INDEX

Executive Summary 3
Introduction 3
Objective of the project 4
Methodology of the Project 4
Analysis 5
Types of Agents 6
Authority of Agent 8
Liability of Agent 10
Duties of Agent 11
Termination of Agency 12
Conclusion 13
Bibliography 14

EXECUTIVE SUMMARY

In the assignment at first a brief description about Law of Agency, concepts and brief
statement of legal principles are given. Then the objectives and methodology have been
discussed. Then we have done limitations of the study and literature review. After that we
have done the most important thing that is the analysis of this topic. There we have

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discussed about the objective and the types of Law of Agency. At last we have included
the conclusion with recommendation and bibliography.

INTRODUCTION

In Contract Act, 1872 SS: 182-238, Law of agency has been discussed. The law of
agency is an area of commercial law dealing with a contractual or quasi-contractual, or
non-contractual set of relationships when a person, called the agent, is authorized to act
on behalf of another (called the principal) to create a legal relationship with a third party.
Succinctly, it may be referred to as the relationship between a principal and an agent
whereby the principal, expressly or impliedly, authorizes the agent to work under his

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control and on his behalf. The agent is, thus, required to negotiate on behalf of the
principal or bring him and third parties into contractual relationship. This branch of law
separates and regulates the relationships between: Agents and principals; Agents and the
third parties with whom they deal on their principals' behalf; and Principals and the third
parties when the agents purport to deal on their behalf. The reciprocal rights and
liabilities between a principal and an agent reflect commercial and legal realities. A
business owner often relies on an employee or another person to conduct a business. It
can only act through human agents. The principal is bound by the contract entered into by
the agent, so long as the agent performs within the scope of the agency.

OBJECTIVE OF THE PROJECT

A business owner often relies on an employee or another person to conduct a business. In

the case of a corporation, since a corporation is a fictitious legal person, it can only act
through human agents. The principal is bound by the contract entered into by the agent,
so long as the agent performs within the scope of the agency. A third party may rely in
good faith on the representation by a person who identifies himself as an agent for
another. It is not always cost effective to check whether someone who is represented as

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having the authority to act for another actually has such authority. So one must know
about the law of agency, or must have minimum knowledge to deal with such act.

For simplicity, the objectives can be point out as:

1) What are the types of an agent

2) To know about the liabilities of an agent to third party

3) What are the liabilities of an agent to a principal

4) To know what are the liabilities of a principal to an agent

5) To find out the duties, an agent owes to the principal

6) An agent's authority can be terminated at any time. So it’s important to know the
termination criteria
7) Legal effect of Ratification
8) Agency relationships are common in many professional areas. Such as:
a. Financial advice (insurance agency, stock brokerage, accountancy)
b. Contract negotiation and promotion (business management) as for publishing
fashion model, music, movies, theatre, show business, and sport.
c. employment or real estate transactions (real estate brokerage, mortgage
brokerage)
As this branch of law separates and regulates the relationships between agents and
principals, agents and the third parties with whom they deal on their principals' behalf
and lastly the relationship between principals and the third parties when the agents
purport to deal on their behalf, the main objective of the study is to know the relationship.

METHODOLOGY
I have used only secondary data source to conduct the study. The sources of secondary
data are:
Secondary source:
Secondary information was collected from books and from different web site
related to law of agency. I have collected much of the information through the
internet and those are mentioned in the reference page.

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 ANALYSIS OF THE PROJECT

In Indian Contract Act 1872, Sections 182-238, Law of agency has been discussed.
Where
S: 182- defined Agent and Principal
S: 183- Who may employ agent
S: 184- Who may be an agent
S: 186- Agents Authority may be expressed or implied
S: 187- Definition of expressed and implied Authority

AGENT AND PRINCIPAL:

An ‘Agent’ is a person employed to do any act for another, or to represent
another in dealings with the third person. The person for whom such act is done, or who
is so represented, is called the ‘Principal’.1

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.2

WHO MAY BE AN AGENT:

As between the principal and third person any person may become an agent,
but no person who is not of the age of majority and sound mind may become an agent, so
as to be responsible to his principal according to the provisions in that behalf herein
contained. 3
DIFFERENT TYPES OF AGENTS:

1
Indian Contract Act, 1872. Section 182.
2
Indian Contract Act, 1872. Section 183.
3
Indian Contract Act, 1872. Section 184..

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 There are mainly four types of agents4 who are described below.:
1. AUCTIONEER:
An auctioneer is an agent whose business is to sell goods or other
property by auction, i.e.; by open sale. The authority of his is to sell the goods and not to
give warranties on behalf of the seller unless expressly authorized by the Principal.
2. FACTORS:
A Factor is a mercantile who is entrusted with the possession of the
goods for the purpose of the sale. 5 He has power to sell goods on credit and also
to receive the price from the buyer.
3. BROKERS:
A Broker is an agent who has an authority to negotiate the sale or
purchase of goods on behalf of his principal, with a third person. Unlike a Factor,
he himself has no possession of the goods. He gets his commission whenever any
transaction materializes through his efforts.
4. DEL CREDERE AGENTS:
Generally, the function of an agent is over after a contract is
established between his principal and a third person. He is not answerable to his
principal for the failure of the performance of contract by the third person. A Del
Credere Agent constitutes an exception to this rule. He is a mercantile agent, who
on the payment of some extra commission, known as del credere commission
guarantees the performance of the contract by the third person. Liability of the
Del credere agent like that of surety is secondary and the same arises if the third
person fails to pay to the principal what is due under the contract.6

i. THE CONCEPTS:

The reciprocal rights and liabilities between a principal and an agent reflect commercial
and legal realities. A business owner often relies on an employee or another person to
conduct a business. In the case of a corporation, since a corporation is a fictitious legal

4
Dr. R.K. Bangia, Principals of Mercantile law, (pg. no. 313) Allahabad Law agency, 1989.
5
L.H. Parakh vs. King emperor, A.I.R. 1926 Oudh202.
6
Morris vs. Cleasby (1816) 4 M & S. 566

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person, it can only act through human agents. The principal is bound by the contract
entered into by the agent, so long as the agent performs within the scope of the agency.

A third party may rely in good faith on the representation by a person who identifies
himself as an agent for another. It is not always cost effective to check whether someone
who is represented as having the authority to act for another actually has such authority.
If it is subsequently found that the alleged agent was acting without necessary authority,
the agent will generally be held liable.

ii. BRIEF STATEMENT OF LEGAL PRINCIPLES:

There are three broad classes of agent

1. Universal agents hold broad authority to act on behalf of the principal, e.g. they
may hold a power of attorney (also known as a mandate in civil law jurisdictions)
or have a professional relationship, say, as lawyer and client.
2. General agents hold a more limited authority to conduct a series of transactions
over a continuous period of time; and
3. Special agents are authorized to conduct either only a single transaction or a
specified series of transactions over a limited period of time.

iii. AUTHORITY:
An agent who acts within the scope of authority conferred by her principal binds the
principal in the obligations she creates against third parties. There are essentially two
kinds of authority recognized in the law: actual authorities (whether express or implied)
and apparent authority.
Agent’s authority may be expressed or implied. :
The authority of an agent may be expressed or implied. 7

7
Indian Contract Act, 1872. Section 186.

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 1. ACTUAL AUTHORITY:
Actual authority can be of two kinds. Either the principal may have expressly
conferred authority on the agent, or authority may be implied. Authority
arises by consensual agreement, and whether it exists is a question of fact. An
agent, as a general rule, is only entitled to indemnity from the principal if she
has acted within the scope of her actual authority, and may be in breach of
contract, and liable to a third party for breach of the implied warranty of
authority.

a) Expressed actual authority

Express actual authority means an agent has been expressly told she may act on behalf of
a principal.

There was a case in which it was said that the authority conferred upon the
agent was expressed authority.8

b) Implied actual authority

Implied actual authority, also called "usual authority", is authority an agent has by virtue
of being reasonably necessary to carry out his express authority. As such, it can be
inferred by virtue of a position held by an agent. For example, partners have authority to
bind the other partners in the firm, their liability being joint and several, and in a
corporation, all executives and senior employees with decision-making authority by
virtue of their position have authority to bind the corporation.

The authority conferred upon anyone which is not directly told

but inferred by the Principal’s way of action.9

2. APPARENT AUTHORITY:
Apparent authority (also called "ostensible authority") exists where the principal's words
or conduct would lead a reasonable person in the third party's position to believe that the
8
Ireland v Livingstone (1872) LR 5 HL 395

9
Holy-Hutchinson v Brayhead Ltd [1968] 1 QB 549

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agent was authorized to act, even if the principal and the purported agent had never
discussed such a relationship. For example, where one person appoints a person to a
position which carries with it agency-like powers, those who know of the appointment
are entitled to assume that there is apparent authority to do the things ordinarily entrusted
to one occupying such a position. If a principal creates the impression that an agent is
authorized but there is no actual authority, third parties are protected so long as they have
acted reasonably. This is sometimes termed "agency by estoppel" or the "doctrine of
holding out", where the principal will be estopped from denying the grant of authority if
third parties have changed their positions to their detriment in reliance on the
representations made.[3]

Rama Corporation Ltd v Proved Tin and General Investments Ltd

"Ostensible or apparent authority... is merely a form of estoppel, indeed, it has been
termed agency by estoppel and you cannot call in aid an estoppel unless you have three
ingredients: (i) a representation, (ii) reliance on the representation, and (iii) an alteration
of your position resulting from such reliance."10

iv. Liability of agent to third party

In India, section 182 of the Contract Act 1872 defines Agent as “a person employed to do
any act for another or to represent another in dealings with third persons”.

If the agent has actual or apparent authority, the agent will not be liable for acts
performed within the scope of such authority, so long as the relationship of the agency
and the identity of the principal have been disclosed. When the agency is undisclosed or
partially disclosed, however, both the agent and the principal are liable. Where the
principal is not bound because the agent has no actual or apparent authority, the purported
agent is liable to the third party for breach of the implied warranty of authority.
10
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480

The Raffaella or Egyptian International Foreign Trade Co v Soplex Wholesale Supplies

Ltd and PS Refson & Co Ltd [1985] 2 Lloyd's Rep 36

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 v. Liability of agent to principal
If the agent has acted without actual authority, but the principal is nevertheless bound
because the agent had apparent authority, the agent is liable to indemnify the principal for
any resulting loss or damage.

vi. Liability of principal to agent

If the agent has acted within the scope of the actual authority given, the principal must
indemnify the agent for payments made during the course of the relationship whether the
expenditure was expressly authorized or merely necessary in promoting the principal's
business.

vii. Duties of Agent

An agent owes the principal a number of duties. These include:

a) a duty to undertake the task or tasks specified by the terms of the agency (that is,
the agent must not do things that he has not been authorized by the principal to
do);
b) a duty to discharge his duties with care and due diligence; and
c) a duty to avoid conflict of interest between the interests of the principal and his
own (that is, the agent cannot engage in conduct where stands to gain a benefit for
himself to the detriment of the principal).

d) An agent must not accept any new obligations that are inconsistent with the duties
owed to the principal. An agent can represent the interests of more than one
principal, conflicting or potentially conflicting, only after full disclosure and
consent of the principal.

e) An agent also must not engage in self-dealing, or otherwise unduly enrich himself
from the agency. An agent must not usurp an opportunity from the principal by
taking it for himself or passing it on to a third party.

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 f) In return, the principal must make a full disclosure of all information relevant to
the transactions that the agent is authorized to negotiate and pay the agent either a
prearranged commission, or a reasonable fee established after the fact.

viii. Termination of agency

An agent's authority can be terminated at any time. If the trust between the agent and
principal has broken down, it is not reasonable to allow the principal to remain at risk in
any transactions that the agent might conclude during a period of notice.

As per sections 201 to 210 of the Indian Contract Act 1872, an agency may come to an
end in a variety of ways:

a) Withdrawal by the agent – however, the principal cannot revoke an agency

coupled with interest to the prejudice of such interest. An agency is coupled with
interest when the agent himself has an interest in the subject-matter of the agency,
e.g., where the goods are consigned by an upcountry constituent to a commission
agent for sale, with poor to recoup himself from the sale proceeds, the advances
made by him to the principal against the security of the goods; in such a case, the
principal cannot revoke the agent’s authority till the goods are actually sold, nor is
the agency terminated by death or insanity (illustrations to section 201);
b) By the agent renouncing the business of agency;
c) By the business of agency being completed;
d) By the principal being adjudicated insolvent (section 201).

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 CONCLUSION

In our research we have discussed about different agency law issues. Although our

research does not explore the vast complexities of the agency law as it varies throughout

various terms. This research will hopefully assist to establish a basic framework for

understanding these types of issues.

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 BIBLIOGRAPHY

BOOKS:

 Indian Contract Act by Dr. R.K. Bangia.

 Principles of Mercantile law by Dr. R.K. Bangia

 Indian Contract Act by Mulla.

ACTS:

 Indian Contract Act

WEBSITES:

 [Link]
 [Link]

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