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LAW OF AGENCY

Law of Agency
Case: Agent

Ashrith

X, a retail electrical shop, exclusively vends products of a popular brand. It buys the products from a wholesaler in the city. X describes the shop as an agency of the company whose products he is vending. D is a business call centre. A credit card company gives it a list of credit card holders, whose payments are overdue. The task of D is to call up the persons and remind them that their payment is overdue. The executives of D represent themselves to be agents for the credit card company. C is a stock agent who has been asked by his client to sell certain stocks. The client has specified a ceiling price. What is the difference among the three situations? Only the stock broker has the authority and capacity to find a buyer on his own. Acting for the seller, he will commit him to another person in a relationship of seller-buyer. Three parties: Principal- Agent and the third party Agent and Principal defined.- 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". Kinds of agents: On the basis of extent of authority: 1. General Agent(to perform all the tasks connected with particular business) 2. Special agent(employed to perform a specific task, has limited authority) 3. Universal agent.( unlimited rights as an agent, usually appointed by power of attorney) On the basis of nature of work:

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Rights and duties of agent An agents rights: 1. Remuneration 2. Right of retainer 3. Right of lien 4. Right of indemnification 5. Right of compensation 6. Right of stoppage in transit An agents duties: 1. To follow the instruction of the principal 2. To work with reasonable skill and diligence 3. To render proper accounts 4. To communicate with the principal in difficult situations 5. Not to deal on his own account 6. Not to make secret profit from agency 7. Not to delegate authority

LAW OF AGENCY

8. Not to use information obtained to the course of the agency against the principal. Rights and duties of principal Rights 1. To recover damages. 2. To obtain an account of secret profits and recover them and resist a claim for remuneration. 3. To resist agents claim for indemnity against liability incurred. Duties 1. To indemnify the agent against the consequences of all lawful acts. 2. To indemnify the agent against the consequences of acts done in good faith.
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3. To indemnify agent for injury caused by principals neglect. Creation of agency

LAW OF AGENCY

Consideration not necessary.- No consideration is necessary to create an agency. Agents authority may be expressed or implied.- The authority of an agent may be expressed or implied. Definitions of express and implied authority.- 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 the ordinary course of dealing, may be accounted circumstances of the case.` Agency may be created by ratification: Ratification is a kind of affirmation or approval of a previous unauthorized act or acts relating to a contract. It implies the adopting by the principal of an agent in his behalf, but without his authority Agency by operation of law: e.g., promoters of a company, partners of firm, etc., Enforcement and consequences of agents contracts.- Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person Termination of agency

By act of parties Termination of agency Termination of agency by Acts of the parties 1. By agreement between principal and agent

By operation of law

2. By revocation of the agents authority by the principal 3. By renunciation of business by the agent.

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Termination of agency by operation of law 1. By performance 2. By efflux of time 3. By death or insanity of any one of the parties

LAW OF AGENCY

4. By the insolvency of the principal and in some cases that of an agent 5. By the destruction of the subject matter of agency 6. By principal becoming an alien enemy 7. Where the principal or agent is an incorporated Company, by its dissolution. Delhi Electric Supply Undertaking v. Basanti Devi It was a life insurance plan, in the name of individual employee. The employee, instead of paying directly to the LIC, under the scheme, authorised the employer to deduct the amount and pay it to the LIC. DESU had deducted premium amount from the salary of Bhim Singh but not remitted it to the LIC. Bhim Singh died. The LIC disclaimed liability claiming that the policy had lapsed due to non-payment of premium amount. Judgment: Supreme Court It is a matter of common knowledge that Insurance Companies employ agents. When there is no insurance agent as defined in Regulations and the Insurance Act, general principles of the law of agency as contained in the Contract Act are to be applied. Under Section 185 no consideration is necessary to create an agency. Under the agreement between LIC and DESU, premium was payable to DESU who was to deduct every month from the salary of Bhim Singh and to transmit the same to LIC. DESU had, therefore, implied authority to collect premium from Bhim Singh on behalf of LIC. There was, thus, valid payment of premium by Bhim Singh. Authority of DESU to collect premium on behalf of LIC is implied. Chairman, Life Insurance Corporation v Rajiv Kumar Bhasker BHEL had adopted the same scheme as DESU in the previous case. BHEL defaulted in remitting the premium.
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Judgement: Supreme Court

LAW OF AGENCY

An agency can be created expressly or by necessary implication. It may be true that the employers in response to the proposal made by the Corporation stated that they would act as agents of their employees and not that of the Corporation. but keeping in view the fact that the Corporation did not make any offer to the employees nor would directly make any communication with them regarding payment or non-payment of the premium or any other matter including the lapse of the policy, if any, it cannot be said that the employer had no role to play on behalf of the Corporation. It is well-settled that for the purpose of determining the legal nature of the relationship between the alleged principal and agent, the use of or omission of the word "agent" is not conclusive. If the employee had reason to believe that his employer was acting on behalf of the Corporation, a contract of agency may be inferred. Snow White Industrial Corporation v. Collector of Central Excise Manufacturers: Snow White Industrial Corporation are manufacturers of 'Supercem Waterproof Cement Paint' and other allied products in their factory at Madras. Buyer or Agent: Gillanders Arbuthnot and Co. Ltd., of Calcutta had an 'agreement of sale' with Gillanders Arbuthnot and Co. Ltd., of Calcutta for selling its products. Were they buyers of agents? Judgement: Supreme Court It depends on the facts and circumstances of each case to determine the true nature of the dealings between the parties. In the instant case the most important fact suggesting agency was the clause which enjoined that the stocks left over unsold beyond two years from their receipt could be returned to the appellants who were bound to replace these. This should be considered with the fact that the appellants (manufacturers) were to prefer all claims for recovery of damages from the carriers and any reduction in price during the currency of the agreement was to be duly reflected in the price of stock lying unsold with Gillanders and the obligation that on the termination of the contract by either the appellant (manufacturer) or Gillanders, unsold stocks lying with the latter were to be returned to the former. In the aforesaid light we are of the opinion that this agreement as the agreement for sole selling agency and not as an outright sale.

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LAW OF AGENCY

Terence Correya v Maruti Udyog Limited Terence Correya booked a car through Ras Motors. A deposited a bank draft made in favour of MUL. The draft was encashed but the car was not delivered for months. Facts: Contention of MUL MUL contended that there was no privity of contract between the MUL and Terence Correya and M/s. Ras Motors was not an agent. Their dealings were on principal to principal basis. The dealer used to purchase the vehicle from the MUL and then sell the same to the customers. MUL further contended that whatever amount was received from the customer through dealer, was duly credited in the account of the dealer and the cars were supplied to the dealer who alone was responsible to deliver such cars to the individual customer. Judgement: Consumer Court The Contract Act does not draw a fine distinction between different classes of agents and the Act is not exhausted and so far as the law relating to agency is concerned, it merely lays down general principles. In determining legal nature of relationship between the alleged principal and agent, the use or omission of the word "agent" is not conclusive. We must, therefore, examine the true nature of the agreement and the subsequent dealings amongst the parties and then decide whether it established relationship of agency under the law. The relationship of principal and agent may be constituted - (a) by express appointment by the principal; (b) by implication of law, from conduct or situation of the parties or from the necessity of the case; or (c) by subsequent ratification by the principal of the acts done on his behalf. notwithstanding different wordings used in the agreement of dealership entered into between respondent No. 1 and respondent No. 2, the latter was clearly acting as an agent of the former in booking Maruti cars, accepting the booking amount and remitting the same to the former and making ultimate delivery of cars to the customers. Both the respondents were, therefore, jointly and severally responsible to either deliver the car or to refund the booking amount with interest to the complainant.

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LAW OF AGENCY

Bailment

Ashrith

Case: Goods and Contracts A person gives his furniture to a person to transport to his new house in another town. A person gives his jacket to a drycleaner. A company hires out public address system to a person organising a music function. What is common to the contracts? A person gives his furniture to a person to transport to his new house in another town. (Carriage) A person gives his jacket to a drycleaner. (Service) A company hires out public address system to a person organising a music function. (hire) Bailment Owner gives the custody and possession of his goods to another person as a part of the contract. The goods would need to be returned back to him. Case: Lost Baggage An airlines had put up the terms to the intending passengers that in the case of loss of baggage, the airlines would compensate the passengers for the baggage at a standard rate of Rs. 300 per Kg. The passengers were advised to buy an insurance to cover additional loss. A passenger lost his baggage which weighed 15 Kgs. The Airlines gave him Rs. 4500. The passenger is demanding Rs. 12, 000, the full value of the lost baggage. Case: Drycleaner A person gives his jacket to a dry cleaner. Would it be acceptable to the customer if the drycleaner did not return back the jacket by just saying, Sorry, it is lost or It must have gone to another customer or It is misplaced? Summary The person to whom goods are given is responsible and must take care of the goods and return it back to the owner.
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Case: Washing for Repair

LAW OF AGENCY

A person gave his washing machine for repairing to a shop. As the shop did not have space inside, it left the washing machine outside in its corridor. There was no security or attendant for guarding the premises. The washing machine was stolen. Is the shop responsible for the loss of the washing machine to the owner? A person gave his washing machine for repairing. The shop had stored it properly and safely. However, an unprecedented rain created a deluge and all the washing machines in the shop as well as all the expensive testing equipment of the shop got damaged. Is the person responsible for the loss of the washing machine? Summary The owner who gives his goods in called Bailor The person receiving the goods is called Bailee The giving of goods is called Bailment If the parties have provided on loss or damage to the goods, the terms would apply. In other cases, the bailee is responsible but not absolutely. Section 148: Bailment Bailment bailor and bailee defined.- A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the "bailor". The person to whom they are delivered is called the "bailee ". Section 152: Liability of Bailee Section 152. Bailee when not liable for loss, etc., of thing bailed.- The bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken the amount of care of it described in section 151. Section 151: Degree of Care Section 151. Care to be taken by bailee.- In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under
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LAW OF AGENCY

similar circumstances, take of his own goods of the same bulk, quality and value as the goods bailed. Section 152 and 151 The bailee, in the absence of any special contract, is not responsible for the loss, destruction or deterioration of the thing bailed, if he has taken (as much care of the goods as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value) Summary of the Provisions 1. Is there any special contract? That is, have the parties provided on the bailment aspect itself. If yes, the terms will apply. If not 2. Was the extent of care adequate? Test: An owner of ordinary prudence would take care of his own goods, of the same bulk, quality and value as the goods bailed. Case: Lost Courier Packet Ramesh sent a courier containing an expensive book. The courier company lost the packet. Ramesh had signed the customers request. The signed sheet had several terms. The terms were as follows: Relevant Terms 4. City Express will not provide any insurance coverage for any consignments sent, even if the value of the consignment is declared by the sender or required to be declared by City Express. 5. The liability of City Express for any loss or damage to the shipment is limited to Rs. 100/for each consignment. Further, City Express will not be responsible for any consequential losses. R.S. Deboo v. M.V. Hindlekar R. S. Deboo: Drycleaner- M/s Leach and WaBomy Customer: Hindlekar and family There was a fire in the factory and the clothes got destroyed.
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LAW OF AGENCY

The drycleaner offered to pay 20 times the drycleaning charges as this was stipulated on the back of the receipt limiting the liability of the drycleaner. Judgement: High Court Terms and conditions printed on the reverse of a receipt issued by the owner of the laundry or any other bailee do not necessarily form part of the contract of bailment in absence of the signature of the bailer on the document relied upon. In absence of signature of the bailer on the document relied upon, the onus is on the bailee to prove that the attention of the bailer was drawn by the bailee to the alleged special conditions before the contract was concluded and the bailee had consented thereto expressly or by necessary implication as a contractual term. It cannot be just assumed that the printed conditions appearing on the reverse of the receipt automatically become a contractual term or part of the contract of bailment. It is to be found on evidence in each case as to whether the alleged printed condition on the reverse of the receipt formed a part of the contract of bailment or not depending upon the conduct of the parties. . It is necessary for the Court to consider in each case as to whether 'the alleged special term' was reasonably and properly communicated by the bailee to the bailer and as to whether the bailer in fact assented thereto expressly or by necessary implication. (The Court did not consider this to be a special contract) On Reasonable Case The burden of proof is always on the bailee (dry cleaner) to prove that the bailee took reasonable care of the goods entrusted to him as a man of ordinary prudence would have exercised. it is for the bailee to prove that the suit articles were in fact lost as a result of fire and there was no negligence on the part of the defendants (dry cleaner) which resulted in the goods being destroyed by fire. The question of negligence is always a question of fact or at the most a mixed question of fact and law. In a case governed by Sections 151 and 152 of the Contract Act, the non-return of article by itself is prima facie proof of negligence of the bailee. It is not for the bailer to lead positive evidence proving the negligence of the bailee in respect of unreturned articles entrusted by the bailer to the bailee. It is for the bailer to prove that the bailee is duly exempted from his liability to pay the reasonable amount of compensation for the value of

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LAW OF AGENCY

the articles not returned or that his liability is restricted or reduced one and that the alleged stipulation is binding on the bailer under the law of the land. Insurance and Bailment If a bailee receives an insurance amount in respect of value of the goods bailed to him, the bailee is bound to account for the said insurance amount to the bailor as all such cases, the bailee is merely a trustee for the insurance amount obtained in respect of goods belonging to bailers. No bailee is entitled to unjustly enrich himself by retaining the insurance amount recovered by the bailee in respect of his customer's articles. N.R. Srinivasa Iyer v. New India Assurance Co. Ltd. Madras Mr. Iyers car was insured by the New India Insurance. The car met an accident and was taken to P. S. N. Motors Ltd., Trichur for repairing. The insuarance company was intimated of the accident and that the car was given to the P. S. N. Motors for repair with a request to discharge its obligation under the policy of insurance. The P. S. N. Motors submitted an estimate to the insurance company. After a several correspondence, the two settled on an estimate. Mr. Iyer was thus, informed: We have pleasure to inform you that the revised estimate of M/s. P. S. N. Motors Ltd., Trichur has been approved by our head office, and they have been advised to proceed with the repairs and send us their final bill together with the discharge voucher duly filled in and signed by you for making the payment. Before the car could be delivered to Mr. Iyer, a fire occurred in the workshop of the PSN Motors and the car was destroyed. The garage was not insured. Is the insurance company bailee of Mr. Iyers car, on whose behalf the car has been sent to the garage? Judgement: Supreme Court In a contract of insurance, there are mutual rights and obligations both of the Insurer and the Insured. Once the motor car is damaged it is the duty of the car owner to take it to nearest repair shop. This is done on behalf of the insurance company which pays for such removal as well as the repairs. the Insurer took charge of the damaged car from the
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LAW OF AGENCY

scene of accident and got it moved to the nearest repairer. The car virtually came into the custody of the Insurer and the repairer took the custody for and on behalf of the Insurer. When the Insurer has the option to replace the Motor Car, it can take over the damaged car and the Insured is bound to submit to the same. If the Insurer on the other hand, exercised the option of repairing the car, it is entitled not merely to choose the repairer but also to determine the charges for repairs to be negotiated and settled between the Insurer and the repairer and the Insured has hardly anything to do with it. Sub-Bailee The Insurer became the bailee and the repairer may have been initially pointed out by the bailor but with whom the Insurer entered into negotiation, arrived at a contract and agreed to get the car repaired in discharge of an obligation under the contract of insurance. Therefore, for this additional reason the custody of the repairer is that of a sub-bailee. Morris Case "Once a man has taken charge of goods as a bailee for reward, it is his duty to take reasonable care; to keep them safe; and he cannot escape that duty by delegating it to his servant. If the goods are lost or damaged, whilst they are in his possession, he is liable unless he can show - and the burden is on him to show - that the loss or damage occurred without any neglect or default or misconduct of himself or of any of the servants to whom he delegated his duty." When the car was in the custody of the sub-bailee, it was destroyed by fire that occurred in the repairer's workshop. The sub-bailee was bound to take the same care as a man of ordinary prudence would take in regard to his own goods of the same quality and value as was expected of the bailee. Now no evidence has been led by the defendants to explain what amount of care the bailee or the sub-bailee took in respect of the car. When the custody is of the bailee or the sub-bailee, the burden is on them to show how they handled the car.

State of Gujarat v. Memon Mahomed Haji Hasan Custom authorities had seized a truck and left it unattended for a long time in an open space while the case was pending. The parts of the car got pilfered.

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LAW OF AGENCY

Judgement: Supreme Court Bailment is dealt with by the Contract Act only in cases where it arises from a contract but it is not correct to say that there cannot be a bailment without an enforceable contract. it is not necessary to incorporate it into the law of contract and to prove a consideration. There can, therefore, be bailment and the relationship of a bailor and a bailee in respect of specific property without there being an enforceable contract. Nor is consent indispensable for such a relationship to arise. A finder of goods of another has been held to be a bailee in certain circumstances. Trustees of the Port of Bombay v. Premier Automobiles Ltd. Premier Automobiles Ltd. imported machinery from Italy to Bombay. The Bombay Port Trust, under the Bombay Port Trust Act took charge of the goods on landing and took it to its warehouses from where the goods could be collected. While the machinery was being carried on a trolley by the employees of the Board, it fell down and got damaged. There was no contract between the Port Trust and Premier Ltd. The Board was performing a function vested in it by the law. Judgement: Supreme Court It is well settled that the essence of bailment is possession. It is equally well settled that a bailment may arise, as in this case, even when the owner of the goods has not consented to their possession by the bailee at all A bailment is not therefore technically and essentially subject to the limitations of an agreement, and the notion of Privity used cannot be introduced in an area where it is unnecessary, for bailment, as we have said, arises out of possession, and essentially connotes the relationship between a person and the thing in his charge. It is sufficient if that possession is within the knowledge of the person concerned. It follows that a bailment may very well exist without the creation of a contract between the parties and it essentially gives rise to remedies which, in truth and substance, cannot be said to be contractual.

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LAW OF AGENCY

What is learnt? A bailment is the delivery of goods, by one person to another, for some specified purpose, and upon a contract that they shall, when the purpose is accomplished, be returned otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called as the Bailor. The person to whom they are delivered is called Bailee. Essential elements of contract of bailment There must exist express or implied contract between bailor and bailee, Delivery of goods The possession of goods must change, though temporarily Ownership of goods is retained by the bailor The delivery of the goods is for some specified purpose ( as security for debt, for repair, or for conversion of form etc.) When the purpose for which the bailment is created, is accomplished, the goods are to be returned or disposed according to the instruction of the bailor, the goods returned should be same ones which were bailed. Bailment is possible only of goods i.e., of movable property and chattels and not of immovable property. Duties of the bailor 1. To disclose faults in goods bailed 2. Repayment of(extraordinary) expenses 3. To receive back the goods When the purpose for which the bailment is created, is accomplished, the goods are to be returned or disposed according to the instruction of the bailor, the goods returned should be same ones which were bailed. Bailment is possible only of goods i.e., of movable property and chattels and not of immovable property.

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LAW OF AGENCY

Duties of the bailor 1. To disclose faults in goods bailed 2. Repayment of(extraordinary) expenses 3. To receive back the goods 2. Rights of bailor 1. Restoration of goods lent gratuitously 2. Entitled to increase of profits to goods bailed 3. Enforcement of rights 4. Claim for compensation 5. Right of termination 3. Rights of bailee 1. Right to compensation 2. Right to remuneration 3. Right of particular lien 4. Duties of bailee 1. Duty of reasonable care of goods bailed 2. Not to make unauthorised use of goods bailed 3. Not mix the goods 4. Return the goods without demand

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LAW OF AGENCY

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