All you should know about Law of Agency | Law Notes | Specific Contract



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Agency can be generally defined as the set of services provided by a business organization on behalf of another person or business. In law, the Agency is defined as the link between Principal and agent. When a person(agent) is in contract to act on the behalf of another person (principal). An agent is a person who acts on the behalf of the principal and do the work which is assigned by the principal. The principal is the person who assign the work to the agent. e.g., a person is running a business organization and appoints a marketer to sell his goods so in this case, the marketer will be the agent who will sell the goods on behalf of the principal.
An agent can be employed by the person who: 

  • ·         Reached the age of maturity according to the law.
  • ·         Of sound mind.
A person will be employed as an agent if: 

  • ·         He/she has reached the age of maturity.
  • ·         Of sound mind
  • ·         Any person except the principal and third persons.
  • ·     Responsible to the principal according to the provisions contained.

    Some important points

  • Ø  There is no need for consideration in forming an agency.
  • Ø  Authority of the agent is given by the principal. It may be expressed which is spoken in words or written and implied also.
  • Ø  If an agent has given an authority then he can do every lawful thing which is necessary to accomplish that the particular task in his own way.
  • Ø  An agent has authority to do anything in an emergency means, he can protect his principal from any loss according to a person of ordinary prudence.
  • Ø  An agent cannot delegate his work to the third person which he is responsible to do personally. He can employ sub-agent according to the nature of agency and terms and conditions of the contract.
  • Ø  A sub-agent is the person who is employed under the original agent whom the work is actually assigned by the principal. Agent is the only person who is accountable to the principal. Sub agent’s responsibility is only limited to the original agent, he will not be responsible to the principal except in case of willful wrong or fraud.
  • Ø  If an agent is appointing a sub-agent without having authority, then he is responsible for the acts of sub-agent and he will also responsible and accountable to the principal and sub-agent will not.
  • Ø   If an agent has assigned a work for finding another person for a particular job then that third person will not be a sub-agent, he will be a part of the agency and agent is responsible for giving name of the third person to the principal but he will not responsible for the work which principal has given to the selected agent.
  • Ø  If a person is doing an unauthoritative work on the behalf of another person, then that person can disown or ratify his work as he does not have any knowledge of that work.
  • Ø  Ratification may be expressed in terms of spoken words and written or implied too. A person who is not aware of the material facts of the case cannot give valid ratification. Ratification of an act can affect the interests of third persons who are subject to that party.
  • Ø There is a relationship of trust and good faith between the agent and the principal. In case of breach of that trust, the agency can be terminated. 
Termination of Agency: There are many ways for terminating an agency:
    • l  If both agent and principal agreed in written or orally to end the relationship then agency can be terminated. If an agent is appointed for a particular period of time or a particular event then agency will be terminated after it expires.
    • l  Principal can revoke authority of agent anytime. When a principal will revoke the authority of agent, then liability of third person will also be terminated but by the notice of revocation.
    • l  An agent can also renounce his power by opposing any act by giving a notice to the principal.
    • l  Agency can also be terminated when any of the principal or agent dies or become insolvent or bankrupt.
Duties of Agents:
There are certain duties of an agent towards the principal: 

  • l Most essential duty of the agent is to perform the task given by the principal. In case of any loss, the agent will be liable to the principal.
  • l If an agent is appointed for negotiation in business by a principal, then it is the responsibility of the agent to act the best of his interest with skills for taking advantage.
  • l An agent is liable to take the reasonable care of the work which he possesses. If any loss occurred, he will be responsible for that to the principal.
  • l If an agent has any conflict with the principal, then also he should not take any advantage from the connection with the third party as it is the relationship of trust, he should not break that trust.
  • l An agent cannot sale, purchase or rent any of the principal’s property without his consent.
  • l An agent should not keep any secret from the principal related to the work. He should disclose all material facts. He should not use property and position of principal for his own benefit.
  • l If any sum which is came from an illegal contract, then agent is also responsible to remit that sum to the principal.
  • l It is the duty of the agent to keep record of every transaction of principal and maintain his accounts.
  • l Agent should not delegate the work given by principal to any third person because that work is given to him by seeing his personal skills and if he wants then he should take the consent of principal and he will be responsible for the act of sub-agent if he appoints.
Duties of Principals:
There are several duties of the principal towards the agent stated below:

  • l  Principal should compensate the agent as per the agreement and for the injury that he suffered from the principal’s want of skill.
  • l  Principal must reimburse the agent for all the expenses he made on the behalf of the principal to avoid disputes and confusion.
  • l  Agent must be indemnified in case of any act which he does in trust of principal. If an agent is performing task on the behalf of principal without having the proper knowledge of the material facts and in case any loss occurred, he will not responsible for that.
Effect of Agency on contracts with third persons 

  • l  If a person is liable to pay the principal and he pays that sum to the agent who is working on the behalf of principal, then the person will be discharged from his duty of paying the sum, then it will be the responsibility of the agent to give that sum to the principal.
  • l  If the agent does any act beyond his authority, then the principal will only responsible to that limit of work which is given by him to the agent and not the extra work.
  • l  Agent is not bound to perform any task on the behalf of the principal which is in the contract but with some exceptions for e.g., selling of goods to the person who resides abroad.
  • l  The sub-agent has the same rights against the agent which an agent has against the principal.
This Law Note has been prepared by Ms Isha Baloni, a Student Editor at MyLawman. She can be reached at ishabaloni8[at]gmail.com. alert-info

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