contract of agency in business legislation for managers

1. CONTRACT OF AGENCY
BUSINESS LEGISLATION FOR MANAGERS

2. AGENT :-
An agent is a person employed to do any act for another or to represent another in
dealing with third parties.
PRINCIPLE :-
The person for whom such act is done or who is so represented is called the
principal.
AGENCY :-
The contract which creates the relationship between the principal and agent.

3. Essential and legal rules :-
1. There should be an agreement – Express or Implied
2. The agent must act in the representative capacity
3. The principal and agent must be competent to contract
4. The consideration is not necessary

4. DIFFERENCE BETWEEN AGENT, SERVANT AND
INDEPENDENT CONTRACTOR :-
Contractor: He is employed to
perform any specific work but
manner and means of performance
are entirely left to his discretion. A
contractor does not represents his
employer to any third party.

5. WHO MAY EMPLOY AS AN AGENT:- No person can employ an agent if he does not possess
capacity to contract. So a minor or person of unsound mind cannot become the agent under section
183 of the Indian Contract Act.
WHO MAY BE AN AGENT:- According to section 184 of the Act, any person can be appointed
as an agent but a person who is not of age of majority and of sound mind cannot be made personally
liable for the act done on behalf of the principal. Minor can create contractual relation but a minor
agent cannot be made personally liable to the principal for the misconduct like an adult agent.
CONSIDERATION:- No consideration is required for the creation of an Agency under section
185 of the Act.

7. CREATION OF AGENCY
1. By Express Agreement
A contract of agency can be made orally or in writing (Sec.186). Example of a
written contract of agency is the Power of Attorney that gives a right to an agency to
act on behalf of his principal in accordance with the terms and conditions therein.
2. By Implied Agreement
Implied agency arises from the conduct, the situation or relationship of parties.

8. Implied agency includes:
a) Agency by Estoppel (Section 237) :- where a person by his words or conduct has
wilfully led another to believe that certain set of circumstances or facts exists and the
other person has acted on the behalf.
b) Agency by Holding Out :- It refers to an act or omission of the act which led others
to believe that the person is a partner of the company and has authority and hence in
this faith they made an agreement while in actual he does not have.
c) Agency of Necessity (Sections 188 and 189):- In certain circumstances, a person
who has been entrusted with another’s property may have to incur unauthorized
expenses to protect or preserve it. This is called an agency of necessity.

9. 3. Agency by Ratification (Sections 169-200)
A person may act as an agent on behalf of another without his knowledge or
consent, then the principal is not bound by the contract with the agent in
respect of such authority. But the principal can ratify the agent’s transaction
and accept liability. In this way, an agency by ratification arises.
4. Agency by operation of law
Sometimes an agency arises by operation of law.
For ex. When a company is formed, its promoters are its agents by operation
of law.

10. KINDS OF AGENTS

11. GENERALAGENT : A general agent is one who has authority to do all acts connected with a
particular trade, business or employment.
PARTICULAR AGENT : A particular or special agent is one who is appointed to perform a particular
act or to represent his principal in some particular transaction.
UNIVERSALAGENT : A universal agent is one whose authority to act for the principal is
unlimited.
MERCANTILE AGENT : An agent who has full authority to perform all functions relating to the
business on behalf of his principal.
NON-MERCANTILE AGENTS : These include attorneys, solicitors, insurance agents, clearing
and forwarding agents and wife, etc

12. Mercantile Agent includes:
1. FACTOR:-A factor is a mercantile agent entrusted with the possession of goods for the purpose of selling them. He is
entitled to sell the goods in his own name. A factor has a right to retain the goods for a general balance of accounts.
2. BROKER:- He merely brings two parties together and if the deal is materialized he becomes entitled to the commission.
3. COMMISSION AGENT:- A commission agent is person who purchases and sells goods in the market on behalf of his
employer on the best possible terms and who gets commission for his labor.
4. AUCTIONEER :- An auctioneer is an agent whose business is to sell goods or other property by public auction, i.e., by
open sale.
5. DEL CREDERE AGENT:-A del credere agent is one who, in consideration of an extra commission, guarantees his
principal that the persons with whom he enters into contract on behalf of the principal, shall perform their obligations.
He occupies the position of both a guarantor and an agent.

13. RIGHTS OF AN AGENT
1. Right to remuneration (Sec.219) – an agent is entitled to get an agreed remuneration as per
the contract. If nothing is mentioned in the contract about remuneration, then he is entitled to a
reasonable remuneration. But an agent is not entitled for any remuneration if he is guilty of
misconduct in the business of agency (Sec.220).
2. Right of retainer (Sec.217) – an agent has the right to hold his principal’s money till the
time his claims, if any, of remuneration or advances are made or expenses occurred during
his ordinary course of business as agency are paid.
3. Right of lien (Sec.221) – an agent has the right to hold back or retain goods or other property
of the principal received by him, till the time his dues or other payments are made.

14. 4. Right to indemnity (Sec.222) – an agent has the right to indemnity extending to all expenses and
losses incurred while conducting his course of business as agency.
5. Right to compensation (Sec.225) – an agent has the right to be compensated for any injury
suffered by him due to the negligence of the principal or lack of skill.
6. Right of stoppage in transit – where the agent has bought goods for his principal by incurring a
personal liability, he has a right of stoppage in transit against the principal, in respect of the money
he has paid or is liable to pay. This right of the agent is similar to that of the unpaid seller.

15. DUTIES OF AN AGENT
1. Agent's duty in conducting principal's business (Sec 211): An agent is bound to conduct the
business of his principal according to the directions given by the principal, or, in the absence of
any such directions, according to the custom which prevails in doing business of the same kind at
the place where the agent conducts such business.
2. Skill and diligence required from agent (Sec 212): An agent is bound to conduct the
business of the agency with as much skill as is generally possessed by persons engaged in similar
business, unless the principal has notice of his want of skill.
3. Duty to render proper accounts (Sec 213): An agent is bound to render proper accounts to
his principal on demand.
4. Duty to communicate with principal in case of difficulty (Sec 214): It is the duty of an
agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal,
and in seeking to obtain his instructions.

16. 5. Not to deal on his own Account (Sec. 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.
6. Not to make Secret Profits (Sec 216): An Agent, without the knowledge of his principal, should
not deal in the business of agency on his own to make secret profit.
7. Duty to pay sums received for principal (Sec 218): An agent is bound to pay to his principal all
sums received on his account.
8. Not to Disclose Secret: It is duty of an agent to maintain secrecy of the business of agency and
should not reveal the confidential matters.
9. Protect and Preserve the interests of the Principal in case of death or insolvency(Sec 209):
When an agency is terminated by the principal dying or becoming of unsound mind, the agent is
bound to take on behalf of the representatives of his late principal, all reasonable steps for the
protection and preservation of the interests entrusted to him.
10. Not to delegate authority (Sec 190): An agent must not, depute another person to do what he
has himself undertaken to do.

17. RIGHTS OF PRINCIPAL
1. Recover damages if agent disregards directions
2. Obtain accounts from agents
3. Recover money collected on behalf of principal
4. Obtain details of secret profit made by agent
5. Forfeit remuneration of agent if he misconducts the business

18. DUTIES OF PRINCIPAL
1. Pay remuneration to agent as agreed
2. Indemnify agent for lawful acts done by him
3. Indemnify agent for all the acts done by him in good faith
4. Indemnify agent if he suffers loss

20. By the act of the parties :–
i) By agreement - The Contract of Agency can be terminated at any time by
mutual agreement between the principal and agent
ii) By revocation of the principal (Sec. 201) - The Principal revoke agency at any
time by giving notice to the agent
iii) By Renunciation or revocation of an agent (Sec 206) - Renunciation which
means withdrawing from responsibility as Agent. Like Principal, Agent can also
renounce the agency. The agent must give to his Principal reasonable notice of
renunciation. Otherwise, he will be liable to make good for the damage caused to the
principal for want of such notice.

21. By operation of law :-
i) By the performance or completion of agency (Sec. 201) - Agency can
become to an end after the completion of work for which the agency is created.
ii) By expiry of the time - Agency can also be terminated by the expiry of time.
if the agency is created for the specific period, it is terminated after the expiry of the
time.
iii) Death or insanity of principal or agent (Sec. 209) - An agent, duty to
terminate the contract of agency on the death of the principal. In other words, Agency
comes to an end on the death or insanity of the principal or agent.
iv) Insolvency of principal (Sec. 201) – An insolvent or bankrupt is a person
who is unable to run the business due to Excess of liabilities over assets. In this way,
if the principal becomes an insolvent agency can be terminated.

22. v) Destruction of the subject matter - If this subject matter of the agency is destroyed
agency comes to an end.
vi) Principal becoming an alien enemy - If the Principal becomes an alien enemy the
contract of agency comes to an end.
vii) Dissolution of company or firm - A Firm or company may be regarded as a Principal
in the contract of Agency. If the company or firm is dissolved the agency comes to an end.
viii) Termination of sub-agent’s authority (Sec. 210) – The termination of an agent’s
authority puts an end to the sub-agent’s authority.

23. THANK YOU
PRESENTAION BY :-
AKANKSHA
MBA CORE (SEC. A)
UID : UU230500008