ASSIGNMENT VI – SPECIAL CONTRACTS

RIYA SINGH

19FLICDDN01106

BBA.LLB (HONS) 1ST YEAR

SEC B

Q1. What is contract of agency?

 Section 182 – A agent is a person employed to do any act for another to represent in
dealings with the third persons.
 Person for whom act is done or represented is called principal
 Agent is a connecting link between principal and third parties
 A company’s promoter status is not that of an agent because he is acting for a
company which is yet to come into existence
 Person who is employed by another to invest money on his behalf and to represent
him with the debtors is an agent according to Sec 132
CASE – HARBANS LAL V. PRODUCER EXCHANGE CORPORATION
 Basically agent is a person who brings contract between principal and the third parties
and they must be capable of entering into the contract.

Q.2. What are the rights and duties of an agent?

RIGHTS:

1. RIGHT TO REMUNERATION- As per section 219, an agent has a right to receive the
agreed remuneration or in absence of agreement, a reasonable remuneration for rendering the
services to the principal that are not voluntary or gratuitous. He becomes eligible to receive
the remuneration as soon as he completes the work that he undertook.

2.RIGHT OF RETAINER – An agent may retain, out of any sums received on account of the
principal in the business of the agency, all moneys due to himself in respect of advances
made or expenses properly incurred by him in conducting such business, and also such
remuneration as may be payable to him for acting as agent.

3. RIGHT OF LIEN – A agent has power of particular lien on the goods. If the principal does
not pay or denies to pay the sum recoverable. The agent can only retain the goods till the
sums are paid to him. He has no power to sell the goods.

4. RIGHT TO BE INDEMNIFIED - An agent represents his principal to the third parties. As

per sections 222 and 223, an agent has a right to be indemnified by his principal for all
charges, expenses, and liabilities that he incurs during the course of the agency.
5. RIGHT TO COMPENSATION – an agent enjoys a right to claim compensation for any
loss suffered to him in spite of all harmful acts done in exercise of his authority .He has right
to claim full compensation from the principal for any loss or damage caused to him without
his own fault in the ordinary course of agency.

DUTIES

1. Duty to follow Instructions or Customs- Section 211 of the Indian Contract Act provides
that it is the paramount duty of the agent to act according to the instructions of the principal
and to regulate his activities in such a manner so as not to go beyond his authority. Whenever
the directions are not clearly mentioned, the agent is supposed to follow the customs which
are most prevalent among businesses of the same kind and in the place where the agent
conducts such businesses.

2. Duty to act with reasonable care and skill: An agent is usually taken on because he has
special knowledge or skills that the principal wishes to tap. The agent is under a legal duty to
perform his work with the care and skill that is “standard in the locality for the kind of work
which he is employed to perform” and to exercise any special skills, if these are greater or
more refined than those prevalent among those normally employed in the community.

3. Duty to render accounts: The agent must keep accurate financial records, take receipts, and
otherwise act in conformity to standard business practices.

4. Duty to communicate with principal: Agent’s duty to communicate is an agent's duty to

make a full disclosure to his principal of all material facts relevant to the agency. It is the
duty to make a prompt, full, and frank disclosure and account to the principal of all matters
concerning the agency. The duty to give the principal any information that the latter would
desire to have and which can be communicated to him without violating a superior duty to a
third person is an agent’s duty to communicate.

5. Not to deal on his own accounts: A fiduciary may not lawfully profit from a conflict
between his personal interest in a transaction and his principal’s interest in that same
transaction. A broker hired as a purchasing agent, for instance, may not sell to his principal
through a company in which he or his family has a financial interest. The penalty for breach
of fiduciary duty is loss of compensation and profit and possible damages for breach of trust.

6. Not to Use Information Obtained in the Course of the Agency against the

Principal: To further his objectives, a principal will usually need to reveal a number of secrets
to his agent, how much he is willing to sell or pay for property, marketing strategies, and the
like. Such information could easily be turned to the disadvantage of the principal if the agent
were to compete with the principal or were to sell the information to those who do. The law
therefore prohibits an agent from using for his own purposes or in ways that would injure the
interests of the principal, information confidentially given or acquired.

7. Not to Set Up Adverse Title: A title set up in opposition to or in defeasance to another title
is adverse title. A title acquired through the claim of adverse possession is also known as
adverse title. The holder of an adverse title, by giving written notice to the occupying
claimant, could absolutely take away the title of the latter, and all persons claiming from and
through him/her.

8. Not to Make Secret Profits: Common law requires that an agent should not make any profit
or acquire any benefit in the course and in the matter of his agency without the knowledge
and consent of his principal. Such profit, generally known as secret profit, is not restricted to
money but may include anything of value, for example, an interest-free loan, a club
membership, etc. An agent who has made secret profit is liable to account to the principal for
such profit in addition to any other remedies available to the principal for the agent's breach
of duty.

9. Duty to Exercise His Authority Personally: The general rule is that an agent may not
delegate his authority or duty in whole or in part except with the authority and consent of the
principal. Owing to the fact that an agency agreement is privy to the principal and the agent
and that authority is normally given to the agent personally, on account of his trustworthiness,
skill or experience, the agent is under a duty to the principal not to delegate his duties under
the agency agreement to another person, but to exercise the authority in person. Hence, an
agent has normally no implied authority to employ deputies or sub-agents to carry out his
duties. Where an agent is not authorized to delegate, the act of a “sub-agent” appointed by the
agent will not be binding on the principal. The agent who so delegates his authority is also in
breach of the duty not to delegate and is liable to compensate for any loss which the principal
may suffer in consequence of the agent’s failure to exercise his authority in person.

10. Duty on the Death or Insanity 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
representative, of his late principal, all reasonable steps for the protection and reservation of
the interests entrusted to him.

Q.3. What is the personal liability of an agent and what is the liability of
Principal to Third Parties?
PERSONAL LIABILITY OF AGENT

1. Where the Contract Expressly Provides: If at the time of entering into a contract
with a third party, it is expressly agreed that the agent shall be personally liable
for the contract, the agent incurs personal liability.
2. Where the Agent Acts for a Foreign Principal: When an agent contracts for the
sale or purchase of goods for the ‘principal residing abroad, the agent is
personally liable for such contracts. However, the agent can exclude his personal
liability by expressly providing in the contract not to incur personal liability.
3. Where the Agent Acts for an Undisclosed Principal: Where the agent acts for an
undisclosed principal, he is personally liable on the contracts. But where the
 agent discloses that he is only an agent or the third party knows that he is acting
as an agent of another, then the agent is not personally liable.
4. When the agent acts for a principal who cannot be sued: An agent incurs personal
liability when he contracts on behalf of a principal who, though disclosed, cannot
be sued. Thus, an agent who contacts for an ambassador or foreign sovereign
becomes personally liable.
5. Where the Agent Acts for a Non-existing Principal: Where the agent acts for a
principal who is non-existent, the agent is personally liable on the contracts. For
instance, the promoters, contracting on behalf of the company, which is yet to be
incorporated, are personally liable.
6. Where the Agent’s Authority is coupled with Interest: Where an agent has an
interest in the subject-matter of the contract, his agency is said to be coupled with
interest. In such a case, the agent is personally liable to the extent of his interest
in the contract. He can also enforce the contract to the extent of his own interest.
7. Where the Trade Usage or Customs makes him Personally Liable: Sometimes,
the trade usage or customs of a particular trade provide that the agent shall be
personally liable for the contract. In such cases, the agent incurs personal liability.
8. Where an Agent Receives or Pays Money by Mistake or Fraud: Where an agent
receives some money from a third party by mistake or fraud, he is personally
liable to the third person for the refund of such money. Likewise, if he pays some
money to a third party by mistake or fraud, he can recover it back from the person
to whom it has been paid.
9. When He Enters into Contract in his Own Name: Where the agent signs a
negotiable instrument or a contract without making it clear that he is signing on
behalf of the principal, the agent will be personally liable in that case.

LIABILITY OF PRINCIPAL TO THIRD PARTIES

The liability of the principal to third parties may be studied under the following
heads:

1) Where the name and existence of the principal is disclosed by the agent to the

third party.

2) Where the name is not but principal's existence is disclosed or where we may

conveniently say that the principal is unnamed, and

3) Where the principal is undisclosed i.e., neither the existence nor the name of the

principal is disclosed.
Q.4. Write a note on termination of agency.
Termination of Agency by Act of the Parties

An agency can be terminated by the act of the parties in any one of the following ways.

1. Mutual Agreement

The agency may be terminated at any time and at any stage by the mutual agreement between
the principal and his agent. Therefore, the authority of an agent terminates, when the
principal and the agent agree to terminate it.

Example: A appointed B, as his agent in order to collect the loan lent to C and D. B collected
the loan lent to C. Subsequently, A and B agreed to put an end to the agency relationship
between them. Here the agency is terminated.

2. Revocation of the Agent’s Authority by the Principal

The principal may revoke the authority of his agent before it has been exercised by the agent
so as to bind the principal.

Example: A appointed D, as his agent to purchase certain goods. Any time before, he
purchases the goods, A may revoke D’s authority. However, the revocation of agent’s
authority is subject to the following conditions:

1. If the agent has exercised his authority partly, the principal may revoke the agency for
future acts only.

2. If the agency is created for a fixed term and if there is some sufficient cause, the principal
may revoke it before the expiry of the said term.

3. If the agency is created for a fixed period or continuous, the principal must give a
reasonable notice of revocation of agency to the agent.

4. If the agent has some interest in the subject-matter, the agency can be revoked only when
there is an express contract permitting the termination.

3. Revocation by the Agent

Agent, after giving a reasonable notice to the principal, may renounce the business of agency.
If the contract of agency is entered into for a fixed period, agent should pay compensation to
the principal for the earlier renunciation of the business of agency.
Termination of Agency by Operation of Law

An agency can be terminated by operation of law in any of the following cases:

1. Performance of the Contract: When the agency is for a particular object, the agency
terminates when the object is fulfilled.

2. Expiry of Time: When an agency is created for a particular period of time, it comes to an
end on the expiry of that period even if the work is not completed.

3. Death or Insanity of Either Party: The agency is terminated when the agent or principal
dies or becomes insane. On the death of either the agent or the principal, the agency is
automatically terminated because a person cannot act on behalf of non-existent person. Thus,
where a client dies, his pleader’s authority also terminates. Similarly, the relationship
between agent and principal comes to an end when principal or agent becomes insane, for a
person of unsound mind cannot contract.

4. Insolvency of the Principal: When the principal is declared as insolvent, the agency is
terminated. This is because the insolvent is disqualified from entering into contract in respect
of his property.

5. Destruction of Subject-Matter: When the subject-matter in respect of which agency was

created has been destroyed, the agency is terminated. Thus, if an agent is asked to sell a
house, and the house is destroyed by fire, there is a cessation of the agency.

6. Principal becoming an Alien Enemy: When the war breaks out between the countries of the
principal and the agent, the contract of agency is terminated.

7. Dissolution of a Company: When a company, whether it is of principal’s or agent’s

dissolved, the contract of agency between them comes to an end.

8. Termination of Sub-Agent’s Authority: The sub-agents authority is terminated

automatically, as and when the authority of the agent is terminated.

9. Subsequent event Rendering the Agency Unlawful: It maybe that an act is lawful when the
agency was created but if it is declared by law to be unlawful subsequently, agency cannot
continue, as that would be unlawful. An agency that is lawful may become unlawful due to
declaration of war when the principal or agent is deemed an alien enemy.