a person may till another’s field or tend his flocks or work in his shop or factory or mine or may be employed upon his roads or ways, one may act for another in aiding in the performance of his legal or contractual obligations of third persons……In non of these capacities he is an agent and he is not acting for another representative of another business negotiations,
-that is to say, in the creation, modification or termination of contractual obligations, between that other and third persons, that he is agent ……. Representative character and derivative authority may be briefly bee said to be the distributing feature of an agent .”
Legal Definition:
“Agent” S. 182. An “agent” is a person employed to do any act
- Agent and servant are different as servant carries out act as per the instructions of his
Master/employer, however, the Agent carries out act on behalf of his principal on his own.
- Servant cannot create legal and contractual relationship with third party on behalf of his master unlike Agent who can for the principal.
- Servant completely under control of his master is paid wage/salary whereas an agent is paid commission.
- As per Halsbury: “A principal has the right to direct what work the agent has to do , but
a master has further right to direct how the work is to be done.”
- “ A servant is at times said to be the IMPLIED AGENT of his masters, depending upon the nature of work /duty entrusted to him.
Ingredients:
In case of contract of Agency;
- a principal authorises an agent to REPRESENT /ACT
- For him in bringing the principal into CONTRACTUAL RELATION
- With a third party.
- According to HALSBURY LAW England: Agency= “True nature of relationship between the parties.”
Nature of agents’ Authority:
Consideration not necessary S 185- No consideration is necessary to create an agency.
Agent's authority may be express or implied.
S. 186. -The authority of an agent may be
- By either Express or Implied.
- By necessity
- By ratification
Essentials of Contract of Agency:
Competency to contract of the Principal- S.
Whether agent need to be competent- S. 184
Whether CONSEDERATION not necessary- S. 185
1. Competency to contract of the Principal:
Legal Requirements- S 183:
“ 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.”
** Justification for competency of the Principal?
Caselaw:
Shepherd v. Cartwright (1953) Ch. 728 , “An infant cannot be appoint an agent to act for him neither by means of a power of attorney nor by any other means.” Effect : “If he purports to appoint not only the appointment but everything done by the said agent will be VOID .”
Exception: Guardian of the minor
Madanlal Dhariwal v. Bherulal AIR 1955 Mys 272 Only natural guardian, in case of de facto guardian permission of the court is must.
2. Competency of an Agent - S. 184
Ingredients: As between the principal and third persons any person may become an agent,
(Exception to rule) but no person who is not of the age of majority and of sound mind can become an agent,
(OBJECTIVE): so as to be responsible to his principal according to the provisions in that behalf herein contained.
3. Consideration:
S 185 - that no consideration is necessary for a contract of agency. An agent is paid only commission, and no salary.
Creation of Agency:
- By a written agreement/instrument
- By the conduct of parties /implied
- By necessity of a case/situation
- By subsequent ratification
W- wife had certain shares in her name, and she handed over then to her H- husband in his safe custody. The husband then pledged them to the bank, whether he had authority as an agent to do so ?? Was he liable???
3. By Necessity:
- It’s based on contingency basis, on emergency, depending upon the facts and
circumstances.
- Hence, prior permission/approval from the principal is not needed, by the agent.
- Due extreme situation the principal even does not have the choice to either to refuse, only must accept.
- Eg: accident matters, dealing with perishable goods, hazardous goods.
Case law Illustrations:
Great Northern Railway Co. v. Swafield – 1874.
- A horse was transported by the rail coaches of Great Northern Railway Co. and after
reaching the destination the defendant found that there was no one to take delivery of the said horse. So the railway had put the horse in a stable and looked after it, after a month the defendant came to take possession of the horse. The Plaintiff asked was for the expenses incurred for looking after the horse. The defendant refused, plaintiff sued the defendant.
- The principle laid down: “Agency of Necessicity” was propounded.
Concept of Agency of Necessicity:
- It is applicable only in cases of contingencies/emergencies.
- During such eventualities the ordinary powers of any agent are coupled with special powers, where he agent can act as a prudent man to save the situation and in the interest of his principal.
- Such action of the agent must be justified as per the need of the hour and the emergency situation.
- If, it is justified then the principal will be bound for the act of his agent.
Exception to Rule:
Illustration: Gwilliam v. Twist (1885) 2 QB 84
- That A owned an OMINI BUS, had a driver B. Once while B was driving the bus-a Police constable was along, after finding B drunk, he took over the driving and a little later he crashed into pedestrian plaintiff.
- The plaintiff sued A by stating that the police constable being agent of A acted out of necessity, hence A will be liable for the act of the policeman.
- If there is a scope for the agent to inform/ brief his principal about the emergency or necessity then if still the agent doesn’t inform the principal, whether the principal will be still liable in such situation????
Outcome:
- The court held that principal A who was the owner, was not liable.
- The police man was not acting as an agent of A,
- The policeman could have informed A, the owner about the situation, stopped the bus, should not driven by himself.
- The bus could have been stopped, thus no accident would not have taken place at all.
Classification of AGENTS:
Agents
Public agent Private agent General agent Special agent Foreign agent Mercantile agent Commercial agent Non-commercial agent Sub-agent ** Del Credere Agent ** Universal agent Factors Brokers
Concept of Del Credere Agent
- Italian term= Applied a type of mercantile agent who guarantees the buyer’s solvency
- An ordinary agent usually has limited function to give effect to the relationship of the principal and third party.
- He is neither held liable for the failure of the third party to perform nor can he be sued on the contract.
- (^) Where as when an agent under takes on the basis of accepting extra commission , to be liable to the principal for the failure of third party to perform a contract, is a dele credere agent. The extra commission = del credere commission.
- The dele credere agent plays a role similar to a surety as well as guarantor.
Couturier v. Hastie 1953 -9 Exch 102 :
- Hence, doctrine of agency involves certain skills, trust and integrity. There is lots trust
and confidence disposed on an agent by his principal.
- Hence, it is the obligation of the agent that does not delegate his further to anther without notice to his principal.
- (^) Thus we can say the agent has NO AUTHORITY ,
- To further delegate the responsibility entrusted upon him by his principal.
- “ DELEGATUS NON POTEST DELEGARE”= S 190
Ingredients:
- An agent cannot delegate his authority to another,
- He must personally perform the work entrusted to him by his principal.
- There are certain EXCEPTION t this rule if nature of contract of agency demands so or it a trend as the ordinary course or trade and business in a society.
EXCEPTIONS:
Trade ‘n’ Custom Principal ‘s consent In emergency Nature of work Ministerial work
Concept of Sub-Agent:
- S 192: “ a person employed by,
- And acting under the control of the original agent
- in business of the agency”== Sub Agent
Who is Employer of Sub-agent??? Who will responsible for the act of the sub-agent???
Ingredients of Sub-Agency:
- Sub-agent is appointed by a Agent himself.
- The agent must have the authorization to do so,
- The sub-agent has to perform the act under taken by the agent for the principal,
- Hence, the agent will be responsible for act of the sub-agent.
- No scope for the any Contract of PRIVITY between the principal and the sub agent
- Contract of Sub-agency comes to end as soon as original contract of agency ceases/ is terminated.
- Nature of authorization???
Delegation of Authority: Sub-agency
- S.192 - “ Proper Delegation” – Where a sub-agent is properly appointed , the principal is so far regards third persons, represented by, the sub–agent and is bound by and responsible for his acts as if he were an agent originally appointed by the principal.
- Proper delegation = Sub-agent for his acts Responsible = Principal.
- Condition Precedent for Principal’s liability??
- The agent is responsible to the principal for the acts of sub-agent.
Contract of Agency-
Principal - Responsible himself
Agent Third Party ( Delegation of Authority by the Principal himself)
Contract of Sub-agency-
Agent- Responsible to the PRINCIPAL
Sub-agent (Sub- Delegation of Authority by the Agent) ****If there is unauthorized delegation implications???
Improper Delegation:
S. 193- Agent’s responsibility for Sub-agent appointed without authority:
- “ Where an agent, without having authority to do so, If has appointed a person to act as a sub-agent
- The agent stands towards such person in the relation of a principal to an agent,
- And is responsible for his acts both to the principal and to the third person;
- Or responsible for the acts of the act of the person so employed, nor is that person is responsible to the principal.”
Case Law Illustrations:
Calico Printers’ Asso. V. Bracley’s Bank, (1931)-145 LT 51)
- The agent had employed a sub-agent. As per the instruction from the Principal the sub- agent was instructed the sub-agent to acquire insurance for certain goods , belongs to the principal.
- The sub-agent never did complied with it.
- Later on due to fire the said goods were damaged and lack of insurance, the principal suffered loss.
Duties of Agent: towards Principal
- Duty to execute mandate of principal-S 211
- Duty to follow instructions or custom-S 211
- Duty to take reasonable care & skill- S 212
- Duty to avoid conflict of interest-S 215
- Duty not to make secret profit- S 216
- Duty to remit sums –S 218
- (^) Duty to maintain account –S 213 & 214
- Duty not to delegate ( Delegatus non potest delegare)
1. Duty to execute mandate of principal:-
- S 211- Agents’ duty in conducing Principal’s business, as per the instruction given by the principal,
- In absence of any such instruction he must do as per the customs of the trade /business,
- If he deviates and acts contrary to this, such causes any loss / damage,
- then the agent will be liable to make up for such loss/damage to the principal.
- If there is profit /surplus then the agent must account for such profit to the principal.
Pannalal Jankidas v. Mohanlal –AIR 1951 SC 979
Facts: The principal has instructed his agent to store certain goods in godown and then insure them too. The same the money was given to the agent. The agent then purchased the goods and then stored in the godown at the Bombay Docks, without acquiring any insurance. Then due to fire the goods were destroyed. As per the Bombay Explosion (Compensation) Ordinance, 1944, compensation was only granted is there was insurance.
In absence of fire insurance, only half of the compensation was awarded.
So the principal sued the agent for non-compliance of his instruction, consequential loss.
The SC held that agent was liable to compensate the principal for full, value recovery.
2. Duty to follow instruction and customs.
S 211 – Lilley v. Doubleday (1881 -7 QBD 501)
- Agent was asked to store the goods in the warehouse of a particular location, which was not done accordingly,
- Rather the goods were placed in different warehouse which was equally safe.
- But goods were destroyed, the agent was held liable for the said loss.
3. Duty to Reasonable Care & Skill- S 212:
- “ Every agent is bound to carry on the business of agency with reasonable care and skill.
- If the principal suffers loss owing to the agent ‘s want of care and skill ,
- the agent must compensate the principal for such loss.”
- Illustrations:
Keppel v. Wheeler (1927)
- An agent was appointed to sell a house. He received an offer which he in turn quickly communicated to his principal.
- The principal accepted the “subject to contract” provisionally,
- Subsequently the agent received a higher offer, which he failed to pass on to the principal.
- This resulted into final acceptance of the of the first offer and ignoring the second offer.
Whether the agent will be liable???
4. Duty to avoid Conflict of Interest- S. 215
- If an agent deals on his own account in the business of the agency,
- without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject,
- the principal may repudiate the transaction,
- if the case shows either that any material fact has been dishonestly concealed from him by the agent, or
- that the dealings of the agent have been disadvantageous to him.
5. Duty not to make secret profit- S 216
Illustration: A directs B to sell A's 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.
Concealing the fact of existing mine within a estate and then buying it out by the agent himself,
What recourse the principal should take?? S 216- If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.
- S 220- that in case of misconduct in business the agent will not be entitled to any remuneration for the part of that business in which he had done misconduct.
- Thumb rules for remuneration of an agent: •..1 Hence, S 219- deals with the agents right to remuneration which is agreed upon and in absence of any such agreement he is entitled to what ever is reasonable remuneration.
•..2 S 220 - deals with deduction of remuneration in case of any misconduct in business.
Illustration:
A hires B as his agent, (to recover a sum of Rs. 1,000 )
from C a third party.
- If B fails to recover the sum from C, what’s remedy does A has against????
- Whether B still entitled to his remuneration agreed upon???
2. Right To Retainer- S. 217
In ordinary course, the agent has right u/s 217 , to retain he sum he receives of money on behalf principal, Until all the claims/dues of the of the agent himself pertaining to followings during the conduct of business;
- Commission/Remuneration,
- Advances he has made on behalf of the principal,
- Expenses/cost he has incurred.
3. Agent's lien on principal's property:
S. 221. CONDITIONAL/CONTINGENT RIGHT & not an absolute right
- In the absence of any contract to the contrary,
- in an ordinary course, an agent is entitled to retain goods, papers, and other property, whether movable or immovable,
- Must belongs to the principal received by him,
- Duration:- until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him.
Condition precedent to S. 221:
- The agent must be lawfully entitled to the said claim,
- The property which is retained by the agent must lawfully belong to principal, no dispute with respect to the title of the said property.
- The nature of lien is only a Particular Lien and not General Lien.
4. (a) Agent to be Indemnified against consequences of lawful acts.
S. 222-
- The employer of an agent is bound to indemnify him
- against the consequences of all lawful acts
- done by such agent in exercise of the authority conferred upon him.
- The liability of the principal extends up to; All the cost, All the Losses All the Expenses.
- Not an absolute right but there are certain conditions precedents….???
Illustrations: B, a broker at Calcutta, by the orders of A, a merchant there, contracts with C for the purchase of 10 casks of oil for A. Afterwards A refuses to receive the oil, and C sues B. B informs A, who repudiates the contract altogether. B defends, but unsuccessfully, and has to pay damages and costs and incurs expenses. A is liable to B for such damages, costs and expenses.
A (Principal) (to procure 10 cask of oils)
B (Agent) C (Sub-agent) Broker
A refuses to accept the consignment.
Who will be liable to pay the cost incurred by C???
(b) Agent to be indemnified against consequences of acts done in good
faith.
S. 223-
- Where one person employs another to do an act,
- and the agent does the act in good faith,
- the employer is liable to indemnify the agent against the consequences of that act,
- though it causes an injury to the rights of third persons.
Liability only for Civil acts: S 224:-
Adamson v. Jarvis
- “It was held the liability of the principal u/s 222 & 223 -Non-liability of employer of agent to do a criminal act.
- revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal.
- Teritel, Law of Contract- , “ An agency of contract is determined by any EVENT which terminates the contract.”
Illustration:
Stevenson & Sons Ltd. v. Akt fur Catronnagen Industries, 1917 QB 842
Event of war between the two countries belong to the principal and agent, the contract of agency will be terminated automatically, the operation of law of that respective nation.
Whether the Revocation : Express/Implied???
Revocation either Express/implied:
S 207. - Revocation and renunciation may be expressed or may be implied in the conduct of the principal or agent respectively.
Amrik Singh v. Sohan Singh-1988-93 PunjLR 541: Father appointed his son as him power of attorney. After that the relationship between the father and son turned sour. So this aspect rendered the role of the son as the agent of his father was not feasible, the contract of agency ended impliedly.
Niloufer Siddiqui v. IOC Ltd. AIR 2008, Pat, 5
- There was an proposal for distributorship of Gas, from IOC. The applicant had fulfilled the initial requirements as per the letter of allotment given to him.
- Later the IOC never sent the Standard Agreement, to the said applicant/allotee.
- This act was impliedly held to revoke the contract of agency between the IOC & applicant??
- Whether it was valid revocation in law??
- Whether the allotee is bound by the terms of agency??
Revocation: Permissible WHEN???
- Auctioneer and the principal, before it is knocked down,
- In a civil suit for before the order is passed
- Collection of debt, as soon as it is discharged,
- Insurance policy – before the claim is executed, If the authority is partly exercised can the agency still be revoked by principal???
S 204: Revocation where authority has been partly exercised.
- “The principal cannot revoke the authority given to his agent after the authority has been partly exercised
- so far as regards such acts and obligations as arise from acts already done in the agency.”
- (^) An agent buys a car for his principal and pays for it, after such the payment is done by agent, the principal can’t revoke it.
- Hence, REVOCATION== PROSPECTIVE.
Effect of Revocation:
- If the agent goes on performing the act even after the revocation of the contract of agency by the principal, then if the agent incurs any cost. He can neither recover the cost for it from the principal, nor his remuneration.
- If after the revocation the agent carries on the business, and makes any profit then the principal can’t recover it from the agent after such recovery.
??? In case of a wrongful revocation either by the principal or the agent, what is the remedy???
3. Renunciation by Agent
Compensation – S. 205.
- Where there is an express or implied contract that the agency should be continued for any period of time,
- the principal must make compensation to the agent,
- or the agent to the principal,
- as the case may be, for any previous revocation or renunciation of the agency without sufficient cause.
Notice of revocation or renunciation. S -206 :
- Reasonable notice must be given of such revocation or renunciation;
- (^) otherwise the damage thereby resulting to the principal or the agent,
- as the case may be, must be made good to the one by the other.
Haridar Prasad Singh v. Kesho Prasad Singh ( AIR 1925 Pat 68.)
- A B, as agent to conduct his business, paid sum of 1 lakh.
- 4 Yrs. Passed, B A to pay additional funds, A refused, loss occurred.
- Afterwards A asked B to refund the sum of Rs. 1 lakh paid, B refused.
- 12 yrs, later both A & B died, Still B sons continued the said business and made profit,
heirs of A sued B’s son for share in profit.
- Issue: B’s son are liable to pay???
