Discuss the dynamics of contract in terms of business and the relationship between agent and principal.
1. INTRODUCTION:
A contract Act does not say any thing about the place where the contract is made and it is not a part of the ordinary law a contract meaning of causes of action with reference to place of contract.[1]Law applicable where parties belong to different countries.This question has two parts .The primary part of the question determines the circumstances in which promise made by the parties to a contract shall be legally binding on them. We carry on business by entering into contracts. The law relating to contracts is to be found in the Indian Contract Act, 1872.In law, the relationship that exists when one person or party engages another (the agent) to act for him, e.g. to do his work, to sell his goods, to manage his business. The law of agency thus governs the legal relationship in which the agent deals with a third party on behalf of the principal. It does not lay down so many precise rights and duties which the law will protect and enforce; it contains rather a number of limiting principles, subject to which the parties may create rights and duties for themselves and the law will uphold those rights and duties. In secondary part of this question mentions that every contract or agreement is built for a specific period of time, after that it becomes invalid and termination of such relationship with out the knowledge of the agent may not render the act invalid.
I would examine this essay in two parts, firstly, relation between a principal and an Agent is entirely contractual one; secondly, what information about termination of such relationship with out the knowledge of the agent is relevant after the recession of contract.
2. THE KEY CNCEPT OF CONTRACT:
a. Define ‘contract’:
In sec 182- “Agent” and “principal” defined – An “agent” is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the “principal”.
Relationship between two or more competent parties is considered as a contract. Contracts are usually in written form but in many cases may be spoken or implied, and generally it has to do with employment, sale or lease, or business purpose and it would be must voluntary, deliberate, and legally binding agreement between two or more competent parties. An agreement enforced by law is a contract. An agreement which is has been enforced by regulation at the choice of one or more of the parties thereto, but not at the choice of the other or other ones, is a voidable agreement and an agreement not enforced by regulation is said to be void.
If the agency is gratuitous, he is expected only to employ as much skill as he would in the conduct of his own affairs; but a somewhat higher standard is required of him if the agency is for reward. He must further display any special skill or capacity which he may profess in relation to the work in hand.
b. The effect of the law of contract Act 1872:
In India, the relationship between Agent and Principal is primarily contractual in nature and is governed by the terms of contract entered into between them (“Agency Contract”). The law of agency derives its statutory base from Chapter X of the Indian Contract Act, 1872 (“Act”), which provides the framework of rules and regulations that govern formation and performance of any contract including the Agency Contract. Section 182 of the Act defines ‘Agent’ as ‘person employed to do any act for another or to represent another in dealings with third person’. In sec 189 it has mentioned that The Agent in doing that act must neither do anything that is illegal, not beyond the limits of his own authority, nor beyond the powers of his Principal. An Agent has authority in an emergency to do all such acts for the purpose of protecting his Principal from loss as would be done by a person of ordinary prudence, in his own case under similar circumstance.
When we purchase anything like pen, newspaper, car or machine in our regular life, we are just entering into a contract. So it means that we enter into contracts so many times in a day, and that ‘contract’ has become an indispensable part of our life. Contract Act really codifies the way we enter into a contract, execute a contract, implementation provisions of a contract and effects of breach of a contract. Basically, an individual is free to agreement on any periods he chooses. The Contract Act consists of limiting components subject to which agreement may be entered into, performed and breach enforced. It only presents a structure of directions and guidelines which rule formation and presentation of contract. The privileges and obligations of parties and periods of affirmation are determined by the contracting parties themselves.
c. Factors which aggravate contract of law:
Contract or relation between a principal and an Agent can be notified through the aggravating factors which are well established in Indian contract Law: A disconnection or conflict between the objectives and goals of the principal and those of the agent authorized to represent the principal. The principal-agent problem arises because an agent is given the responsibility and authority to take actions that affect both the principal, but can also affect the agent. This problem is common in corporate management, where the principal is shareholders and the agent is managers. It is also common in government, where the principal is the public and the agent is elected leaders.
d. Guidelines to assess the cancellation of contract:
In section 53 it has mentioned that principle is that a person cannot take advantage of his own wrong (c) When time is essence of contract and party fails to perform in time, it is voidable at the option of other party (section 55). A person who himself delayed the contract cannot avoid the contract on account of (his own) delay.
The Regulations are likely to apply to a wide range of contracts made between Principal and their agents. Whether they apply will depend on the nature of the client and the circumstances in which the contract was made.
Where the Regulations apply then the agent has a right to cancel the contract within a 7 day period. The principal must give the client written notice of this right, setting out various prescribed information. Failure to do so is a criminal offence.
This practice note considers in what circumstances the Regulations will apply to contracts between Principal and their clients, and explains the consequences if the Regulations apply. This guidance relates to cancellation procedure for particular contract, which deals with termination of such relationship for a range of individual contract.
3. Analysis of voidable contract:
a. consequences of Rescission of voidable contract:
When a person at whose option a contract a voidable rescinds it, the other party thereto need to perform any promises therein contained in which he is promisor. The party rescinding a voidable contract shall, if he have received any benefit hereunder from another party of such contract, restore such benefit so far as may be , to the person from whom it is received.
b. The changes made by Act:
The Bangladesh contract Act inherits the Indian Contract act which found its place on the statute Law enacted as far back Twenty Fifth day of April, 1872 being Act IX of 1872.Ther is clear explanation on revocation of authority on the perspective of both agent and principal. An agency is terminated by the principal revoking his authority; or by the agent renouncing the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provision of any Act for the time being in force for the relief of insolvent debtors[2].The principal may save as is otherwise provided by the last preceding section, revoke the authority given to his agent at any time before the authority has been exercised so as to bind the principal. In sec 204 it has been stated that “The principal revoke the authority given to his agent after the authority has been partly exercised so far as regards such acts obligations as arise from acts already done in the agency”.
c. Arguments against termination of Agent’s Authority:
In sec 206 under notice of revocation or Renunciation it has been clearly mentioned that “Reasonable notice must be given of such revocation or renunciation; otherwise the damage thereby resulting to the principal or the agent, as the case may be, must be made good to the one by the other ”.
Revocation and Renunciation may be expressed or may be implied in the conduct of the principal or agent respectively. When the agent has an interest in the subject matter of the agency it cannot be revoked.
A contract is concluded when in the mind of each contracting party there is a consensus ad idem and a modification or revocation requires a like consensus.
Where there is no express or implied contract that the agency should continue for any fixed period reasonable notice must be given of the revocation of the agency.
Termination of a contract of agency by a firm will be take effort, so far as third parties are concerned, when they have knowledge of dissolution of the firm.
If the authority of an agent to admit execution of a document is revoked before registration, but such revocation is known to the guarantee of the document or the registering office, the document is not valid if registered.
Where there is no revocation of the authority or any renunciation of the business of the agency by the agent, there is no termination of the agency.
4. PROPORTIONALITY:
A contract which is executor on the both side may be discharged by the agreement by the parties that it shall no longer bind them. These effects a recession of the contract, and it release the parties from their obligation under it. Such an agreement is formed of mutual promises and for the consideration for each promise of each party is the abandonment by the other of his rights of his contracts.
a. In what ways communication, acceptance and revocation of contract to be relevant:
It is impracticable to consider what are the terms of a particular contract without considering precisely what steps constituted the offer and what constituted the acceptance and precisely what particular terms ought to be read into the contract
the connection of suggestions, the acceptance of suggestion, and the revocation of suggestion and or acceptances , and the revocation of a suggestion and or acceptances, respectively are regarded to be made by any proceed or omission of the party suggesting, acknowledging or revoking by which he proposes to broadcast such suggestions, the acceptance or the revocation.
b. Similarity of case law:
In PLD 1984 Lahore 430 it has been mention that communication of revocation is effectual when the message of revocation is accepted by the addressee. Where before an acceptance conveyed by second referred arrives at the offer or a telegram revoking the acceptance arrives at him, no deduced bond can draw close into existence.
In sec 202 and 203 it has been mentioned that Whether the agent has himself an concern in the property forming subject issue of the bureau, as provided by sections 202 and 203 of the contract Act, can not be terminated to the prejudice of such concern in the non-attendance of articulate agreement . In the present case, from the recital of the power of advocate it seems that the agency himself has a concern in the property and therefore for such as agency cannot be revoked unilaterally to the prejudice of such interest[3].
c. Elaboration of previous contract law:
First, the agent must not, except with the knowledge and assent of his principle, make any profit from the transactions into which he may enter on behalf of his principle or from confidential information acquired by him in his capacity as agent.
The agent may not, as a general rule, depute to another person that which he has undertaken to do. The reason for his rule, and its limitations, are thus outlined by Thesiger L.J. in De Bussche v. Alt:
d. Rights of the Agent against the Principal
The principal must pay the agent such commission or reward as may be agreed upon between them. In the absence of any agreement, express or implied, the agent is not entitled to any reward, although the employment of a professional agent raises a presumption that he is to be remunerated. Indeed, an agreement to pay remuneration will be implied whenever a person is employed to act as agent under circumstances which raise the presumption that he would, to the knowledge of the principal, expect to be paid.
The principal must also reimburse the agent for all expenses, and indemnify him against all liabilities and claims, which the agent has reasonably incurred in the execution of his duties. These rights of reimbursement and indemnity extend to cases where the agent has occasioned liability by an honest mistake, but not where they have arisen from his breach of duty or default.
e. Limitations on the Principal’s Rights and Liabilities
There are certain situations in which, although the agent contracts within his authority, the principal acquires no rights or liabilities under the contract.
First, it is still technically the rule that, if an agent makes him self a party to a deed on behalf of another, his principal can not sue or be sued on the deed unless he is described in the deed as party to it, and the deed is executed in his name.
Secondly, it was once thought to be rule of law that a foreign principal could not sue or be sued on a contract entered into on his behalf, the agent only being liable on the contract. But in modern conditions of trade this rule has no validity.
Thirdly, a principal is not liable upon any bill of exchange or negotiable instrument unless his name is signed thereon; but if it is signed there by an agent acting under his authority, he will be liable.
In fact, the only substantial limitations upon the principal’s rights and liabilities are those which are imposed in the case of an ‘undisclosed principal’, i. e. where the fact of the agency is not disclosed to the other party at the time that the contract is made. Normally where an agent acts on behalf of a principal whose existence he does not, at the time, disclose, the principal can, when discovered, sue and be sued under the contract.
But the right of the undisclosed principal to intervene as a contracting party is subject to certain limitations.
The personality of the agent is of such importance that the contract must be taken to have been made with him alone, no other person can interpose adopt the contract.
Conclusion
From the above discussion we can draw a conclusion that the contract is made by the relationship of Agent and Principal. The relationship between Agent and Principal is primarily contractual in nature and is governed by the terms of contract entered into between them.A communication of revocation is effective when the letter of revocation is received by the addressee and with out the knowledge of the agent it will not be valid.
Bibliography
1. Chowdhury, O. H. (1992). Contract act XII of 1872 (2nd ed.). Dhaka: Dhaka Law Reports.
2. Keenan, D., & Smith, K. (1985). Mercantile law (6th ed.). London: Pitman Publishing.
3. Bohlman, H. M., Dundas, M. J., & Jentz, G. A. (1989). The legal environment of business. New York, NY: West Publishing Company.
4. Edward S. Corwin, John Marshall and the Constitution (Chronicles of America, Part 16), Pg.182
5. Bangladesh Supreme Court Bar Association Human Rights Conference Dhaka 13 October 2010, Bangladesh its Constitution & the International Crimes (Tribunals) (Amendment) Act 2009 by Steven Kay QC. P.1
6. E.L. Rubin, “Types of Contracts, Interventions of Law”, Winter 2000, 45 Wayne L. Rev. 1903.
7. H. Veytia, “The Requirement of Justice and Equity in Contracts”, April, 1995, 68 Tul. L. Rev. 1191.
8. Guest, A. G. (1979). Anson’s law of contract (25th ed.). London: Oxford University Press.
9. Md. Abdul Halim, Constitution, Constitutional Law and Politics: Bangladesh Perspective, 4th Edition,
10. Frederick Pollock, “Indian contract Law: Meaning of contract”, Law is Greek, see http://www.lawisgreek.com/indian-contract-law-meaning-of-contrac
[1] 58 c.5931(call) 659.
[2] [For cases under sec 201-210]
[3] Abdun naim parvez (Md) vs sachindra kumar Mandol and others 5 BLC 14.