AGENTS AND PRINCIPAL

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. (sec. 182)
A person who acts on behalf of another person is called an agent. The person who
authorizes another person to act is called an agent. The contract which creates the
relationship of principal and agents called an agency. The agent is authorized to
create a contract between his principal and a third party. After entering into a
contract, the agent drops out and ceases to be a party to be a party to the contract
and the contract binds the principal and the third party.
EXAMPLE
C appoints B to buy 10 bags of sugar on his behalf. C is the principal and B is the
agent. The contract between the two is agency.
ESSENTIALS OF AGENCY
The essentials of agency are as follows:
1. AGREEMENT
The relationships of agency are the result of an agreement between the
principal and agent. The contract of an agency may be express or implied
from the conduct of the parties.
2. WHO CAN BE PRINCIPAL
Any person, who is of the age of majority according to law to which he is
subject and who is of sound mind, may employ an agent. (Sec. 183)
3. WHO CAN BE AGENT
Any person may become an agent. It means that a minor or person of
unsound mind can be appointing as an agent. A minor as agent can bind the
principal to third parties. But minor is not he liable to his principal. (Sec. 184)
4. CONSIDERATION NOT NECESSARY
In order to create an agency, the consideration is not necessary.
Consideration may or may not exist in an agency. The fact that principal has
agreed to be represented by the agent is consideration for principal to
support the contact. (Sec. 185)
5. INTENTION
The agent must have intention to act on behalf of principal. When the agent
into a contract for himself, then the principal is not liable. The principal is
liable only when the agent contracts with the intention to act on behalf of the
principal.
TEST OF AGENCY
Agency exists whenever a person can bind another by acts done on his behalf.
When this power does not exist, the relationship is not that of agency.

PURPOSE OF AGENCY
The following is created to perform any act which the principal himself can
lawfully do. The object of agency should not be criminal in nature or against
public policy. There are certain acts which must be perform by a person
himself and cannot be delegated to an agent.
GENERAL RULES OF AGENCY
The following are rules regarding agency:
1. Whatever a person competent to contract can do himself, he can do
through an agent except for the acts involving personal skill, e.g.
painting
2. The acts of the agent are the acts of the principal. It means he who
acts through an agent acts himself.
KINDS OF AGENTS
The following are various kinds of agent:
1. GENERAL AGENTS
A general agent is appointed to perform all acts in connection with a particular
business, e.g. person appointed as general manager is a general agent. A
general agent can do any lawful acts regarding that business.
2. SPECIAL AGENT
A special agent is appointed to perform a particular act in a particular
transaction, e.g. person appointed to purchase a particular house. Special agent
has the authority only to do that particular act. His authority comes to an end
when the act is performed by him.
3. UNIVERSAL AGENT
A universal agent is the person whose authority is unlimited. He enjoys powers
to transact every kind of business on behalf of his principal. A universal agent is
authorized by the principal to perform all acts that can be delegated to him. He
has more powers than those enjoyed by general or special agent.
4. MERCANTILE AGENT
A mercantile agent is the person who has authority to sell or buy goods or to
raise money on the security of goods. Mercantile agent is generally appointed by
the goods. He assists in the transfer of title from a seller to a buyer.
5. FACTOR
A factor is an agent to whom goods are provided for sale. He usually sells the
goods in his own name without disclosing to the principal. He may sell on credit.

He can receive payments and issue valid receipts. He is entitled to pledge the
goods in his possession. He has general lien on the goods.
6. COMMISSION AGENT
Commission agent buys or sells s goods in his own name for his principal on the
best possible terms. He receives commission for his services. Commission agent
may or may not have possession of goods.
7. DEL CREDERE AGENT
Del credere agent is an agent who, in consideration of an extra remuneration
called the Del credere commission, gives guarantee to his principal that third
persons with whom he enters into contract shall perform their obligations. Del
credere agent undertakes to bear the risk of bad debts on credit sales made by
him.
8. BROKER
A broker is an agent who negotiates and makes contracts between the principal
and third party. A broker does not have the possession and control of the goods.
He cannot act in his own name. The commission a broker receives for his
services is called brokerage.
9. AUCTIONEER
A auctioneer is an agent who is appointed to sell goods to the highest bidder at a
public sale. He gets commission for his services. He acts as an agent of the
buyer as well as of the owner. An auctioneer has no authority to sell goods using
private contacts.
10.INDENTER
An indenter is an agent one who buys or sells goods on the behalf of his
principal. The indenter buys goods from foreign countries. He gets commission
for services.
11.BANKER
The relationship between a banker and customer is that of a creditor and debtor.
However, when the banker buys or sells securities, collects cheques, pays
dividends etc. on behalf of his customer, he acts as an agent.
12.ADVOCATE
An advocate can also act as an agent. He does not buy or sell goods but appears
before the court on behalf of his principal. He also performs other acts on behalf
of his client.

13.CREATION OF AGENCY
A contract of agency may be created in any of the following ways;
1. AGENCY BY EXPRESS AGREEMENT
Generally, an agency is created by an express agreement. When
an agency is created by words spoken or written, it is called express agency.
The usual form of written contract of agency is the power of attorney on
stamped paper which gives authority to the agent to act on behalf of the
principal. (Sec. 186)
EXAMPLES
A appoints B as his agent to sell his house. It is an express agency. A
writes a power of attorney in favor of B authorizing him to sell his plot. It is
written express agency.

2. AGENCY BY IMPLIED AGREEMENT

It arises when there is no express agreement appointing a person

as an agent. An implied agency arises from conduct, situation or relationship
of the parties. (Sec. 187)
EXAMPLES
a. X & Y are brothers. X lives in Lahore and Y in Multan. Y, with the
knowledge of X, gives his land on lease. He collects the rent and remits
to X. Y is the implied agent of X.
b. M allowed her son to drive a car for her and promised to pay expenses
of maintenance. The son caused an accident and injured his wife. Held,
the wife could sue the mother as the son was an implied agent of the
mother. (Smith vs. Mose)
An implied agency may be of the following types:

a. Agency by Estoppel:
That means to prevent a person from denying a fact. When a person by his
conduct or statement induces others to believe that a certain person is his
agent, he is stopped from subsequently denying it.
When an agent has without authority, done acts or incurred obligations to
third person on the behalf of its principal, the principal is bound by such act
or obligations it he has by his words or conduct induced such third person to
believe that such act and obligations were within the scope of the agents
authority. [sec. 237]
Example:
A. A tell B in presence of P that he is Ps agent. P does not abject to the
statement and remains silent. Later, B enters into contract with thinking that
A is agent of P. P is bound by this contract.
B. P terminated the services of his agent A. no notice to this affect was given by
P. subsequently, A purchased some goods from T on behalf of P. it was held
that P was liable to pay the price to T. (Truman v. Loder)
b. Agency by holding out:

The principal is bound by the acts of the agents if, on an earlier occasion, he
made other person to believe that the person doing some act on his behalf is
doing with authority. But if an agent has a limited authority, the principal is
not bound for his acts beyond hid authority.
Example:
B is a servant of A. B buys goods on credit from C and A pays for them
regularly. B buys the goods from C on credit for personal use. A is liable to C
for payment.
c. Agency by Necessity:
Agency by necessity gives an authority to a person act as an agent for another
without any consent of other person. The person can act as an agent under the
following conditions:
I.
II.
III.

There must be a real necessity for acting on behalf of the principal

It must be impossible to get the principals instructions.
The agent should act bonafide in the interest of the principal.
Generally, the agency by necessity arises in the following cases:

I.
II.
III.

When the agent exceeds his authority bonafide in an emergency.

When carrier of goods does anything to protect the goods in an
emergency.
When a husband improperly leaves his wife without providing proper
means for her substance.

Examples:
a. A ask B to deliver food to a store in Karachi. B finds that the fruits are
perishing and sell them at Multan. The sale is binding on the principal.
b. S and co. consigned butter to a railway co. It was delayed in transit being
perishable, the company sold the butter. S & co. was held bound by the sale.
(Sims & Co. vs. Midland Rly Co.)

3. Agency by Ratification:

Agency by ratification arises where a person acts on behalf of another

without his authority and his act is accepted by the latter. If his act is not
accepted, there is no agency.
Where acts are done by one person on behalf of another but without his
knowledge or authority, he may elect to ratify or disown such acts. If he
ratifies the acts, the same affect will follow as if they have been performed by
his authority. [sec. 196]
Examples:
a. A buys 5 bags of wheat without the authority of B. B ratifies As act. A
become s his agent.

b. A bought goods on behalf of P above the price authorized by P. P objected

to purchase but sold the goods. Held, he had ratified the purchase by
selling the goods. (Cornwall vs. Wilson)

4. Agency by operation of law:

An agency arises by operation of law. Under partnership act, every partner is

an agent of the firm and the act of a partner to carry on business of the firm
binds a firm. Similarly, under companies act, the directors are the agents of
the company.
Example:
D, the director of the company, contract S to buy machinery for the company.
D acts as an agent of the company so the company is liable for Ds acts as a
principal.

Duties of agent:
An agent has the following duties towards the principal:
1. Duties to follow directions and customs
The agent is bound to conduct the business of agency according to the
directions of the principal. If the principal doesnt gives any direction, than he
should follow the custom of trade. If he doesnt act according the prevailing
customs of trade, he will be held liable for any loss sustained by the principal.
[sec. 211]
Example:
a. P, the principal, instructs his agent A to insure the goods. A Neglects to
do so. A is liable to compensate P if the goods get damaged.
b. A works as an agent for Bs business in which it is the custom of trade to
invest at an interest, the money which is in hand. A omits to do so. A must
compensate B for the interest usually obtained by such investments.

2. Duty to work with Reasonable Skills

The agent must act with reasonable skill and diligence. Reasonable skill
means skill that can be possessed by the ordinary man. If the agent doesnt
respect of loss arising. [sec. 212]
Example:
a. A, an agent, sells goods on credit to B without making proper enquiry
about solvency of B. B is insolvent at the time of sale. A must compensate
his principal for loss.
b. A, in England, directs his agent B in Karachi to send cotton by a sertain
ship. B omits to do so. The price of cotton rises. B is bound to pay A, the
profit which he might have earned.

3. Duty to render account

An agent is bound to render proper accounts to his principal on demand. It is
duty of an agent to keep true accounts regarding all the property or money
belonging to his principal. He should produce them to his principal on
demand. [sec. 213]
Example:
P sends goods to his agent A to sell on credit. A must keep proper accounts of
sale and render to P on is demand.

4. Duty to communicate
It is duty of an agent, in case of difficulty, to use reasonable diligence in
communicates with his principal and seeking to obtain his instructions, but in
case of emergency, when there is no time to communicate with the principal,
the agent may act in good faith without consulting his principal. [sec. 214]
Example:
P sends goods to his agent A in Karachi for export. A finds that some goods
are damaged. A must inform P and get instructions in this regard.
5. Duty on termination of agency
When an agency terminates due to death or insanity of principal, the agent
must take reasonable steps for the protection of interests of the legal
representatives of late principal. [sec. 209]
Example:
Y an agent sells the goods of his principal P to X on credit. P dies. The agency
terminates. Y must collect and remit the amount to legal representatives of P.

6. Duty not to deal on his own account

If an agent deals on his own account in the business of agency without
obtaining proper permission of his principal, the principal may reject the
transaction. If any material fact has been concealed from him by the agent
and he has earned any profit, the principal may claim such profit. [sec. 215]
Example:
A directs his agent B to buy a certain house. B buys it for himself. A can
cancel the contract.

7. Duty not to deal on his own account

An agent should not make any secret profit out of the agency. If the agent
earns any secret profit, the principal can recover it from the agent. Moreover,
the principal may refuse to pay commission and terminate the agency. The
agency can, however, deduct all money due to himself in respect of his
remuneration and other expenses, if any. [Sec. 216-217]
Example:

P directs his agent A to buy a certain land. A buys the land and receives
secret commission. A is liable to pay the secret commission to P.

8. Duty to pay sums received

Any amount which an agent receives on behalf of the principal must be paid
to the principal. However, an agent can deduct from it his expenses and
remuneration regarding business of the agency. [sec. 218]
Example:
A appointed B to collect rents from X. B collected the rents and incurred Rs.
200 as traveling expenses.

9. Duty not to delegate authority

An agent must perform the work ok agency himself. An agent must not
delegate his authority to another person. However, the following are some
exceptions to this rule: [sec. 190]
a. When the principal has permitted to delegate authority.
b. When by ordinary custom of trade, a sub-agent can be appointed.
c. When the nature of agency makes it necessary to appoint t a sub-agent.
d. When an emergency arises which permit delegation of authority
Example:
P appoints A as his agent to buy a certain house. A delegates the authority to
X to buy a house for P. A is not authorized to delegate authority to X.

Rights of agents:
Following are the rights:

1. Rights to retain money:

An agent has the right to retain his principals money until his claims in
respect of remuneration, advances or reasonable expenses incurred by him in
conducting the business of agency. The right can be exercised on any sums
received on account of the principal in the business of agency. [sec. 127]
Example:
P employs A to sell some old furniture and agrees to pay him Rs. 200 as
commission. A sells the furniture for Rs. 2000. A can retain Rs. 200 as his
commission and pay the balance to B.

2. Rights to receive remuneration

An agent is entitled to receive the agreed remuneration. In the absence of an

agreement, an agent is entitled to reasonable remuneration according to the
custom or usage. If an agent is guilty of misconduct, he is not entitled to any
remuneration. [sec. 219,220]

Example:
P employs A to recover Rs. 1 lac from T. Due to As misconduct, the money is
not recovered. A is not entitled to any remuneration.

3. Right of lien

An agent can retain goods, documents and other property whether movable
or immovable of the principal until the amount due to him for commission,
services and expenses has been paid to him. This right is subject to a
contract between the principal and agent. [sec. 221]
Example:
P employs a to sell 100 books. A sells 50 books. P becomes insolvent. The
official receiver of P claims the remaining 50 books from A. A can refuse to
give the books until he receives his commission.

4. Right to be indemnified for lawful Acts

An agent has the right to be indemnified against the consequences of all

lawful acts done by him in exercise of authority conferred upon him.
However, an agent can not claim indemnity in respect of the acts which are
apparently unlawful or criminal. [sec. 222]
Example:
A employs B to beat C and agrees to indemnity him against the
consequences of the act. B beats C and fas to pay damages to C for such act.
A is not liable to indemnity B.

5. Rights to be indemnified for acts in goods faith

Where one person employs another to do an act, and the agent does the act
in goods faith, the employer is liable to indemnify theagent against the
consequences of that act, though it causes an injury to the rights of tjird
person.
Example:
B, at the request of A, sells goods which A has no right to sell. B does not
know this and sends the money to A. afterwards C, the true owner of the
goods, sues B and recovers the money. A is liable to indemnity B.

6. Rights to compensation for injury

An agent has the right to be compensated for injuries sustained by him due
to the principals neglect or want of skill. Thus, where the principal keeps any
dangerous premises and the agent meets accident, the principal is liable to
pay compensation to the agent. [sec. 225]
Example:
A employs B asmason for building a house. A assembles the scaffolding
himself. The scaffolding is unskillfully assembled. As a result, B falls and gets
injured. A must make compensation to B.

7. Rights of stoppage of goods

An agent has the right to stop the goods in transit to the principal like an
unpaid seller, ifhe has bought the goods with his own money and the
principal has become insolvent. [sec. 228]
Example:
A buys goods for his principal P with his own money. A delivers the goods to
carrier for transmission to P. afterwards, A comes to know that P has become
insolvent. A can stop the goods in transit.

Rights of principal
1. Rights to recover damage

If the principals suffer any loss, he has the right to recover from his agent.
The agent is liable for loss if he does not act according
To the directions of his principal and does not follow the customs to trade.
The agent is also liable if he does not perform his duties with skill, care or
diligence. [sec. 211]
Example:
P asks his agent A to sell goods on cash basis. A sells goods on credit and the
amount becomes irrecoverable. P can recover the amount from A.

2. Right to obtain secret profit

If the agent, without knowledge and consent of the principal, makes any
secret profits out of agency, the principal has a right to recover them from
the agent. In such a case, the agent losses his right of commission. [sec. 217]
Example:
P asks his agent A to sell his house. A sells the house for Rs. 10 Lac but tells P
that he sold it for Rs. 8 Lac. P can recover the balance from A.

3. Right to refuse to indemnity agent

If the principal shows that agent has acted as a principal himself and not as
agent, he has a right to refuse to indemnity the agent against the loss
suffered by the agent in such transaction.
Example:
P directs his agent A to buy a certain plot from X for him. A makes an
agreement with X for himself and pays Rs. 1 Lac as advance. X becomes
insolvent. A has to suffer a loss. P can refuse to compensate.