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Contract of Agency

An agent is a person employed to do any act for

another or to represent another in dealings with third
The person for whom such acts are done or who is
represented is called the principal.
The contract which creates relationship of principal
& agent is called an agency.

Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017

Who may employ an agent?

Any person who is of the age of majority according to
the law to which he is subject, and who is of sound
mind, may employ an agent.

Who may be an agent?

As between the principal and third persons any person
may become an agent

Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
Agent Servant

He has the authority to create He ordinarily has no such

commercial relationship authority.
between the principal & the
third party

He may work for several He ordinarily work for

principal at a time. only one master at a time.
He usually get commission He usually get salary or

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1 .Agency by express agreement-

the contract of an agent may be express or implied.
a contract of agency may be created by express
words, written or oral.
Normally the authority given by a principal to his agent
is express authority, enabling the agent to bind the
principal by acts done within the scope of that
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2. Agency by implied agreement
Implied agency arises when there is no express agreement
appointing a person as agent.
Implied agency arises from the conduct, situation or
relationship of parties.
Example- A owns a shop in serampur, living himself in calcutta
and visiting the shop occasionally. The shop is managed by B,
and he is in the habit of ordering goods from C in the name of
A for the purpose of the shop, and of paying for them out of
A s fund with As knowledge. B has an implied authority from A
to order goods from C in the name of A for the purposes of
the shop.
Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
Implied agency may be of the
following type:
A- Agency by Estoppel-estoppel means to prevent a person
from denying a fact.
When a person has by his conduct or statement induced
others to believe that a certain person is his agent he is
estopped from subsequently denying it.
Ex: In presence of A , B says to C that he (B) is A`s agent
though it is not so actually. A has not restricted B from
making such statement. Here agency by Estoppel can be

Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
B-Agency by Holding out
Agency by holding out is a branch of the agency by estoppel.
Here an agency by holding out requires some affirmative or
positive act or conduct by the principal to establish agency
Thus, A, who is a domestic servant of B, generally purchase
goods on credit from C and pays them regularly. C can assume
that A is Bs implied agent. Subsequently A uses Bs authority to
purchase goods for his own use.
C files a suit against B to recover the cost of the goods which
were actually consumed by A. In this case, B is bound by his
prior conduct in holding out that A was his agent. C can
recover the price from B.
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An agency by necessity is conferred by law in certain
cases, where a person is faced with an emergency in which
the property or interests of another are imminent danger
and it becomes necessary in order to preserve the
property or interests, to act before the instructions of the
owner can be obtained.
Example- where a horse sent by rail was not taken
delivery of by the owner, the station master had to feed
the horse. It was held that the station master became an
agent of necessity and the owner liable for the charge
incurred by him.

Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
3. Agency by operation of law

An agency is also constituted by operation of law.

For example, a partner is the agent of the firm and
the act of the partner to carry on the business of the
firm in the usual way binds the firm and its partners.

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4. Agency by ratification
Ratification means giving a formal consent.
Ratification means subsequent acceptance by the principal in
respect of an act done by the agent without authority.
In other words, ratification means the subsequent adoption and
acceptance of an act originally done without authority or
Ratification is an approval of a previous act or contract.
Example- A buys certain goods on behalf of B. B did not appoint
A as his agent.B may, upon hearing of the transaction, accept or
reject it. If B accepts it, the act is ratified.
Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
Kinds of agent

General Agent-general agent is one who represents

the principal in all matter concerning a particular
He is appointed mostly by general power of attorney
Special agent-special agent is one who is appointed
for a particular purpose. He has limited authority.

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Universal agent-a universal agent is one who is
authorised to transact all the business of his principal
of every kind.
Del Credere agent- he is an agent who guarantees the
solvency of the buyer.

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Duties of an Agent towards the
1. duty in conducting principals Business-
2. use of ordinary skill and diligence( careful in duties)
3.Duty to render accounts
4. To get directions of principal
5.Duty not to deal on his own account.- example A directs
to B to sell As estate. B buys the estate for himself in the
name of C. A on discovering that B has bought the estate
for himself, may repudiate the sale, if he can show that B has
dishonestly concealed any material fact, or that the sale has
been disadvantageous to him.
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6-duty not to make secret profit
7. duty to pay sums received for principal.
8. Not to delegate.
9. Duty to protect the interest of the principal 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.
10 Adverse title- the agent should not set up his own title of
third parties to the goods received by him from the principal
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Rights of an Agent
Right of retainer The agent has a right to retain, out of
any sums received all money due to him in respect of
remuneration, advance made, expenses incurred in
conducting business.
Right to receive remuneration if he has completed his
task. He is not entitled to any remuneration for part
Right of lien he has right to exercise particular lien over
the goods, paper, property until the amount due to him
for commission, expenses has been paid.

Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
Right to be indemnified against consequence of lawful acts-
Right to be indemnified against consequences of acts done in good
faith- where one person employs another to do an act, and the
agent does the act, though it causes an injury to the right of third
Right to compensation- the principal must make compensation to
his agent in respect of injury caused to such agent by the principals
neglect or want of skill.
Example- A employs B as a brick layer in building a house and puts
up the scaffolding himself. the scaffolding is unskillfully put and B in
consequence hurt. A must make compensation to B.
. means security or protection against a loss or other financial
burden 22-09-2017
To do lawful acts- according to sec 188 an agent
having authority to do an act has the authority to do
every lawful thing which is necessary in order to do
such act.
Right in Emergency- an agent has authority, in an
emergency, to do all such acts for the purpose of
protecting his principal from loss as would be done
by a person of ordinary prudence in his own case,
under similar circumstance.
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Duties of principal

1. Agent to be indemnified- the employer of an agent

is bound to indemnify him against the consequences
of all lawful acts done by such agent in exercise of
the authority conferred to him
2.Against the consequences of the act done in good

Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
3. Non- Liability of employer of agent to do a criminal
act- where one person employs another to do an act
which is criminal, the employer is not liable to the agent
either upon the express or an implied promise, to
indemnify him against the consequences of that act.
example- A employs B to beat C , and agrees to
indemnify him against all consequences of the acts. B
thereupon beats C and has to pay damages to C for so
doing. A is not liable to indemnify B for those damages.
Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
4. Duty to indemnify the loss for principals neglect-the
principal must make compensation to his agent in
respect of injury caused to such agent by the principals
neglect or want of skill.
example- scaffolding
5. Duties to pay remuneration and dues- it is the duty
of the principal to pay the agent all of his dues,
remuneration, commission etc..
Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
Rights of the principal

The principal is entitled to enforce all the duties of the

agent. This is because agents duties are the principals
He may repudiate the transaction if it shows either that
any material fact has been dishonestly concealed from him
by the agent.
If an agent, without the knowledge of the principal, deals
in the business of the agency on his own account instead
of an account of his principal is entitled to claim from the
Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
He is entitled to compensation for any loss or any
profit accruing, owing to departure from
The principal is entitled to demand proper accounts
from the agent.

Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
Termination of Agency

According to section 201 of the act An agency is

terminated by the principal revoking his authority; or
by the agent renouncing the business of the agency;
or by the business of the agency being completed or
by either the principal or agent dying or becoming of
unsound mind, or by the principal being adjudicated
an insolvent under the provisions of any act for the
time being in force for the relief of insolvent
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An agency may be terminated in
following ways--

1 By the act of the parties

2. By the operation of law.

Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
1 By the act of the parties

1. Agreement- agency may be terminated by mutual

agreement between the principal and the agent.
2.Revocation by the principal- a principal has power to
revoke (Cancel) the authority of the agent whenever he
likes. The revocation puts an end to the agency

Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
3. Renunciation by the Agent-
( renunciation means the giving up of one rights, title)
When the agent re-announces the business of agency ,
it is terminated.
Reasonable notice must be given for such renunciation.

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2. By the operation of law.

An agency comes to an end automatically by operation

of las in the following cases:
1. completion of agency of business- for example
when the agency is for the sale of a house, the agency
terminates on the completion of sale .
2 . Expiry of time- when an agency is created for a
period of time, the agency is terminated.

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3. Death of either party-an agency is automatically
terminated on the death of the principal or the agent.
4. insanity of either party- an agency is terminated by
either principal or agent becoming of unsound mind.
(sec 201)
5. Insolvency of the principal- according to sec 201, the
agency is terminated by the principal being adjudicated
as an insolvent under the provisions of any act.

Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017
6. Destruction of the subject matter: an agency which
is created to deal with certain subject matter will be
terminated by the destruction of the subject matter. For
example if an agent is asked to sell a car and the car is
destroyed by fire, then the agency comes to end.
7. Principal or agent becomes alien enemy.
8. Dissolution of a company.
9 Termination of sub-agents authority
Dr.D.Vetrivelan/AP/DoMS-PEC-VANIYAMBADI 22-09-2017