Agency Chapter 3

Agency-Chapter-3
1. Agency and agents

2. Creation of agency
3. Duties and rights of an agent
4. Authority of the agent
5. Liability of the parties
1. Agency and agents
Agency is very important feature of modern commercial life and describe the relationship
that exists where one party, the agent, acts on behalf of another, the principal.
The basic principles of agency are relevant to the actions and liabilities of(among others)
partners and company directors.
2. Creation of agency
The agency relationship is created either by
1) mutual consent or by operation of law or by ratification.
2) Express agency-An authority is said to be express when it is given by words
spoken or written.
3) Implied agency-An authority is said to be implied when it is inferred from the
circumstances of the case & things spoken or written, or the ordinary course of
dealing may be accounted circumstances of the case
4) Agency of necessity-The law may deem that an ‘agency of necessity’is created in
particular circumstances.An agency of necessity is another way in which an agency
can arise by operation of law. An agency of necessity probably only applies where
there is already some existing contractual relationship between the parties, as the
law is highly unlikely to allow a person to be bound by the act of a complete
stranger.
5) Ostensible or apparent agency.-The law may provide that an ostensible or apparent
agency relationship is created if the principal holds out to a third party that the
agent’s authority is greater than it actually is.
6) Agency can be created retrospectively through ratification of the contract
3. Duties and rights of agent
Duties of the agent
i) To act dutifully and in good faith
ii) To negotiate in a proper manner
iii) A duty not to retain benefit from the agency relationship
iv) To execute contracts that they are obliged to undertake.
v) To communicate any necessary information.
vi) A duty of confidence-The agent must keep in confidence what he knows of his
principal’s affairs even after the agency relationship has ceased.
vii) To comply with the principal’s reasonable instructions.
Professional Stage: Knowledge Level-Business& Commercial Law-3-Prepared by Tariquzzaman Khan FCA Page 1/4
viii) Accountability-An agent must provide full information to his principal of his
agency transactions and account to him for all monies arising from them.
ix) No conflict of interest.
x) Performance
xi) Skill-An agent undertakes to maintain the standard of skill & care to be
expected of a person in his profession.
xii) Personal performance-The agent is usually selected because of his personal
qualities and owes duty to perform his task himself and not to delegate it to
another.
The agent owes a number of duties to the principal
Rights of the Agent
The agent also has a number of rights.

i) Indemnity-The agent is entitled to be repaid his expenses & to be indemnified
by his principal against losses & liabilities, provided his acts are done properly
within the limits .
ii) Remuneration-The agent is also entitled to be paid any agreed remuneration
for his services by his principal.
iii) Lien-The agent has the righr to exercise a lien over property owned by the
principal,i.e., right to retain and hold goods pending payment of sums owed to
him.
The courts have always sought to ensure that a person does not abuse the confidence of
another for whom he is acting.
Duties of the Principal
1)Agent to be indemnified against consequences of lawful acts.

2)Agent to be indemnified against consequences of acts done in good faith.
3)Non-liability for criminal acts.
4)Compensation for principal’s neglect.
5)To provide indemnity or compensation or termination
6)To provide the agent with necessary information and documentation.
7)To warn the agent of an anticipated decline in volume of business or if the third
party declines to confirm a deal.
8) To provide remuneration, either as expressly agreed or(in the absence of
agreement) an amount in accordance with custom, if applicable, or a reasonable
amount.
4. Authority of the agent
An agent’s authority may be
-Expressly given
-Impliedly given
-Ostensible or apparent on the basis of the principal’s conduct.
5. Liability of the parties
Generally speaking, a contract entered into by an agent and a third party binds the
principal and the third party but not the agent, who effectively drops out of the picture.
There are, however, instances where this general rule will not apply and these are noted
in this section.
Where the agent has authority and is known to be an agent
Where the agent is known to be acting as an agent and he has authority from his
principal, the principal and third party may sue and be sued on the contract and the
agent has no rights and liabilities on the contract, unless it appears that the parties
intended otherwise.
Where the agent has authority, but is not known to be an agent

In these cases, where a principal becomes known at a later date.
Either the agent or the principal may sue on the contract(but the agent’s rights are
subordinate to the principal’s) and
Either the agent or the principal may sued on the contract(but the third party must
choose which one).
Where the agent has no authority
If the agent has no authority, the principal cannot sue or be sued on the contract unless
he chooses to ratify it.
If the agent, knowing that he has no authority, makes a representation to the contrary
and causes loss to the third party, he may be liable for the tort of deceit.
Indemnity and Guarantee
Introduction
Sec.124 to 328 of the Contract Act 1872 deal with the principles governing the law of
Indemnity and Guarantee, Bailment and Agency
Definition of Indemnity and Guarantee
A contract of indemnity is a contract by which one party promises to save the other
from loss caused to him by the conduct of the promisor himself or by the conduct of
any other person.
A contract of guarantee is a contract to perform the promise or discharge the liability
of a third person in case of his default.
Bailment
Bailment is defined by Sec.148 to be “ the delivery of goods by one person to another
for same 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.”A Bailor is the person who delivers the goods and “Bailee” the persons to
whom they are delivered.
Delegation in Sub-Agency
The general rule of law is “Delegatus non protest delegaee” i.e., where authority is
delegated it cannot be further delegated. Sec.190 provides that an agent may not
appoint a sub-agent unless by the ordinary custom of trade the agent may or by the
nature of agency, must, appoint a sub-agent.A sub-agent is a person employed by and
acting under the original agent(Sec.191).
Termination of Agency
An agency may be terminated in anyone of the following ways:
(i) By the principal revoking his authority.
(ii) By the business of the company being completed
(iii) By the Agent renouncing the agency.
(iv) By the death or insanity of the principal or agent.
(v) The principal being adjudged bankrupt.

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Agency-Chapter-3

1. Agency and agents

1. Agency and agents

The agent also has a number of rights.

Duties of the Principal

1)Agent to be indemnified against consequences of lawful acts.

5. Liability of the parties

Where the agent has authority, but is not known to be an agent

Indemnity and Guarantee

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