“Discuss the Role of Agencyship in Contract Law”

“Discuss the Role of Agencyship in Contract Law”

1. INTRODUCTION:

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.[1] 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 commercial matters, the relationship of agency usually arises as a result of a contract between two people, for one (the agent) to affect a contract on behalf of the other. However, this is by no meansthe only way in which the relationship can not rise, nor is the affecting of a contract the only duty anagent can perform. The fundamental principle is that, by the agreement of both parties, the agent is enabled directly to affect the legal relations of another person. Except in the case of “agency of necessity” – about which we shall talk later in this study unit – nobody can have an agency relationship forced upon him, nor can it arise other than by agreement (express or implied).

2. CAPACITY:

(a) To Act as Principal

A person who is able to act in his or her own name and also able to act through the others agency, For instance, a minor can be a principal – but only in respect of those Matters which the law permits him to do. As Lord Denning MR said in G (A) v. G (T) (1970):

“Whenever a minor can lawfully do an act on his own behalf, so as to bind

Himself, he can instead appoint an agent to do it for him.”

An organization may appoint an agent to do an act for them which is intra vires(within its powerspermitted by its memorandum of association). Conversely, an agent is anultra vires act does not bind the corporation, nor it is prohibited by any contract entered into by anagent which is ultra viresthe corporation (Ashbury Railway Carriage Co. v. Riche (1875)).In the other caseOf course, in many circumstances third parties are not left without remedy. In common law the person or director who is signed the contract will be personally liable.

Byvirtue of the European Communities Act 1972, S.9, and the company may itself be boundnotwithstanding the fact that the contract was ultra vires, if it was one entered into by the directors. The company may be liable but it cannot, normally, enforce the benefit of an ultra vires contract against the other party.ad an alien enemy cannot appoint an agent, because it is unlawful to contract with an enemy intime of war.

4European Communities Act 1972, S.9, the company may itself be boundnotwithstanding the fact that the contract was ultra vires, if it was one entered into by thedirectors

5 In NSW, the Entertainment Industry Act 1989(NSW) and the Entertainment Industry Regulation 2004 (NSW) regulate the relationship between performers (including any actor, singer, dancer, acrobat, model, musician or other performer of any kind) and their representatives, including entertainment industry agents

In Merritt v. Merritt (1970), during a period of formal separation, the husband prepared and signed a document stating that in consideration of his wife paying all the charges relating to the matrimonial home, including the mortgage repayments, he would agree to transfer the home to his wife’s sole ownership. The wife paid the mortgage off, but the husband did not subsequently transfer the property to her, contending that the agreement was a family arrangement not intended to create legal relations.

(b) To Act as Agent:

It’s quite strange that any person can be an agent even though they do not know the act of an agent. People who are mentally fit and sound and competent to act and contract is Agent. This includes minors and others with limited or no capacity to contract on their own behalf. However, any personal liability of an agent arising out of exceptional circumstances from a contract entered into instead of a principal will arise only if he would have had the capacity to contract on his own behalf. Normally, as we shall see, an agent is not liable personallyin respect of contracts into which he enters in his capacity as agent. However, in certain circumstances (e.g. if he exceeds his authority) he may be personally responsible. It is only this latter liability that will be affected by own legal capacity or incapacity to contract. An example of where a person under a legal incapacity can validly act as an agent is Foreman v. GWR (1878). In this case, a farmer sent some cattle by rail. His driver, who was unable to read, signed a consignment note which contained the railway’s conditions of carriage.

3. PRINCIPAL’S RIGHTS

l. Compensation: The principal is bound to give compensation to agent if it is contracted.

2. Agent‘s duties: The agent’s has to perform for principal to keep his right. Agent has to perform according to the expectation of principal

6Conversely, an appointment of an agent to do an ultra vires act does not bind the corporation, nor is it bound by any contract entered into Agent acting beyond the principal’s authority.-Secs. 227, 228. (p. 183)

7An agent may detain moneys received by him o account of goods sold, although the whole of the goods consigned to him for sale may have been sold, or although the sale may be actually complete.-Sec. 219.

8Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person.”

9 Sec. 226. Acts of the agent within the scope of the instructions bind the principal as if he has done them himself. There is a legal maxim regarding agency via

3. Revocation: Principal can eliminate contract if it necessary. Principal can terminate contract if he founds any guilty in the contract or agents fault.

4. AGENT’S RIGHTS

a. Enforcement of rights: The agent might enforce all the duties of the principal. Principal has duties to agent, and principals duties are agents right.

b. Agent‘s Right of Retainer: An agent might be retain, out any sums received on account of the principal in the business of the agency, a11 moneys due to himself in respect of advance 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.-Sec. 217.

c. When agent‘s remuneration becomes due: In the absence of any special contract, the agent’s remuneration does not become due until he has completed the act for which he was appoint agent. -But an agent may detain moneys received by him o account of goods sold, although the whole of the goods consigned to him for sale may have been sold, or although the sale may be actually complete.-Sec. 219.

d. Agent not entitled to remuneration for business misconduct: An agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect that part of the business which he has misconduct.-Sec. 22

See Robert Stewart and Sons v. Carapanayoti & Co. Ltd., [1962] 1 WLR 34. See also supra note 10

10The principal is entitled to compensation for any breach of duty by the agent. An agent may retain, out any sums received on account of the principal in the business of the agency.

11all moneys due to himself in respect of advance made or expenses properly incurred by him in conducting such business, and also such.

12An agent may detain moneys received by him o account of goods sold, although the whole of the goods consigned to him for sale may have been sold, or although the sale may be actually complete.-Sec. 219.

13In cases where the agent is personally liable, a person dealing with him may hold either him or his principal, or both of them liable.-Sec. 233

5. Termination of Contract:

(a) Agreement

Like any other contract, a principal can terminate contract after the expiration of contract with agent.This is self-evident.

(b) Completion

If an agent works for some special tast, the contract will be automatically finished after the special work done. For example, in Blackburn v. Scholes (1810), a broker was employed to sell goods for the principal. It was held that, immediately the sale was completed, his authority ceased, so he could not subsequently alter the terms of the contract by agreement with the purchaser without new authority from the principal.

Likewise in Gillow & Co. v. Lord Aberdare (1892), an estate agent was commissioned either to sell or to lease a house. He succeeded in letting it but then later negotiated the sale of it. It was held that, having let it, his job was done, and he had no authority to sell. He was not entitled to commission on the sale.

(c) Expiration

If the agent is for a particular period of time, it has been automatically terminated after the time. Equally, if it can be reasonably inferred from the circumstances that the agency was for a limited (although not specific) time then it will lapse after a reasonabletime.

For instance, in Law ford & Co. v. Harris (1896), a stockbroker was instructed to buy shares Subject to fixed limits. It was held that his authority ceased at the end of the current account period.

16If a person induces the principal to act on the belief that the agent only will be held liable; he cannot afterwards hold the principal liable on the contract.-Sec. 234.

17In cases where the agent is personally liable, a person dealing with him may hold either him or his principal, or both of them liable. Sec. 233

18A distress warrant was signed by an agent (a distress warrant is a warrant for the seizure of property after a judgment debt has

not been paid) – Bennett v. Bayes (1860)

19An agent who is appointed to sell a house), or for a limited time (e.g. for one year only) or it may be indefinite.

(d) Specified Event

Sometimes agent works for special event for a particular principal. After the expiration of the event, contract between agent and principal automatically terminated because agent was hired for particular task.

(e) Frustration

The frustration of the contract of agency will serve to terminate the authority of the agent. This is likely to occur if the subject-matter of the agency is destroyed (e.g. if an estate agent is commissioned to sell a house and, before sale, it is burnt down). Or if something happens which makes either the agency or its objects illegal or impossible (e.g. an agent in a foreign country becoming an alien enemy owing to outbreak of war between the UK and that country).

(f) Death/Winding-up

The authority of an agent, is, normally, terminated by the death or insanityof either the principal or the agent, or the bankruptcy of either. In the case where either is a limited company, the winding-up of the company has the same effect.

(g) Revocation

Lastly if either the principal or the agent are revokes the agency or renouncesit (whether or not the act of so doing is in breach of the contract), the agent’s authority will be revoked. If it is done in

24.See ss. 26, 27, 28 and 30, infra

For instance, in Laxford & Co. v. Harris (1896), a stockbroker was instructed to buy shares subject to fixed limits. It was held that his authority ceased at the end of the current account period.

25Any lawful act which can be done by an agent can be ratified by the principal. Also, most (but not all) unlawful acts can be ratified

26If the directors of a company make a contract which is ultra vires – that is, outside the scope of the memorandum of the Company then it is not possible for the shareholders to ratify that contract (Ashbury Railway Carriage Co. v. Riche (1875)

29In Gaussonv. Morton (1830), the principal owed money to the agent. So, he gave him a power of attorney (a deed) to sell certain land and deduct the amount of the debt from the purchase money

30in Smart v. Sandars (1848), the agent was a factor, and the principal consigned goods to him for sale. The agent advanced money to the principal on the credit of the goods. Later, the principal cancelled his instructions for his agent to sell. breach of contract, then the innocent party – be he principal or agent – will have the right to seek damages for breach of contract. However, this will not affect the fact that the authority of the agent is terminated. In certain circumstances, the innocent party may also be able to get an order of specific performance from the court, compelling the guilty party to carry out the contract in accordance with its terms.

However, neither of these equitable remedies will be granted if the relationship between principal and agent is a personal one that is, if the character, skill, experience, etc. of the agent is an essential elementof the relationship.

6. IRREVOCABLE AGENCY

An agency contract may be irrevocable, either by agreement or by implication, as a result of the circumstances. This, however, is not straightforward. The mere fact that the parties have agreed that the agency shall be irrevocable does not, of itself, make it so. There is nothing to prevent one party renouncing in breach of the contract, notwithstanding that he has agreed not to. Something more is necessary to render the contract legally irrevocable.

(a) Appointment by Deed or Valuable Consideration

If the authority is given to the agent by deed, or for valuable consideration, for the purpose of affecting a security, or for protecting an interest of the agent, then his authority cannot be withdrawn while he is at risk as a result of his agency duties. Two examples may clarify this. In Gausson v. Morton (1830), the principal owed money to the agent. So, he gave him a power of attorney (a deed) to sell certain land and deduct the amount of the debt from the purchase money. Held: The power of attorney was irrevocable.

Para. 2 ins. by the A. O. 1937 and as amended by the A. O. 1948 was rep. by the A. O. 1950

26The agent of a company assaulted a person on behalf of the company. The company ratified the assault. – Eastern Counties Railway v. Broom (1851)

27In Newborne v. Sensolid Ltd (1954), the complainant, Newborne, formed a limited company called Leopold Newborne Ltd. Before the company was registered as a limited company, a document bearing the name and address of the company was submitted to Sensolid Ltd. The document was signed “Yours faithfully, Leopold Newborne (London) Ltd” with the name of Leopold Newborne underneath. Sensolid Ltd signed the document and thereby agreed to purchase certain goods from Leopold Newborne Ltd: they later failed to accept the goods

However, in Smart v. Sandars (1848), the agent was a factor, and the principal consigned goods to him for sale. The agent advanced money to the principal on the credit of the goods. Later, the principal cancelled his instructions for his agent to sell Permitted to revoke the authority. (Note that, had the factor’s authority been given under seal, the outcome would have been different.)

b) Powers of Attorney Act 1971

By virtue of the Powers of Attorney Act 1971, S.4, in certain circumstances (see below), such a power may be expressed to be irrevocable, and in this case it will be so. This section is, in fact, merely codifying the common law rule outlined above, but the difference is that, under the Act, the power must be actually expressed to be irrevocable, whereas at common law this is not necessary.

The relevant circumstances under the Act are where the power has been given to secure a proprietary interest of the recipient (the done), or to secure the performance of an obligation. Owe to the done by the donor. In either of such events, the power cannot be revoked while the interest or the obligation is still undercharged, without the consent of the done. Nor can it be Held: as the authority of the agent was not given for valuable consideration, the principal was revoked as a result of the death, insanity or bankruptcy of the donor, or (if it is a company) by its winding-up.

In other words, the Act is designed to ensure that, where the agent obtains a power of attorney which is stated to be irrevocable, in good faith and on the understanding that its purpose is to give the agent security for some debt or other interest, the principal cannot arbitrarily cancel it.

The words” undue influence” were rep. by Act 6 of 1899, s. 3

28The intended principal must be competent at the time of the act. In Boston Deep Sea Fishing & Ice Co. v. Farnham (1957), a trawler owned by a French company was lying in an English harbor. TheGerman occupation of France in 1940 turned the French owners into an alien enemy. A person, without the authority of the company, acted as manager of the trawl

7. CONCLUSION:

If there is no written agency contract and the relationship is for a short time or a specific purpose, usually either the principal or the agent may be able terminate the agency at any time. Where an agency agreement involves a continuing relationship between the parties usually:

any express termination provision prevails;
if the agreement does not contain an express termination provision, either party can terminate by giving reasonable notice either orally, in writing or by conduct;
the parties can agree to terminate the agreement, so long as there is consideration (something exchanged between the parties) for the promises required for termination; and
The agreement will end on the death of either the principal or agent.

If the principal terminates the agency relationship, it may be wise to make this known, to avoid the possibility that the former agent continues to bind the principal to contracts with others

31The Powers of Attorney Act 1971S.1(1) requires that any instrument creating a power A general power is one by which the agent is given ` an authority to do certain general objectives,

32e.g. managing an estate or a business. A special or particular power may be appointed by which an agent is authorized to do a specific thing, e.g., selling some goods. A man dealing with a particular agent is bound to find out the limits of the authority by which the authority of the agent can act accordingly..Agent is personally liable. In contracts with an undisclosed principal, the agent is in the absence of a contract to the contrary, personally liable on the contract. The other party may hold either the agent or the principal or both liable. Sec. 233.

The amount of the indemnity shall be equivalent to an indemnity for one year calculated from the Agent’s average annual remuneration over the preceding five years and, if the contract lasted for less than five years, the indemnity shall be calculated on the average for the period in question.

BIBLIOGRAPHY

Books and Articles:

1.Francis, B. T. (2001). Handbook of the law of principal and agent. India.

2.J. Claude Bedford, W. E. (2007). A treatise upon the law of principal and Agent in contract and tort, Volume 1.

3.Wharton, F. (1994). A commentary on the law of agency and agent.

4. William. (2001). Principal of Business law. London: William House.

5. the Indian Copyright Act, 1914 (3 of 1914 ), s. 5 of the First Schedule; the Apprentices Act, 1850 (19 of 1850 ), s. 8; the Conveyance of Land Act, 1854 (31 of 1854 ), ss. 14 and 18; the Carriers Act, 1865 (3 of 1865 ), ss. 6 and 7; the Merchant Shipping Act, 1894 (57 and 58 Vict., c. 60), s. 24 (poll. Stat., Vol. II).

6. Halim, Sadeka, 2007, “Agent and principal relationship”, in Solidarity 2007, by India contract act 1872 Bangalore, India

7. Bedford, ,. J. (2007). Relationship Between Principal and Agent. London.

8. ———- 2006. An assessment of the United Nations First International Decade of the World’s Business Peoples 1995-2004, conducted by International Centre for business council (ICIMOD), Nepal

9. ———- November 2000. “Baseline Survey on Business Peoples in North-west America”, a study conducted by an NGO, Research and Development Collective (RDC),

10. April 2006. International Business Summit, World Business Assistance, SFO Update

11. Guhathakurta, Meghna, Sara Hossain and Devasish Roy, August 2006. Study on Access to Justice for Agents and Principal, submitted to UNDP Regional Centre, Bangkok

12. Concluding comments of the Committee-CEDAW: Bangladesh. 18/08/2004. A/59/38(SUPP) paras.228- 267. (Concluding Observations/Comments).

13. Adnan, Shapan. Migration, 2004. Agent and Principal Conflict: Causes of terminating of contract between agent and principal, Research & Advisory Services, Dhaka

14. Wall v. Rederiaktiebolaget Luggude, [1915] 3 KB 66; Watts, Watts & Co. v. Mitsui [1917] AC 227; AMEV-UDC Finance Ltd. v. Austin (1986) 162 CLR 344

15. Fateh Chand v. Balkishan Das, supra note 21, at 1410-1411; Maula Bux v. Union of India, AIR 1970 SC 1955; Kolhapur Sugar Mills Ltd v. Bhairava Vividha Karyakari Sahakari Society Ltd. (1975)

16.Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd., [1915] AC 79; Philips Hong Kong Ltd. v. Att.-Gen of Hong Kong, (1993) 61 Build. L.R. 41 (PC).

17. Chitty on Contracts 1489, citing Clydebank Engineering and Shipbuilding Co. v. Don Jose Ramos Yzquierdo y Castaneda, [1905] AC 6,11; Robophone Facilities v. Blank, [1966] WLR 1428, 1447-1448; Philips Hong Kong Ltd. v. Att.-Gen of Hong Kong, supra note 6, at 58

18. Workers Trust & Merchant Bank Ltd. v. Dujap Investments Ltd.[1993] AC 573 â? Opined that forfeiture of a deposit larger than 10% in case of sale of land may be construed as penal

19. Stockloser v. Johnson, [1954] 1 QB 476, 484,490; Transag Haulage Ltd. v. Leyland DAF Finance plc, [1994] 2 BCIC 88, 101-102

20. Adoni Ginning Factory v. Secretary AIR 1979 SC 1511; Modi Industries Ltd. (Steels) v. Executive Engineer AIR 1991 All 351

21. Fateh Chand v. Balkishan Das, supra note 21, at 1410-1411; Maula Bux v. Union of India, AIR 1970 SC 1955; Kolhapur Sugar Mills Ltd v. Bhairava Vividha Karyakari Sahakari Society Ltd. (1975)

22. the Indian Copyright Act, 1914 (3 of 1914 ), s. 5 of the First Schedule; the Apprentices Act, 1850 (19 of 1850 ), s. 8; the Conveyance of Land Act, 1854 (31 of 1854 ), ss. 14 and 18; the Carriers Act, 1865 (3 of 1865 ), ss. 6 and 7; the Merchant Shipping Act, 1894 (57 and 58 Vict., c. 60), s. 24 (poll. Stat., Vol. II).

23. Hutton, N (1999), ‘Sentencing, Inequality and Justice’, 8 Social and Legal Studies 233

24. Situational Analysis for Agents right over principal PEDP-II

25. Pollock & Mulla, Indian Contract and Specific Relief Acts

26. Balkishan Das, supra note 21, at 1410-1411; Maula Bux v. Union of India, AIR 1970 SC 1955; Kolhapur Sugar Mills Ltd v. Bhairava Vividha Karyakari Sahakari Society Ltd. (1975)

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