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CONTRACT Study Notes: Contract Agency


An agent is a person employed to do any act for another or represent another in dealings with third persons. The person so represented is called the principal.

The act of the agent binds the principal in the same manner in which he would be bound if he does that act himself.

Classes of Agents:

There are two categories of agents

a) Sub-agent
b) Substituted Agent

a) Sub-Agent

He is a person employed by and acting under the control of the original agent in the business of the agency.

He acts under the control of the original agent and between the agent and sub-agent, the relationship of principal-agent subsists. Sub-agent discharges functions authorized by the agent in the course of his agency business.
Example:
1. Stock brokers appoint clerks to transact business on behalf of their clients.
2. A directs B, his solicitor, to sell his estate by auction and to employ auctioneer for this purpose. B names C, an  auctioneer,to conduct sale. C is not a sub- agent for the conduct of the sale.

b) Substituted Agent


Sometimes, the principal may ask the agent to name another person to act for the principal in carrying out a part of the business of agency. Such a person is known as the Substitute Agent.

For example, Ravindran appoints Suresh as his agent to collect rent from his tenants. One tenant defaults and Ravindran wants to initiate legal action against the defaulting tenant. He asks Suresh to refer him to a competent lawyer. Suresh named one Mr. Vishwanath, an established lawyer to represent Mr. Ravindran. Mr. Vishwanath can be termed as substituted agent.

Example: A instructs B, a merchant, to buy a ship for him. B employs a ship surveyor of good reputation to choose a ship for A. The surveyor makes the choice negligently,and the ship turns to be unseaworthy and is lost. B is not, but the surveyor is responsible to A. Agent’s duty in naming such person In selection of a substituted agent for his principal, an
agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case; and if he does this, he is not responsible to the principal for the acts or negligence of the substituted agent so selected.
Note: The agent is answerable for the acts of the sub-agent. A sub-agent is the agent of the agent, whereas a substituted agent is an agent of the principal.

Salient Features of Agency

1) “He, who does through another, does by himself” (QUI FACIT PER ALIUM, FACIT PER SE). It means ‘the acts of the agent are, for all legal purposes, the acts of the principal.’
Example: X purchases from Z goods worth Rs. 10000 on credit on behalf of Y, now Z can proceed against both X and Y if the amount is not paid.
2) The Principal should be competent to contract.
3) The agent may not be competent to contract.
4) No consideration is required to create an agency.

Duties of Agent

1) No delegated powers can be further delegated, “delegates non potest delegare”
It means that an agent, being himself a delegate of his principal, cannot pass on that delegated authority to someone else.
Note: There are however certain exceptions under this rule.

2) An agent is duty bound to follow principal’s direction or customs
Case law: Lilley Vs Double Day

A principal instructed his agent to lodge his goods in a particular warehouse. The agent however deviated from the instructions. The agent put the goods in another warehouse, where the goods perished due to fire. Held, the agent was liable.

3) Duty to show proper skill and care.
Example: A, an agent for the sale of goods, having authority to sell goods on credit, sells to B on credit, without making the proper and usual enquiries as to the solvency of B. B, at the time of the sale,is insolvent. A must make compensation to his principal in respect of any loss incurred.

4) Duty to render proper accounts
An agent owes duty to render proper accounts to the principal on demand.

5) An agent should not deal on his own account.
It means that he must not himself buy from or sell to his principal goods he is asked to sell or buy on behalf of his principal, without obtaining the consent of his principal.
Example: Muthiaya directs, Ramu his agent to buy a certain house for him. Ramu tells Muthiaya that it cannot be bought and buys the house for himself. Muthiaya may, on discovering that Ramu has bought the house, compels him to sell it to him at the price he bought it for.

6) Duty to communicate with Principal
It is the duty of the agent to communicate with principal with reasonable diligence.
Different kinds of Agent

Auctioneers: An auctioneer is an agent whose business is to sell goods or other property by auction i.e. by open sale.
Factors: A factor is a merchantile agent who is entrusted with the possession of the goods for the purpose of sale.
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.
Del Credere Agent: An agent who works after the contract till the execution of contract and gets extra commission for the efforts put by him this commission is known as Del credere commission and the agent is called as Del credere agent.
Principal’s liability for the acts of the agent:

The principal is liable for all acts of the agent done within the scope of his actual and apparent authority. The principal is even liable for the misrepresentation made or fraud committed by the agent acting within the scope of his actual or apparent authority during the course of the agency business.

Note: The only condition to make the principal liable is that, the act in question must be done within the course of the agency business and it does not matter whether the agent has done the act for his personal benefit/benefit of the principal or with the authority of the principal.

The Agent may expressly or impliedly be authorized to do an act on behalf of the principal.
Example: A authorizes his agent B to sell car to third person and he does so, A become bound for the sale of the car in the same manner as if A himself contracted to sell his car to third person.

Note: An agent act as link between his principal and the third person.
Case law: Delhi electric supply undertaking (DESU) v. Basanti Devi Under an agreement between the DESU and LIC under which the employer,i.e. DESU was to deduct insurance premium every month from the salary of its employee under salary saving scheme of the L.I.C and the same was to transmitted to the L.I.C it means that the employer had ostensible authority from the L.I.C to collect premium from its employees on behalf of L.I.C Court held that the employer, in such a case was an agent of the L.I.C for collecting premium from its employees, under section 182, though the employer will not be an insurance agent under the insurance act. In this case employer was held liable to pay the amount equivalent to the policy of the employee to the legal representative.

Practice Exercise:

1. An agent has been defined under which Sec. of The Indian Contract Act?
A. 148 B. 184
C. 174 D. 182
Ans.D

2. __________ is a person employed to do any act for another or represent another in dealings with third persons.
A. Bailor B. Agent
C. Partner D. None of the above
Ans.B

3. The person being represented is called the
A. Promisee B. Principal
C. Bailee D. None of the above
Ans.B

4. A person employed by and acting under the control of the original agent in the business of the agency
A. Principal B. Substitute agent
C. Sub agent D. None of the above
Ans.C

5. Stock brokers appoint clerks to transact business on behalf of their clients. This is the example of a
A. Principal B. Substitute agent
C. Sub agent D. None of the above
Ans.C

6. A directs B, his solicitor, to sell his estate by auction and to employ auctioneer for this purpose. B names C, an auctioneer, to conduct sale. Is C a sub agent?
A. Yes B. No
C. Maybe D. None of the above

7. The principal may ask the agent to name another person to act for the principal in carrying out a part of the business of agency. This person is known as
A. Principal B. Substitute agent
C. Sub agent D. None of the above
Ans.B

8. A sub-agent is the agent of the agent, whereas a substituted agent is an agent of the
A. Principal B. Bailor
C. Sub agent D. None of the above
Ans.B

9. Which of the following are salient features of an agency?A. “He, who does through another, does by himself”.
B. The Principal should be competent to contract.
C. The agent may not be competent to contract
D. All of the above
Ans.D

10. A principal instructed his agent to lodge his goods in a particular warehouse. The agent however deviated from the instructions. The agent put the goods in another are house, where the goods perished due to fire. Will the agent be held liable?
A. Yes B. No
C. Maybe D. None of the above
Ans.A

Other Contract Study Notes:

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