THE LAW OF AGENCY- STUDY NOTES, MAY 2021
Introduction
Agency law is a special branch of the law of contract the date of reception of the
common law of contract of England is 12th August 1897. English decisions after
this date are only of persuasive authority.
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 is done, or who is
represented, is called the principal.
The contract which creates the relationship of ‘principal’ and ‘agency’ is called an
‘agency’ thus where A appoints B to buy ten bags of sugar on his behalf, A is the
‘principal’ and B is the ‘agent’ and the contract between the two is the ‘agency’. If,
pursuance of the contract of agency, the ‘agent’ purchases the bags of sugar from
C, a wholesale dealer, A and C are brought into direct contractual relations.
Under a contract of agency, the agent is authorized to establish privity of contract
between the principal (his employer) and a third party. Therefore, an agent is
merely a connecting link. After entering into a contract on behalf of the principal
with a third party, the agent drops out and ceases to be a party to the contract and
the contract binds the principal and the third party as if they have made it
themselves.
Capacity of Agent
An agent is supposed to create contractual relations between his principal and the
third party. The principal and the third party must possess contractual capacity and
it is not necessary whether the agent himself has contractual capacity or not. It
means even a minor can be appointed as an agent and he can bind his principal in a
contract with a third person.
Classes of Agents
The agents may be classified from the point of view of:
a) The extent of their authority
b) The nature of work performed by them
,Various classes of agents are as follows:
The Extent of their Authority
1. General agent
A general agent is one who is employed to do all acts connected with a particular
business or employment, e.g., a manager of a firm. He can bind the principal by
doing anything which falls within the ordinary scope of that business; whether he
is actually authorized for any particular act or not, is immaterial, provided the third
party is takes him to be bonafide. Third parties may assume that such an agent has
power to do all that which is usual for a general agent to do in the business
concerned.
2. Special agent
A special agent is one who is employed to do some particular act or represent his
principal in some particular transaction, e.g., an agent employed to sell a motor car.
As soon as the act is performed, the authority of such an agent comes to an end.
Anyone entering into a contract with such an agent should therefore make proper
enquiry as to the extent of his (agent) authority before entering into a contract with
him.
3. Universal Agent
A universal agent is said to be one whose authority is unlimited i.e., who is
authorized to do all acts which the principal can lawfully do and can delegate. He
enjoys extensive powers to transact every kind of business on behalf of his
principal. This type of agency is very rare.
Nature of work
1. Brokers
A broker is an agent who represents a buyer or seller in negotiating a purchase or
sale without physically handling the good involved. He is only concerned with
making bargains and contact between other parties. A broker receives a
commission or brokerage for his service. Each broker tends to specialize in a
particular line of goods and services. As an intermediary, a broker has the
following features:
, (i) He is concerned with bargains and connecting the buyer to the seller. He does
not possess the goods and has limited powers over the price and terms of sale. He
does not sell in his own name.
(ii)A broker has no authority to receive payment and discharge goods sold as they
are not in his possession, and cannot change the principal’s terms and price.
Examples include insurance brokers and taxi brokers whose boss is the principal
2. Factors
A factor is an agent who sells goods in his possession and under his control on
behalf of his principal. He is referred to as a commission salesman. Unlike the
broker, a factor possesses the goods he sells in his own name, to a reasonable
extent and can pledge the goods. A factor has a general line on the goods in his
possession for all charges and expenses incurred by him.
3. Commission Agent
A commission agent is a person who is employed to buy or sell goods for the best
possible price. He gets commission as his remuneration. Mostly, commission
agents are employed by foreign buyers and big merchants. Their business is to
receive orders from foreign buyers to buy goods from the local manufactures and
traders. They act in their own name but for the account of their foreign principals.
In addition to purchasing goods for his principal, the commission agent undertakes
the work connected with the dispatch of goods such as booking space in ships,
preparation of bills of lading, undergoing customs formalities and insuring good
against risks.
4. Del Credere Agent
A del credere agent is employed to sell the goods of his principal. He gives
undertaking to his principal to make good the losses that may arise from the failure
of parties to whom he sells goods under the agency business. Over and above the
usual commission, the principal has to give a del credere agent extra remuneration
called del credere commission for giving the undertaking that the principal will not
have to incur any loss arising from the failure of buyer to pay their dues.
5. Forwarding Agents
Introduction
Agency law is a special branch of the law of contract the date of reception of the
common law of contract of England is 12th August 1897. English decisions after
this date are only of persuasive authority.
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 is done, or who is
represented, is called the principal.
The contract which creates the relationship of ‘principal’ and ‘agency’ is called an
‘agency’ thus where A appoints B to buy ten bags of sugar on his behalf, A is the
‘principal’ and B is the ‘agent’ and the contract between the two is the ‘agency’. If,
pursuance of the contract of agency, the ‘agent’ purchases the bags of sugar from
C, a wholesale dealer, A and C are brought into direct contractual relations.
Under a contract of agency, the agent is authorized to establish privity of contract
between the principal (his employer) and a third party. Therefore, an agent is
merely a connecting link. After entering into a contract on behalf of the principal
with a third party, the agent drops out and ceases to be a party to the contract and
the contract binds the principal and the third party as if they have made it
themselves.
Capacity of Agent
An agent is supposed to create contractual relations between his principal and the
third party. The principal and the third party must possess contractual capacity and
it is not necessary whether the agent himself has contractual capacity or not. It
means even a minor can be appointed as an agent and he can bind his principal in a
contract with a third person.
Classes of Agents
The agents may be classified from the point of view of:
a) The extent of their authority
b) The nature of work performed by them
,Various classes of agents are as follows:
The Extent of their Authority
1. General agent
A general agent is one who is employed to do all acts connected with a particular
business or employment, e.g., a manager of a firm. He can bind the principal by
doing anything which falls within the ordinary scope of that business; whether he
is actually authorized for any particular act or not, is immaterial, provided the third
party is takes him to be bonafide. Third parties may assume that such an agent has
power to do all that which is usual for a general agent to do in the business
concerned.
2. Special agent
A special agent is one who is employed to do some particular act or represent his
principal in some particular transaction, e.g., an agent employed to sell a motor car.
As soon as the act is performed, the authority of such an agent comes to an end.
Anyone entering into a contract with such an agent should therefore make proper
enquiry as to the extent of his (agent) authority before entering into a contract with
him.
3. Universal Agent
A universal agent is said to be one whose authority is unlimited i.e., who is
authorized to do all acts which the principal can lawfully do and can delegate. He
enjoys extensive powers to transact every kind of business on behalf of his
principal. This type of agency is very rare.
Nature of work
1. Brokers
A broker is an agent who represents a buyer or seller in negotiating a purchase or
sale without physically handling the good involved. He is only concerned with
making bargains and contact between other parties. A broker receives a
commission or brokerage for his service. Each broker tends to specialize in a
particular line of goods and services. As an intermediary, a broker has the
following features:
, (i) He is concerned with bargains and connecting the buyer to the seller. He does
not possess the goods and has limited powers over the price and terms of sale. He
does not sell in his own name.
(ii)A broker has no authority to receive payment and discharge goods sold as they
are not in his possession, and cannot change the principal’s terms and price.
Examples include insurance brokers and taxi brokers whose boss is the principal
2. Factors
A factor is an agent who sells goods in his possession and under his control on
behalf of his principal. He is referred to as a commission salesman. Unlike the
broker, a factor possesses the goods he sells in his own name, to a reasonable
extent and can pledge the goods. A factor has a general line on the goods in his
possession for all charges and expenses incurred by him.
3. Commission Agent
A commission agent is a person who is employed to buy or sell goods for the best
possible price. He gets commission as his remuneration. Mostly, commission
agents are employed by foreign buyers and big merchants. Their business is to
receive orders from foreign buyers to buy goods from the local manufactures and
traders. They act in their own name but for the account of their foreign principals.
In addition to purchasing goods for his principal, the commission agent undertakes
the work connected with the dispatch of goods such as booking space in ships,
preparation of bills of lading, undergoing customs formalities and insuring good
against risks.
4. Del Credere Agent
A del credere agent is employed to sell the goods of his principal. He gives
undertaking to his principal to make good the losses that may arise from the failure
of parties to whom he sells goods under the agency business. Over and above the
usual commission, the principal has to give a del credere agent extra remuneration
called del credere commission for giving the undertaking that the principal will not
have to incur any loss arising from the failure of buyer to pay their dues.
5. Forwarding Agents
