Contract of agency

Contract of Agency
Prepared by Dr. Seema H. Kadam,Associate
Prof.,TMES-MBA,GTU

Contract of agency
 A person who has capacity to contract may enter into a contract
with another by two course:
i. Either by himself , or
ii. Through an ‘agent’.
 An Agent (A)is a person employed to do any act for another, or
to represent another in dealings with third persons(Sec.182)
 Principal (P)– the person for whom such act is done. and any
person who is of the age of majority according to the law to
which he is subject.
 Agent is a connecting link between the principal and third
parties.(T)
Prof.,TMES-MBA,GTU

Essentials of relationship of agency
 Agreement between the principal and the agent.
i. Agency depends on agreement but not necessarily on
contract.
ii. As between the principal and third persons, any
person may become an agent(Sec. 184) i.e. even a
minor or a person of unsound mind however,
principal is liable for the acts of such an agent.
iii. No consideration is necessary to create an
agency(Sec.185)
 Intention of the agent to act on behalf of the principal.
Prof.,TMES-MBA,GTU

Rules of agency
1. Whatever a person can do personally, he can do through an
agent. –certain well known exception to this rule is when the
act to be performed is personal in character (e.g. marriage) or is
annexed to a public office (e.g. that of a magistrate).
2. He who does an act through another does it by himself.
• Sec.226 clearly provides that an agents and contracts will have
the same legal consequences as if the contracts had been
entered into and acts done by the principal in person.
• Example-A being P’s agent, with authority to receive money on
his behalf,recieves from T a sum of money due to P.T is
discharged of his obligation to pay the sum in question to P
Prof.,TMES-MBA,GTU

Creation of agency
 The relationship of principal and agent may arise-
1. By express agreement, or
2. By implied agreement, or
3. By ratification, or
4. By operation of law.
Prof.,TMES-MBA,GTU

Agency by express agreement
Prof.,TMES-MBA,GTU
 The authority of an agent may be expressed or
implied(Sec186)
 The agent may, in such a case, be appointed either by
word of mouth or by an agreement in writing(Sec.187)
 The usual form of a written contract of agency is the
power of attorney (a formal instrument by which one
empowers another to represent him, or act in his stead,
for certain purposes) on a stamped paper.

Agency by implied agreement
Prof.,TMES-MBA,GTU
 Implied agency arises from the conduct, situation or relationship
of parties. It may be inferred from the circumstances of the case
and things spoken or written or the ordinary course of dealing,
may be accounted as circumstances of the case.(Sec 187)
 E.g. P owns a shop in navsari being himself in Delhi, and visiting
the shop ocassionally.The shop is managed by A and he is in the
habit of ordering goods from T in the name of P for the purposes
of the shop, and for paying for them out of P’s funds with P’s
knowledge. A has an implied authority from P to order goods
from T in the name of P for the purpose of the shop

Contd…
Prof.,TMES-MBA,GTU
 Implied agency includes:
1. Agency by estoppel or holding out, i.e. when a person , by his
conduct or by statement, leads willfully another person to
believe that a certain person in his agent, he is estopped from
denying subsequently that person is not his agent.
2. Agency by necessarity. i.e. when a person acts in some
emergency as agent for another without requiring the consent of
that person.
3. Ratification , i.e., when a person subsequently accepts the act of
the agent done without his consent. Ratification is tantamount
to prior authority. It relates back to the date when the act was
done by the agent.

Classification of agents
Prof.,TMES-MBA,GTU
 Classification on the basis of extent of authority is as follows:
1. Special agent-one who is appointed to perform a particular
act or to represent his principal in some particular
transaction.e.g. an agent employed to sell a house or to bid an
auction.
2. General agent-one who has authority to do all acts connected
with a particular trade, business, or employment. E.g. the
manager(general agent) of a firm has an implied authority to
bind his principal.
3. Universal agent- one who has authority to act for the
principal is unlimited provided that act is legal and is agreeable
to the law of land.

Contd..
Prof.,TMES-MBA,GTU
 Classification of agents on the basis of nature of work performed
by them is as follows:
1. Commercial or mercantile agent- acc. to Sec.2(9) of the sales
of goods act,1930,means “mercantile agent having in the
customary course of business as such agent, authority either to
sell goods ,or to consign goods for the purpose of sale, or to buy
goods, or to raise money on the security of goods. This
definitions does not cover all mercantile agents like
factor,auctioneer,broker,commission agent, del credere agent.
2. Banker
3. Non-mercantile agent- includes attorneys, solicitors, insurance
agents, clearing and forwarding agents and wife, etc.

Rights and duties of agent
Prof.,TMES-MBA,GTU
 Rights of the agent-
1. Right of retainer.
2. Right to receive remuneration
3. Right of lien
4. Right of indemnification
5. Right of compensation
6. Right of stoppage in transit.

contd..
Prof.,TMES-MBA,GTU
 Duties of an agent-
1. To carry out work undertaken according to instructions.
2. To carry out the work with reasonable care, skill and diligence.
3. To render accounts to principal.
4. To communicate with principal in case of difficulty.
5. Not to deal on his own account.
6. To pay sums received for the principal.
7. To protects and preserve the interests of the principal in case of
death or insolvency

Contd..
Prof.,TMES-MBA,GTU
8. Not to use information obtained in the course of agency
against principal.
9. No to make secret profit from agency
10. Not to set up a adverse title.
11. Not to put himself in a position where his interest and
duty conflict
12. Not to delegate authority

Delegation of authority
Prof.,TMES-MBA,GTU
The general rule is that an agent cannot delegate his authority to
another person without the consent of principal.(referred
Sec.191).exception are as follows:
 Sub- agent(sec.190)- it provides that an agent may appoint a sub-
agent and delegate work to him if-
I. There is a custom of trade to that effect, or
II. The nature of work is such that a sub-agent is necessary.
 Co-agent or substituted agent(sec.194) – person who is named by
the agent, on an express or implied authority from the principal,
to act for the principal.

Relation of principal with third parties
Prof.,TMES-MBA,GTU
 Agents authority-It means his capacity to bind the principal. This
authority may be actual authority or ostensible authority.
 Actual authority- It is the authority conferred on an agent by the
principal.It may be express or implied(sec186)
 An agent having authority to do an act has authority to do every lawful
thing which is necessary in order to do such an act(sec.188)
 Ostensible or apparent authority-It is the authority of an agent as it
appears to others.e.g. an estate agent was instructed by owners to find a
purchaser for a property. He did so and accepted from the prospective
purchaser a deposit as agent of the owners. Held, although the estate
agent was not given authority to accept deposit, he had acted within the
scope of his ostensible authority.(Ryan v. Pilkington,(1959)1
W.L.R.403)

Position of principal and agent in relation to third parties
Prof.,TMES-MBA,GTU
 Named principal-
1. Principal is liable for acts done in scope of authority and in course of
employment.
2. Liable for misrepresentation made or frauds committed by an agent
in course of employment.
3. Bound by notice given to or information obtained by the agent.
 Unnamed principal-the principal is liable for the contracts of the
agent, unless there is a trade custom, or term, express or implied, to
the which makes agent personally liable. Legal position is same as
named principal
 Undisclosed principal-the agent is bound by contract. The principal
has right to intervene and assert his position as an undisclosed party.

Contd…
Prof.,TMES-MBA,GTU
1. A is P’s agent with authority to receive money on his behalf. He
receives from T a sum of money due to P. T is discharged of his
obligation to pay sum to P.
2. P authorizes a to buy 10 sheep for him. A buys 10 sheep and 20 lambs
for one sum of Rs. 6000. P may repudiate the whole transaction.
3. P instructed his agent, A, to reinsure an overdue ship at a certain port,
A heard that the ship had actually lost. He did not disclose this fact to
the insurer. Held P could not recover upon policy.
4. A sold to T goods of P , undisclosed principal. When P sued T, T
claimed to set off a debt by A to T.The set- off is allowed.
5. A’s agent P enters into a contract with T acting as principal then later
on A intervene in contract. T can sue either A or P, or both

Personal liability of agent
Prof.,TMES-MBA,GTU
 An agent is personally liable where:
1. The contract expressly provides;
2. He acts for a foreign principal;
3. He acts for concealed principal;
4. He acts for person who cannot be sued;
5. He signs a contract in his own name;
6. He acts for a principal not in existence;
7. There is breach of warranty;
8. He receives or pays money by mistake or fraud;
9. His authority is coupled with interest;
10. The trade usage and custom usage makes him personally liable

Termination of agency
Prof.,TMES-MBA,GTU
 By the principal revoking agent’s authority;
 By the agent renouncing the business of the agency;
 By the business of the agency is completed;
 By either the principal or agent dying or becoming unsound
mind;
 When the principal is adjudicated an insolvent under the
provisions of any act for the time being in force for the relief of
insolvent debtors (sec. 201)

Contd…
Prof.,TMES-MBA,GTU
 Irrevocable agency – when an agency cannot be put an
end to, it is said to be an irrevocable agency. An agency
is irrevocable where
1. It is coupled with interest,
2. The agent has incurred a person liability and
3. The agent has partly exercised the authority.

INDIAN COMPANIES ACT, 1956
Prof.,TMES-MBA,GTU

Definition of company
 A company is a voluntary association of individuals for
profit, having common capital of transferable shares and
the ownership is the condition of membership.
 It is an artificial person created by Law with a distinct
name, common seal, limited liability of members and
enjoys perpetual succession.
Prof.,TMES-MBA,GTU

Evolution of Companies Act of 1956
 Company legislation in India owes its origin to the English
Companies Law.
 The first legislative enactment for ‘Registration of joint stock
companies’ was passed in the year 1850 based on English
Companies Act,1844 which recognized the company as a
distinct legal entity, but did not grant to it the privilege of
limited liability.
 Government of India appointed, on 25th October ,1950, a
committee of 12 members representing various interests under
the chairmanship of Mr. H.C. Bhaba.
 The recommendations of committee culminated in the most
comprehensive and voluminous law on the subject in the
Companies Act of 1956.
 Major amendments to the act made in 2002.
Prof.,TMES-MBA,GTU

Definition under the Company’s Act, 1956
 The Companies Act, 1956, lays down procedures by which a
company can be brought into existence. Anybody who wants to
incorporate a company can do so by taking necessary steps
outlined in it. By far the largest number of companies is
incorporated under the Companies Act. These companies may be
called registered companies.
 Application of Act-
a) As regards State of Nagaland, it applies, subject to
modifications, if any, central government may, by notification in
the official gazette, specify [Sec. 1 (3)].
b) As regards Goa, Daman and Diu, such all provisions of the Act
shall not apply or shall apply with exceptions.
c) As regards Jammu and Kashmir, such provisions of Act as the
central government may, by notification in the official gazette.
Prof.,TMES-MBA,GTU

Characteristics of the company
 Voluntary association: A company is a voluntary association
because any person of any caste or creed religion can buy the
shares at any time and shares may be sold at his freewill subject
to rules of company act 1956.
 Number of members: For the private company at least 2
members and maximum should be 50. But in case of public
company minimum is 7 and maximum no limit.
 Governing law: All registered companies in India have to
functions according to provisions of company law 1956 i.e.
Indian companies operating their business in India.
Prof.,TMES-MBA,GTU

Contd..
 Registration: Registration of all companies is compulsory
according to procedure laid down in companies Act 1956.
Registrar of companies (ROC) issues certificate of incorporation
to newly formed company subject to fulfillment of certain legal
requirements.
 Lawful object: The exact nature of business should be clearly
specified in the memorandum of association, the object must be
lawful.
 Artificial person: Company is an artificial person created by law.
It doesn’t have a physical existence. Therefore it cannot perform
activities like natural person. However it can enter into contract
with 3rd parties e.g. it can buy and sell property, borrow money.
Prof.,TMES-MBA,GTU

Contd..
 Statutory obligations: Company has to functions according to
legal provisions of companies act to protect the interest of
shareholders e.g. shareholders meetings must be held in time,
audit of company a/c is compulsory, certain documents are
required to be filled with registrar and so on. These examples are
called statutory obligations.
 Registered office: All companies must have a registered office
and its address should be clearly specified in memorandum of
association. All records, books of accounts should be properly
classified in office. Moreover all the correspondence between the
registrar and company and company with all other parties takes
place through office.
Prof.,TMES-MBA,GTU

Contd..
 Common seal: It is a rubber stamp or the signature of company.
The company is an artificial person who cannot sign and a
common seal is required to be affixed on all important documents
of the company. Common seal remains in the safe custody of the
company secretary.
 Transferability of share: The share is transferable (movable)
property. In case of public company, the members can freely sale
(transfer) their shares subject to rules and regulations but private
company’s shares are not freely transferable.
Prof.,TMES-MBA,GTU

Contd..
 Separation of ownership and management: Due to large
membership the Company’s management is in the hand of elected
representatives called directors and ownership is in the hand of
shareholders.
 Limited liability: The shareholders liability is limited up to the
extent of face value of share purchased by member i.e. the
shareholders private property is not in danger. The debts of the
company to be settled from company’s property and not from the
personal properties of shareholders.
Prof.,TMES-MBA,GTU

Contd..
 Legal status: Company has its own separate status in the eyes of
law i.e. the company’s liabilities are its own i.e. shareholders
cannot act on behalf of the company and not liable for the debts
of company, shareholders cannot bind the company by their acts.
 Perpetual succession: The death insolvency or insanity of any of
its members does not result into dissolution of company enjoys a
continuous and stable life because it is an artificial person and
enjoys long corporate life.
Prof.,TMES-MBA,GTU

The Companies Act, 2013
 The Companies Act, 2013 passed by the Parliament has received the assent of
the President of India on 29th August, 2013.
 The Act consolidates and amends the law relating to companies. The
Companies Act, 2013 has been notified in the Official Gazette on 30th August,
2013.
 Some of the provisions of the Act have been implemented by a notification
published on 12th September, 2013. The provisions of Companies Act, 1956 is
still in force.
Prof.,TMES-MBA,GTU

Prof.,TMES-MBA,GTU
INCORPORATION & CAPITAL RAISING
 A private company can have a maximum of 200 members, up from 50 in the
Companies Act, 1956. (Section 2: Definitions)
 All companies to follow uniform financial year, running from April to
March. Exceptions to be made only for certain companies with the approval
of NCLT. (Section 2: Definitions)
 The concept of One Person Company introduced. It will be a private limited
company. (Section 3: Formation of company)
 The Prospectus has to be more detailed. (Section 26: Matters to be stated in
prospectus)
 Money raised through a prospectus cannot be used for dealing in equity
shares of another company. If a company changes terms of the prospectus or
objects for which money is raised, it shall provide dissenting shareholders an
exit opportunity. (Section 27: Variation in terms of Contract or Objects in
Prospectus)
 'Private placement' defined, with detailed provisions for such
placement. (Section 42: offer or invitation for subscriptttion on private
placement)

Prof.,TMES-MBA,GTU
 Apart from existing shareholders, if the Company having share capital at
any time proposes to increase its subscribed capital by issue of further
shares, such shares may also be offered to employees by way of ESOP,
subject to the approval of shareholders by way of Special
Resolution. (Section 62: Further issue of share capital)
 NBFCs not covered by the provisions relating to acceptance of deposits.
They will be governed by Reserve Bank of India Rules. (Section 73:
Prohibition on acceptance of deposits from public)
 Companies can accept deposits only from its members, that too after
obtaining shareholders approval. Acceptance of deposit also subject to
compliance with certain conditions. (Section 73: Prohibition on
acceptance of deposits from public)
 Public companies can accept deposit from public on complying certain
conditions like credit rating. (Section 76: Acceptance of deposits from
public by certain companies)
 Concept of dormant companies introduced. It can be formed for a future
project or to hold an asset or intellectual property. (Section 455: Dormant
Company) All types of securities to be governed by the Act .

Contract of agency

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Contract of agency

Similar to Contract of agency (20)

More from Dr. Seema H. Kadam

More from Dr. Seema H. Kadam (16)

Recently uploaded

Recently uploaded (20)

Contract of agency