“The principal or the agent just cannot terminate any contract between them without knowledge of each other”. An overview of the concept of Agency under Contract law.
Introduction
In Bangladesh, relationship between the Principal and an Agent is contractual in nature and this relationship is maintain by the terms and condition entered between them (“Agency Contract”). The agency law obtains its legal terms and conditions from Chapter X of the Bangladesh Contract Act, 1872 (“Act”), which also has construct the framework of rules and regulations that actually evaluate and maintain the performance of any contract as well as the Agency Contract.
Section 182 of the Act defines “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” ”
The above mentioned Section 182, from the chapter X completely talks about the relationship between the principal and an agent. According the section the agent is an employee person who hired by the principal to perform the activities on behalf of him in his/her absence. An agent’s position also lies between the principal and the third party. He usually performs all the business related activity with the third party on behalf of principal in his/her presence or absence. Now the principal: is an independent entity who actually hired an agent to execute his/her different business related job with the third parties on behalf of him. In other word the principal is an owner of something who usually employs someone to execute different allocated job for him. This principal and agent relationship is completely and purely contract based. There is a consideration; some one is offering a job (Principal) to perform and another party (Agent) accepting the offer. According to law where there is an offer by a party and acceptance by another means contract. The contract could different form such as oral, written, both forms etc, depending on exchange type and situation between the parties. In Bangladesh our legal system follows the Bangladesh Contract Act, 1872 and this 1872 act containing a hole chapter to construct and maintain transparent contractual relationship between principals and agents, this chapter number is ten and called AGENCY. This chapter contains all the necessary rules and regulation to avoid every possible problems – to create a contractual deed and in the contract period – between the principal and an agent.
(THE CONTRACT ACT, 1872 CHAPTER X 1 Section 182: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”.)
2.0 Definitions:
2.1 Principal
The “principal” could be any person, who has reached stated accepted age to be a principal and also should have to have a sound mind 1. An under age person ever cannot be mature enough to keep an agent or eligible to participate any proper contract based on which an agency relationship occurred, some statement applicable for mentally retired person. So according to law a person must have to fulfill these two criteria to being the principal. The principal allow an agent with the authority to execute different jobs on behalf of him. The range and limitation of an agent’s authority will also determine by the principal. The purpose of having agent has to be legal otherwise it won’t be counted as legal agency ship and highly prohibited by lay. The principal can terminate agency relationship at any time according to contract.
2.2 Agent
An “agent” is a mentally sound person who has reached state allowed age to become an agent and hired by the principal to perform different type of jobs on behalf of him. An agent position lies between the principal and the third party, execute his responsibilities according to the agreement 2. He must use his given authority when it is necessary based on different situation and spoken, written, or ordinary courses of dealing with third parties based on the circumstance of the cases 5. He has authorized for any lawful jobs that require doing the act 6. He must not do anything illegal, not even beyond the limitation of his authority and also should not do anything that exceeds the power of the principal 6. An agent has the authority to execute any thing to protect his principal from losses as he would do to protect himself in the time of crisis 7. Several types of commercial agents have been recognized under Bangladeshi law, which includes inter alia brokers, auctioneers, del credere agents, persons entrusted with money for obtaining sales and insurance agents
2.3 Agency Contract
The relationship between the principal and an agent is purely contractual, so a contract is mandatory to ordain agency relationship. A contract is an agreement that usually took place between two parties to form a business relationship. In an agency contract, one party who is the employer naturally called as principal and another party who is hire by the principal called an agent and he became his employee. There are lot of terms and condition included construct this kind of agreement, based on which agency relationship continues between the parties. The both parties must has to satisfied and agreed with the terms and conditions of the contract, otherwise there would not be any contract. The purpose of a contract must be legal and its structure has to be as state accepted law. According to Bangladesh agency law “No consideration is necessary to create an agency ” 3. The authority of an agent, which will be provide by the principal must has be expressed as words, spoken or written format
(THE CONTRACT ACT, 1872 CHAPTER X 1 Section 183 Any person who is of the age of majority according to the law to which he is subject, and who is of sound mind, may employ an agent. .
2 Section 184 As between the principal and third persons any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principal according to the provisions in that behalf herein contained..
3 Section 185 No consideration is necessary to create an agency..
4 Section 186. The authority of an agent may be expressed or implied.
5 Section 187 An authority is said to be express when it is given by words sp+oken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case..
6 Section 188. An agent having an authority to do an act has authority to do every lawful thing which is necessary in order to do such act.
7 Section 189. 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 circumstances.)
3.0 Termination of agency
The principal can terminate an agent by canceling his authority from his business; or it can be by an Agent rejecting the business of principal or after the period of agency ship completed 1. There are maybe million of reasons responsible of termination an agency relationship but here I am mentioning some important reasons based on the contract Act. 1872:
1. If the principal or an agent becomes mentally unsound then the agency relationship terminated itself. Because according to the law a mental disable persons are incapable to perform any type of stable business activities as well as cannot continue any sound business relationship.
2. If the principal became insolvent or bankrupt then the agency relationship become terminated, because without payment no one will serve any business.
3. If the principal or the agent dies then the agency relationship got terminated.
4. After exceeding the certain contract period the agency relationship become terminated automatically.
5. If the principal got involve with any illegal activities then the relationship came to end itself according to law of state
(THE CONTRACT ACT, 1872 CHAPTER X 1.Section 201, An agency is terminated by the principal revoking his authority; or by the agent renouncing the business of the agency; or by 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 provisions of any Act for the time being in force for the relief of insolvent debtors.
2.Section 202, Where the Agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot be terminated to the prejudice of such interest.)
3.1 Termination of agency where agent has an interest in subject-matter
An agent’s authority can be terminated at any time. If the trust between the agent and principal has broken down, it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice. But before termination enough evidience has be provied by the principal against an agent.
Examples:
(a) Suppose Mr. A gives authority to Mr. B to sell his car, and to pay him the money earned by the selling process, the debts due to him from A. A cannot cancel this authority nor can it be terminated by his mental disability or death. But if Mr. B doesn’t pay him back according to the contract then Mr. A has the right to terminate the contract.
(b) A consigns 1,000 bales of cotton to B, who has made advances to him on such cotton, and desires B to sell the cotton, and to repay himself, out of the price, the amount of his own advances. A cannot revoke this authority, nor is it terminated by his insanity or death.
3.2 When principal may revoke agent’s authority
Section203. “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.”
3.3 Revocation where authority has been partly exercised
After providing an agent with authority, the principal cannot terminate him in the middle of execution of his authority. The agent gives an agent authority to buy something on behalf of him, and the agent is buying those from market at his mane, in this situation the principle cannot cancel his authority according to law.
Examples:
(a) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A’s money remaining in B’s hands. B buys 1,000 bales of cotton in his own name, so as to make him personally liable for the price. A cannot revoke B’s authority so far as regards payment for the cotton.
(b) A authorizes B to buy 1,000 bales of cotton on account of A, and to pay for it out of A’s money remaining in B’s hands. B buys 1,000 bales of cotton in A’s name and so as not to render himself personally liable for the price. A can revoke B’s authority to pay for the cotton.
3.4 Compensation for revocation by principal or renunciation by agent
There is a contract between an agent and the principal for a specific period of time, before finishing the contract period if the principal wants to terminate the agency relationship with the agent he must has to make compensation to agent or if agent wants to leave the principal’s business then he must has make compensation to principal according to their damage.
Example:
(a) Suppose Mr. A the principal and Mr. B the agent in a contract say for 5 years. After 3 years Mr. A leaving the country by selling his business in this situation Mr. A has to make Compensation to Mr.B
(b) Same case but this time Mr. B leaving country but he still has 2 years contract with Mr. A so in this situation Mr. B has to make compensation To Mr. A.
3.5 Notice of revocation or renunciation
Reasonable termination notice must be gives before such kind of termination. Otherwise the necessary damage which would be occurring by termination must be pay by the principal to agent or the agent to the principal based on the scenario.
Example:
(a) Suppose principal Mr.A is a owner of a producing company and agent Mr.B works in that company and his whole family depend on his only income. If Mr.A suddenly terminates Mr.B without any knowledge of him or any reasonable notice then according to law Mr.A must have to pay Mr. B for his damages.
(b) Mr. B works Mr.A production plant. If Mr.B laves Mr.A provided job without any notice then Mr.B must have to pay Mr.A’s damage for his sudden leave.
3.6 Revocation and renunciation may be expressed or implied
Two parties come in a contract to perform specific jobs for a particular period of time but when the job is done the revocation takes place directly between the principal or agent respectively. (5)
Example:
Mr.A was given authority Mr.B to let his house. But when Mr. A lets his house himself the authority of Mr. B cancels itself.
3.7 When termination of agent’s authority takes effect as to agent, and as to third persons
The principal has issued a termination letter to an agent but before the termination news received by the agent or the third parties, the authority of agent has been exercised then the principal will get his portion of benefit from the agent and the agent will be receive his portion of benefit from principal. (6)
Examples:
(a) Mr.A provides the authority to Mr.B to sell goods for him, and Mr.A agrees to pay five per cent to Mr.B as commission on the price of sold goods. After that Mr.A, by letter, revokes Mr.B’s authority. But before receiving the termination letter Mr. B, sells the goods for 100 Taka. The sale is belongs to Mr.A, and Mr.B is binded to five Taka as his commission.
(b) Mr.A, at Dhaka, impose a letter to direct Mr.B to sell on be half of him some cotton lying in a warehouse in Rajshahi, and afterwards he issued second letter to revokes his authority for sell, and directs Mr.B to send the cotton to Dhaka. Mr.B, after receiving the second letter, enters into a contract with Mr.C, who has only known about the first letter, but not about the second one, for the sale to him of the cotton. Mr.C pays Mr.B the money; with which Mr.B withdraw money form Mr.C’s account. Mr.C’s payment is good as against A.
3.8 Agent’s duty on termination of agency by principal’s death or insanity
When a agency relationship is terminated by the death of the principal or for the mental instability of the principal then the agent is bound to take all the responsibility on behalf of the late principal to protect the interest of the principal because the interest was entrusted to him. (7)
(THE CONTRACT ACT, 1872 CHAPTER X: 1. Section 202. Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest. ,
2.Section 204. The principal cannot revoke the authority given to his agent after the authority has been partly exercised so far as regards such acts and obligations as arise from acts already done in the agency.
3.Section 205. Where there is an express or implied contract that the agency should be continued for any period of time, the principal must make compensation to the agent, or the agent to the principal, as the case may be, for any previous revocation or renunciation of the agency without sufficient cause.
4.Section206. 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.
5.Section 207. Revocation and renunciation may be expressed or may be implied in the conduct of the principal or agent respectively.
6.Section 208, The termination of the authority of an agent does not, so far as regards the agent, take effect before it becomes known to him, or, so far as regards third persons, before it becomes known to them.
7.Section 209 When an agency is terminated by the principal dying or becoming of unsound mind, the agent is bound to take, on behalf of the representatives of his late principal, all reasonable steps for the protection and preservation of the interests entrusted to him.)
4.0 Compensation
The compensation right completely depends on the terms and conditions of the contract that the principal and the agent has entered
The right of compensation to the Agent in terms of termination of the Agency Contract is subject mainly to the terms and conditions of the Agency Contract entered into between Principal and Agent. Since the Agent represents the Principal, the Agent has the right to be compensated for all the lawful acts done by the Agent in the career of the agency. The Act contains specific provisions under Section 222 and 223, discussed in detail in subsequent paragraphs, for the payment of compensation in the event of termination of the Agency Contract by the Principal. There is no limitation on the amount of compensation, which determines the amount of compensation that may be paid.
IA
The Courts in Bangladesh, from time to time have held that an Agent can claim compensation against the Principal, if the Agent is able to prove that he has actually incurred a loss or that loss is occurred due to the wrongful termination of the Agency Contract. For an Agent to claim compensation it is essential that the act done by him must be lawful. It is not sufficient that his acts are innocent or done in good faith. Further, it is important that the action in respect of which the Agent is claiming indemnity must have been performed in accordance with the authority conferred upon the Agent. There is no right to indemnity unless the Agent has acted within his express, implied or usual authority. Subject to the terms of Agency Contract the Agent may, in addition to indemnity, claim compensation by way of damages, which may either be general or special. General damages are those, which result from ‘direct and proximate’ consequences from breach of contract. Normally, what can be awarded is compensation for loss or damage, which can be directly or proximately attributed to the breach of contract. One way of assessing damages is the difference between the contract price and the market price on date of breach of contract, plus reasonable expenses incurred by him on account of the breach plus cost of suit in court of law. Special damages or consequential damages arise due to existence of special circumstances. Such damages can be awarded only in cases where the special circumstances were foreseeable by the party committing the breach or were specifically known to the party.
(THE CONTRACT ACT, 1872 CHAPTER X Section 222. The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him.
Section 223. Where one person employs another to do an act, and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act, though it cause an injury to the rights of third persons.
Section 224. Where one person employs another to do an act which is criminal, the employer is not liable to the agent, either upon an express or an implied promise, to indemnify him against the consequences of that Act.
Section 225. The principal must make compensation to his agent in respect of injury caused to such agent by the principal’s neglect or want of skill.)
5.0 Calculation
Termination of a contract is complete based on state followed law. The principal or the agent just cannot terminate any contract between them without knowledge of each other. It completely based on the terms and conditions, rule and regulation of contract. According to Bangladesh law of contract act 1872 there are some term such as: Termination of agency where agent has an interest in subject-matter , When principal may revoke agent’s authority ,Revocation where authority has been partly exercised, Compensation for revocation by principal or renunciation by agent, Notice of revocation or renunciation, Revocation and renunciation may be expressed or implied, When termination of agent’s authority takes effect as to agent, and as to third persons, Agent’s duty on termination of agency by principal’s death or insanity depending a contract will be terminated. Other than that the principal or the agent has to compensate depending on the scenario of termination. Unless the Agency Contract specifically provides for the payment of compensation in the event of determination of the Agency Contract, in computing the compensation payable to the Agent the Courts in Bangladesh apply the rules for assessing damages for other contracts. There is no fixed rules for determining the measure of damages, but must depend on the circumstances of each case. There is no specific provision under the Bangladeshi Contract Act or any other law regarding the calculation the compensation. For the computation of compensation payable to the Agent the Court may take into consideration the amount the Agent would have earned, if the contract would not have terminated.
Bibliography
Books:
THE CONTRACT ACT, 1872, CHAPTER X AGENCY : Appointment and Authority of Agents
The Majiority ACT, 1875
contractualism about contract law v.2
CONTRACT & SPECIFIC RELIEF by Avtar Singh
INDIAN CONTRACT ACT by R.K. Bangia
D. Allen, Law of Contract in Australia, CCH Australia Ltd; Sydney and
Melbourne: 1987.
R. Burton, Australian Financial Transactions Law, Butterworths; Sydney:
1991.
J.E. Byrne and C.S. Barnes, Annual Survey of Letter of Credit Law &
Practice 2001, Institute of International Banking Law & Practice, Inc.;
Montgomery Village, MD: 2001.
J.E. Bryne and D. Taylor, ICC Guide to the eUCP: Understanding the
Electronic Supplement to the UCP 500, ICC Publishing S.A.; Paris: 2002.
L. D’Arcy, C. Murray and B. Cleave, Schmitthoff’s Export Trade, 10th ed.,
Steven & Sons; London: 2000.
P.J. Davidson (ed), Current Problems of International Trade Finance
Butterworths; Sydney: 1983.
C. del Busto (ed.), International Chamber of Commerce, ICC Publication,
No. 511, Documentary Credits, UCP 500 & 400 Compared, ICC
Publications; Paris: 1993.
F. de Ly, International Business Law and Lex Mercatoria, North-Holland;
Amsterdam: 1992.
J. Dolan, The Law of Letters of Credit: Commercial and Standby Credits,
Warren, A.S. Pratt & Sons; Warren: 2001.
E.P. Ellinger, Documentary Letters of Credit – a Comparative Study,
University of Singapore Press; Singapore: 1970.
R. Goode, Commercial Law, Penguin; London: 1982.
H.C. Gutteridge & M. Megrah, The Law of Banker’s Commercial Credits,
3rd ed., Europa Publications; London and New York: 1962
TABLE OF CASES
The specific Relief Act, 1877
dutton v. poole (1678)
Williams v. walker-thomas furniture co. 350 f.2d 445 (d.c. cir. 1965)
British airways plc -V- willams and others 2009 EWCS Civ 281
Hadley v Baxendale
Sunrise Associates v Govt NCT of Delhi, (2006) 5 SSC 603
Sudesh Prabhakar Volvoikar v Gopal Babu Savolkar, (1996) 5 Bom CR 1
Ram Kumar v Lakshmi Narayan, AIR 1947 Cal 157
Plasgraf v Long Island R. R. Co
Horne v Midland Railway Co
British Columbia Saw Mill Co v Nettleship
Ghaziabad Development Authority v Union of India, (2000) 6 SCC 113
Sarvaraya Textiles Ltd v Pavan T. Punjabi, (2004) 1 Bom CR 551
Chief Secy, State of Gujrat v Kothari Associates, (2003) 1 Guj CD 372 (Guj)
State of Rajasthan v Nathulal, AIR 2006 Raj 19
Draupadi Devi v Union of India, (2004) 11 SSC 425
Cotton Corp. of India Ltd v Nand Kishore Parasramka, AIR 2001 Cal 137
Dhamudhar Prasad Verma v State of A.P., (2003) 2 BC 351 (Gau)
Maharashtra State Electricity Board v Sterlite Industries (India) Ltd, (2002) 1 ICC178 (SC)
Pannalal Jankidas v Mohanla, AIR 1951 SC 145, 149
Food Corporation of India v Laxmi Cattle Food Industries, (2006) 2 SCC 699
Bombay Motor Sports v Union of India, (2000) 1 BLJR 23 (Pat
alexander v rolls royce
patel v ali
taylor v caldwell
liverpool city council v irwin
jackson v royal bank of scotland
Websites:
en.wikipedia.org/wiki/Indian_Contract_Act_1872
www.vakilno1.com/bareacts/indiancontractact/indiancontractact.html
google.co.in
wikipedia.org