Agency – Law of Contracts II – Notes

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  • A person is an agent only when he acts as a representative of the other in business negotiations, that is to say, in the creation, modification or termination of contractual obligations between that and other person. – Krishna v. Ganpathi
  • Parties have called their relationship as an agency is not conclusive enough to say it’s an agency and contradicting fact may prove otherwise.
  • A contract of minor by his agent is valid if minor himself is bound by contract.
  • Minor can become an agent but will not be liable to the principal.
  • Banker asked to keep goods and give to customer on payment. Held banker is a bailee and not an agent.
  • Factor – Agent entrusted with goods for purpose of selling them.
  • Broker – Agent appointed to negotiate and make contract to sale or purchase of goods on behalf of his principal.
  • Del Credere Agent – Agent undertaking on payment of extra commission to be liable to principal for failure of third party to perform contract. Not liable to buyer for default of principal. Not liable for dispute between buyer and principal relating to contract or sum due.
  • If a person authorises another to assume the apparent right of disposing of trade in the ordinary course of trade, it must be presumed that the apparent authority is the real authority. The agent may bind the principal within the limits of authority with which he has been clothed by the principal.
  • Wife is an agent of husband if she is buying things of necessity, and has a domestic establishment with husband.
  • Agencies of necessity – Such as selling of goods by carrier if perishable and delivery delayed due to some reason is valid.
  • A pre-existing agency is necessary to invoke agency of necessity. So finder of goods if spend money on property of other then it’s not agency.
  • Condition for invoking agency of necessity:-
    • Inability to communicate with principal
    • Act should be reasonable necessary
    • Bona fide in the interest of party concerned
  • Duties of Agent:-
    • Duty to Execute Mandate – E.g. Agent is asked to insure goods and he charges the premium but doesn’t insure the good then agent will be liable for any subsequent loss.
    • Duty to Follow Instructions or Customs – Agent instructed to store goods at a warehouse, agent stored goods at another equally safer warehouse. Agent held liable. Liley v. Doubleday
    • Duty of reasonable care and skill – Agent liable only for direct consequences of his act.
    • Duty to communicate with principal
    • Duty to avoid conflict of interest – If agent acts without principal’s consent or may conceal fact from principal or act in a manner disadvantageous to principal, then the principal may repudiate the transaction.
    • Principal has right to benefit gained by agent dealing on his own account in business of agency.
    • Duty not to make secret profit – If an agent sells his own stock to the principal without telling the same to the principal then he must hand over the commission even if he had sold the stock at prevailing market price.
    • Duty to remit sums
    • Duty to maintain accounts
    • Duty not to delegate – Permissible in following:-
      • Nature of Work – Agent employ auctioneer
      • Trade Custom – Architect appointing surveyor
      • Ministerial Action – Authority to sign
      • Principal’s contest
  • Sub agent if properly appointed as if principal’s agent only.
  • §192 – Sub agent is responsible to agent but not to principal except in case of fraud or wilful wrong.
  • Remedies of principal against agent:-
    • To ask for an account and also demand payment of secret & illicit profits
    • To seek damages for disregard of terms of agency as also want of care & skill
    • To resist the claims of the agent for commission and indemnity by the plea that the agent had acted for himself i.e. as a principal
  • Rights of agent against principal:-
    • Right to remuneration – Agent held auction, person takes information and directly approaches principal to buy house. Held agent entitled to commission. – Green v. Bartlett
    • Right to lien – Property held by agent for special purpose cannot be liened.
    • Right to indemnity – Agent be indemnified in all lawful contract even in wagering transaction where contract is void but not unlawful.
    • Right to compensation
  • Agent if having authority act even with improper motives can bind principal.
  • An agent placed in a certain position say manager has implied authority to do all the acts a person in that position ordinarily does.
  • §188 – An agent has authority to do necessary act like agent asked to sell manure without warranty sold manure without warranty and this warranty was usual in such transactions so agent was held not liable. – Dingle v. Hare
  • Apparent authority is real authority.
  • Possession of agent is possession of principal for all purposes.
  • If employer collect premium from wages and doesn’t pay, employer is an agent of insurance company and insurance company is bound to pay.
  • Principal liable for unauthorised act of agent falling under apparent authority.
  • So knowledge gained by the agent in course of business is considered to be with the principal.
  • In cases of fraud and misrepresentation exaggerated statements by agent are acceptable as long as they weren’t sanctioned by principal.
  • Principal whose name & existence is not made by the agent could only intervene subject to certain qualifications.
  • In case of undisclosed principal, principal would be bound by the terms between agent and other party.
  • Third party could repudiate a contract in case of undisclosed principal if third party shows that had him/her known who the principal he/she wouldn’t have contracted.
  • Principal is also liable to third party and if agent goes bankrupt principal needs to pay.
  • Agent not liable for principal’s contract even if getting commission.
  • If agent excludes personal liability from contract with foreign then agent’s liability is dissolved.
  • To make agent liable it is essential to show that principal cannot be sued.
  • Either agent or principal or both could be sued when agent is personally liable.
  • Agent gives warranty and not guarantees that if contract within his authority then principal would not breach contract.
  • For ratification:-
    • On Behalf of Another – If agent doesn’t mention of agency no ratification can take place.
    • Competence of Principal –
  • Only lawful acts could be ratified.
  • Doctrine Relation Back – Offer made to unauthorised agent later ratified then if party revoke offer also prior to ratification then also offer doesn’t get revoked.
  • If agent’s interest is merely incidental to arrangement say commission or pay out of rent then that could be revoked.
  • Agency gets over after sale is completed but some courts have held that it extend till proceeds of sale are being paid.

Continue to learn more about the Law of Contracts by clicking here. You can grab notes for other law subjects from here.


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