in today’s world, we need the interventions of a third party to join personal relations…

Then What will about the business world ???

1

AGENCY AS A CONTRACT

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SVKM’S NMIMS

SCHOOL OF LAW , MUMBAI

A PROJECT SUBMITTED ON :

AGENCY AS A CONTRACT

In compliance to partial fulfillment of the marking scheme for Trimester 4 of 2015-16 in the subject of CONTRACTS-2.

SUBMITTED TO

PROF. SUNIL GEROGE

SUBMITTED BY:

ARLYN GEORGE(A058)

ANUSHA ANAND GUTHI(A070)

B.B.A L.L.B (HONS)

ON DATE: 8th AUGUST 2015

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INDEX

SR NO. PARTICULARS PAGE NO.

1) ABBREVIATIONS 5

2) TABLE OF CASES 5

3) BIBLIOGRAPHY 5

4) RESEARCH METHODOLOGY 6-8

5) INTRODUCTION 0-11

6) LEGAL ANALYSIS 12-22

7) ROLE OF JUDICIARY 23-25

8) COMPARATIVE STUDY 26-28

9) CONCLUSION 29-31

10) SUGGESTIONS 32-34

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ABBREVIATIONS

ICA – Indian Contract Act E.g – Example vis-à-vis- With regard to/ in relation to F. Supp- FederalSupplement AIR – All IndiaReporter SC- Supreme Court

TABLE OF CASES

Chairman L.I.C v. Rajiv Kumar Bhaskar 2003 ACJ 86 Ishaq Abdul Karim And Anr. vs Madan Lal on 2 January, 1964 Badri Prasad v. State of Madhya Pradesh & Anr. 1969 SCR (2) 380

BIBLIOGRAPHY

http://www.slideshare.net/SudhirSinghRajput/contract-of-agency-13822531 http://en.wikipedia.org/wiki/Law_of_agency http://en.wikipedia.org/wiki/Indian_Contract_Act_1872 http://www.legalservicesindia.com/article/article/vicarious-liability-in-india-1634-1.html http://www.vakilno1.com/bareacts/indiancontractact/

indiancontractact.html#Chapter_X_Agency_Appointment_and_Authority_of_Agents http://lawquestinternational.com/agency-law-india http://www.agentlaw.co.uk/site/global/Australia.html

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Relevance:

As a student of law the subject contracts forms the basis of my study. It has been essential as it

explains various relationships when it comes to the daily dealings we do. Contracts have been

widely explained under the ICA with one of its topic as agency covered under it. Thus taking

the opportunity to deal with the topic in detail the below research is conducted.

Method adopted:

I have adopted secondary method of research. I have viewed various books and sites on the

Internet. Articles have been of great help. The online sites such as mentioned in the

bibliography were of great help to study the topic in a better legal perspective.

Objective of the study:

It is of keen interest to study how agents work on behalf of their principal. The relationship

they share which forms a kind of contract amongst them. The study conducted helps the

reader to understand this relationship in detail and gives an overview about the various

aspects regarding agency as a contract.

Hypothesis:

The hypothesis used in the above study:

1) To understand relationship between an agent and principal

2) To understand the concept of vicarious liability in terms of contracts

3) To understand briefly how contract laws differ from country to country

4) A brief outline of the cases to understand the topic more clearly

5) A study of contractual provisions stated under law

Limitations of the study:

There are several limitations to this project too because I have not been able to cover the

entire topic and conduct an in depth study of all the areas. And I have done in depth study of

only a part of the topic. Some portions of the AGENCY are not covered under my project.

The project just gives the reader a jist of how agency forms a part of contract. The project

fails to conduct a primary research through examination and surveys due to lack of time and

vague understanding of the topic. The project is limited to books and Internet content.

7

Despite the ubiquity of agents in the modern world, agency law does not have a coherent

explanation. The attempts to explain the agency law have drawbacks, as they are limited in

scope and at times unpersuasive.

8

EVOLUTION :

It was enacted mainly with a view to ensure reasonable fulfillment of expectation created by

the promises of the parties and also enforcement of obligations prescribed by an agreement

between the parties. The Third Law commission of British India formed in 1861 under the

stewardship of chairman Sir John Romilly, with initial members as Sir Edward Ryan, R.

Lowe, J.M. Macleod, Sir W. Erle (succeeded by Sir. W.M. James) and Justice Wills

(succeeded by J. Henderson), had presented the report on contract law for India as Draft

Contract Law (1866). The Draft Law was enacted as The Act 9 of 1872 on 25 April 1872

and the Indian Contract Act, 1872 came into force with effect from 1 September 1872.

Before the enactment of the Indian Contract Act, 1872 , there was no codified law governing

contracts in India. In the Presidency Towns of Madras, Bombay and Calcutta law relating to

contract was dealt with the Charter granted in 1726 by King George I to the East India

Company. Thereafter in 1781, in the Presidency Towns, Act of Settlement passed by the

British Government came into force. Act of Settlement required the Supreme Court of India

that questions of inheritance and succession and all matters of contract and dealing between

party and party should be determined in case of Hindu as per Hindu law and in case of

9

Muslim as per Muslim law and when parties to a suit belonged to different persuasions, then

the law of the defendant was to apply. In outside Presidency Towns matters with regard to

contract was mainly dealt with through English Contract Laws; the principle of justice,

equity and good conscience was followed.

UNDERLING PRINCIPLE :

Contract of Agency is based on two principles namely :

1) Whatever a person can do personally shall also be allowed to be done through except in

case of contracts involving personal services such as painting, marriage, singing, etc

2) He who does not act through a duly authorized agent does it by myself, i.e., the act of the

agent are considered the acts of the principle (Sec.226)1

However every person, who acts on behalf of another, is not necessarily an agent, for

example, a contractor employed to carry on some construction work is not necessarily the

agent of the principal.  An employee technically, could be a representative of the employer

but he or she may not be authorized to act on behalf of the principal.  

In order to determine whether a person is an Agent, it is necessary to check whether he acts

for himself or for and on behalf of the Principal because an agent never acts on his behalf

but always on behalf of another.  In a contract, if a person undertakes to be personally liable,

he is not an Agent.  An Agent’s authority is not limited to the acts that are expressly granted

under authority but he or she also has the implied authority to do all acts which are

incidental to the main powers.  The Act provides that an agent also has powers to do all acts

for the purpose of protecting the principal in an emergency as would be done by a person of

prudence in his or her own case.

 It is interesting to note that a written document is not necessary to create a contract of

agency and it may be inferred from the circumstances and conduct of the parties; and is

valid even if there is no consideration.  A person who merely receives and transmits

communications is not an agent and this can be ascertained from the facts of the case.

Similarly, the fact that the remuneration payable to a party is described as a commission is

1 SECTION 226

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not decisive of the existence of an agency.

SCOPE OF THE STUDY :

It would be difficult to function in a modern economy for more than a few hours without

interacting with an agent of some kind. The atmosphere is so thick with agents that most

people rarely think about them; we willingly hand money to a stranger we meet in a store

and carry away goods without questioning whether a sale has occurred. Basically all of us

enter into a number of contracts everyday knowingly or unknowingly. Each contract creates

some rights and duties on the contracting parties.

In legal terminology, every person who acts for another is not an Agent. A domestic servant

renders to his master a personal service; a person may till another’s field or tend his flock or

work in his shop or factory or may be employed upon his roads or ways; one may act for

another in aiding the performance of his legal or contractual obligations of third persons. In

none of these capacities, he is an agent and he is not acting for another in dealings with the

third person. It is only when he acts as a representative of the other in business negotiations,

that is to say in the creation, modification or termination of contractual obligations, between

that other and third persons, that he is an agent. Representative Character and Derivative

Authority may briefly be said to be the distinguishing feature of an agent2.

2 STATE OF MYSORE V. MYSORE SPG. & MANUFACTURING CO.LTD AIR 1958 SC 1002

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CONTRACTUAL PROVISIONS :The law relating to contracts in India is contained in Indian Contract Act, 1872. The Act was

passed by British India and is based on the principles of English Common Law. It is

applicable to all the states of India except the state of Jammu and Kashmir. It determines the

circumstances in which promises made by the parties to a contract shall be legally binding

on them. Indian Contract Act of 1872, being of skeletal nature, deals with the enforcement

of these rights and duties on the parties in India.

At present the Indian Contract Act may be divided into two parts:

• Part 1:deals with the General Principles of Law of Contract Sections 1 to 75

• Part 2:deals with Special kinds of Contracts such as

(1 )Contract of Indemnity and Guarantee

(2) Contract of Bailment and Pledge

(3) Contract of Agency

Sec. 182 of the ICA defines the terms ‘Agent’ and ‘Principal’ as :An ‘agent’ is a person

employed to do any act for another, or to represent another in dealings with third person. The

12

person for whom such act is done, or who is so represented, is called the ‘principal"3

In law, the relationship that exists when one person or party (the Principal) 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. The competent Agent is legally capable of acting for this Principal vis-

à-vis the third party.

Hence, the process of concluding a contract through an agent involves a two-fold relationship.

On the one hand, the law of agency is concerned with the external business relations of an

economic unit and with the powers of the various representatives to affect the legal position of

the principal. On the other hand, it rules the internal relationship between Principal and Agent

as well, thereby imposing certain duties on the representative (diligence, accounting, good

faith, etc.).

Essentials of Agency as a Contract :

The Principle should be competent to contract. ( Sec. 10 of the ICA)

Any person who s a minor or is of unsound mind cannot employ An Agent.

The Agent may not be competent to contract.

The capacity of an Agent should be looked at from two angles:

a) The capacity of the Agent to act on behalf of the Principle and to bind his Principal

and third persons.

b) The capacity to bind himself by a contract between himself and his Principle.

As far as the Agent’s capacity to bind the Principal and the third person is concerned, any

person can become an Agent including a minor. In this context, the Agent is only a connecting link

between the two parties.

No consideration is necessary to create an Agency.

The law does not require any consideration for the contract of Agency to be valid.

3 SECTION 182

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Modes of creating Contract of Agency :

Agency contracts are created in basically the following ways:

Express Agency:

A person may be appointed agent by word of mouth or by writing. No particular form is

required for appointing an Agent.4

Implied Agency:

An Agency which arises from the conduct, situation or relationship of parties.5 The

following fall are different ways of implied agency :

Agency by Estoppel:

When a person has by his conduct or statement induced others to believe that a

certain person is his Agent, he is estopped from subsequently denying it.6 Eg. A tells

B that he is C’s Agent, this he does in the presence of C and within his hearing. C

does not object to the statement of A is actually not his Agent. Later B makes deal

with A as Agent of C. C shall be bound by this deal.

Agency by Holding Out:

Though part of law of estoppel, some affirmative conduct by the principal is

necessary in creation of Agency by holding out.7 Eg. A child purchases goods from a

shop and desires the shopkeeper to collect payment from his parents later. The

4 SECTION 1865 Section 1876 SECTION 2377 SECTION 189

MODES OF CREATING AGENCY

IMPLIED

BY ESTOPPEL

BY HOLDING OUT

BY NECESSITY

EXPRESSED

RATIFICATION

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parents though not bound to pay make the payment. After a few days the child makes

another purchase on credit of his parents. The parents would be bound to pay this

time because, by making payment earlier without raising any objection, they had

held their child out as their agent for making such payments.

Agency of Necessity:

This arises where there is no express or implied appointment of a person as Agent for

another but he is forced to act on behalf of a particular person.8 Eg. A horse was sent

by rail at the destination it was not taken delivery by the owner. The stationmaster

had to feed the horse. Held, station master became the agent by necessity and hence

the owner must compensate him.

Agency by Ratification:

Where an agent does an act for his Principal but without the knowledge or authority or

where he exceeds the given authority, the Principal is not held bound by the transaction. Eg.

L made an offer to X, MD of a company. X accepted the offer though he held no authority to

do so. L subsequently withdrew the offer, but the company ratified X’s acceptance. It was

held that L was bound.

Agent’s Authority:

8 SECTION 189

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1. In normal circumstances: An Agent having an authority to do an act , has the authority to do

every lawful thing which is necessary in order to do such an act.9 Eg. A is employed by B

residing in London, to recover at Bombay a debt due from B. A may adopt any legal

process necessary for the purpose of recovering the debt, and may give a valid discharge for

the same.

2. An Agent having all the authority to carry on business, has authority to do every lawful thing

necessary for the purpose, or usually done in the course of conducting such business10. Eg: A

constitutes B his agent to carry on his business of a shipbuilder. B may purchase timber and

other materials, and hire workmen, for the purpose of carrying on the business.

3. In an emergency , an agent has the authority 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 circumstances11.

Rights of an Agent

9 SECTION 18810 SECTION 18811 SECTION 189

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The following are some important rights of an Agent:

Right to Remuneration:

When Agent’s remuneration becomes due then in the absence of any special contract,

payment for the performance of any act is not due to the agent until the completion of such

act; but an agent may detain moneys received by him on account of goods sold, although the

whole of the goods consigned to him for sale may not have been sold, or although the sale

may not be actually complete.12

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.13

Right of Lien:

In the absence of any contract to the contrary, an Agent is entitled to retain goods, papers,

and other property, whether movable or immovable of the principal received by him, until

the amount due to himself for commission, disbursements and services in respect of the

same has been paid or accounted for to him.14

Right to Indemnity:

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.15 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 may cause an injury

to the rights of third persons.16

Right to Compensation:

The Principal must make compensation to his agent in respect of injury1 caused to such

Agent by the Principal’s neglect or want of skill. Eg. A employs B as a bricklayer in

building a house, and puts up the scaffolding himself. The scaffolding is unskilfully put up,

and B is in consequence hurt. A must make compensation to B. 

12 SECTION 21913 SECTION 21714 SECTION 22115 SECTION 22216 SECTION 223

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Duties and Liabilities of Agents:

An Agent owes certain duties towards his Principal and a principal owes certain duties

towards Agent.  The scope of an Agent’s duty to the Principal is determined by:

the terms of the agreement between the parties; and

extent of the authority conferred and the obligations of loyalty to the interests of the

Principal.

An Agent’s primary duties are:

act on behalf of and be subject to the control of the Principal;

act within the scope of authority or power delegated by the Principal;

discharge his duties with appropriate care and diligence; and

avoid conflict between his personal interests

Other duties of an Agent include:

not to acquire any material benefit from a third party in connection with transactions

conducted or through the use of his positions as an Agent

to act with the care, competence, and diligence normally exercised by Agents in

similar circumstances.

to take action only within the scope of the his actual authority

to comply with all lawful instructions received from the Principal and persons

designated by the principal concerning Agent’s actions on behalf of the Principal

to act reasonably and to refrain from conduct that is likely to damage the Principal’s

enterprise.

An Agent is liable to a Principal when he acts without actual authority, but with apparent

authority.  An Agent is liable to indemnify a Principal for loss or damage resulting from his

act.

A Principal owes certain contractual duties to his Agent.  Correlative with the duties of an

Agent to serve a Principal loyally and obediently, a Principal’s primary duties to his Agent

include:

To compensate the Agent as agreed; and

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To indemnify and protect the Agent against claims, liabilities, and expenses incurred

in discharging the duties assigned by the Principal

Because of the fiduciary relationship, a Principal owes his Agent a duty of good faith and

fair dealing. However, a Principal can be relieved of contractual obligations by an Agent’s

prior breach of contract. A Principal has a duty to act in accordance with the express and

implied terms of any contract between a Principal and an Agent.

Ways to End Contract of Agency :

By Agreement

Agency may be terminated by an agreement at any time between the Principal and the Agent

by mutual consent.

Revocation of the Agent’s Authority

Agency may be terminated by the Principal revoking the Agent’s authority and by giving

notice to the Agent

Where the Agent renounces the contract of Agency

When the Agent renounces the business of Agency, the Agency is terminated.

By Completion of Performance

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When the business for which the agency was constituted is completed, the agency is terminated.

Eg: when an Agent is appointed to sell a house, the agency is completed when the house is sold.

By the Death/Insanity of the Principal/Agent

When the Principal/Agent dies or becomes of unsound mind, the agency is terminated with

notice to the other party.

By Insolvency of the Principal

If the Principal has been adjudicated an insolvent under the provisions of any act for the time

being in force, the agency is terminated.

By Efflux of Time

Where agency is for a fixed period of time, it is terminated on the expiry of time irrespective

whether the purpose for which the agency is constituted is accomplished or not.

By Destruction of Subject Matter

When the subject matter of the agency is destroyed, the agency is terminated.

By the Principal/Agent Becoming an Alien Enemy

Where the Principal/Agent belongs to different countries and a war is declared between the

countries, they become alien enemies and the agency is terminated.

By the Object of the Agency Becoming Unlawful

When the happening of an event renders the object of the agency unlawful, the agency is

terminated.

ISSUES / CHALLENGES

A number of issues in the common law arise when Agents make contracts on behalf of their

principals. Should a principal be bound when his Agent makes a contract with some third

20

party on his behalf which the principal would immediately wish to disavow? The tradeoffs

resemble those in tort, so the least-cost-avoider principle is useful for deciding when

contracts are valid, and may be the underlying logic behind a number of different doctrines

in agency law. In particular, an efficiency explanation can be found for the undisclosed

principal rule, under which the principal is bound even when the third party is unaware that

the agent is acting as an agent.

Generally, a person is liable for his own wrongful acts and one does not incur any liability

for the acts done by others. In certain cases, however, vicarious liability, that is the liability

of one person for the act of another person, may arise. In order that the liability of A for the

act done by B can arise, it is necessary that there should be certain kind of relationship

between A and B, and the wrongful act should be, in certain way, connected with that

relationship. The common examples of such a liability are:

(1) Liability of the principal for the tort of his Agent;

(2) Liability of partners for each other’s tort;

(2) Liability of the master for the tort of his servant.

So Vicarious Liability deals with cases where one person is liable for the acts of others. In

the field of Torts, it is considered to be an exception to the general rule that a person is liable

for his own acts only. It is based on the principle of Qui Facit per se per Alium Facit per

se, which means, “He who does an act through another is deemed in law to do it himself”.

So in a case of vicarious liability both the person at whose behest the act is done as well as

the person who does the act are liable. Thus, Employers are vicariously liable for the torts of

their employees that are committed during the course of employment.

Reasons for vicarious liability:

Several reasons have been advanced as a justification for the imposition of vicarious

liability:

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(1) The master has the ‘deepest pockets’. The wealth of a defendant, or the fact that he has

access to resources via insurance, has in some cases had an unconscious influence on the

development of legal principles.

(2) Vicarious liability encourages accident prevention by giving an employer a financial

interest in encouraging his employees to take care for the safety of others.

(3) As the employer makes a profit from the activities of his employees, he should also bear

any losses that those activities cause.

In the words of Lord Chelmsford : “It has long been established by law that a master is

liable to third persons for any injury or damage done through the negligence or

unskilfulness of a servant acting in his master’s employ. The reason of this is, that

every act which is done by servant in the course of his duty is regarded as done by his

master’s order, and, consequently it is the same as if it were master’s own act”.

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LANDMARK CASES :

1. Chairman L.I.C v. Rajiv Kumar Bhaskar 2003 ACJ 86

FACTS: As per L.I.C salary saving scheme the employer was to deduct the premium from

the salary of the employee and deposit with L.I.C. All the related procedures were the

responsibility of the employer. Upon death of the concerned employee, the heirs found the

employer had defaulted in payment causing policy to lapse. L.I.C relied on a clause in the

acceptance letter by the employer which said he would act not as the agent of L.I.C but as an

agent of his employees.

ISSUE: Whether the employer can be treated as the agent of the L.I.C despite the express

agreement to the contrary?

CONTENTIONS: L.I.C: As the policy was in the name of individual employee, in the

event of non-payment of premium either by employee or employer, would result in lapse of

the policy.

HELD: The expression “agent” in this case may not mean to be one within the meaning of

the LIC of India (Agents) Regulation, 1972; but would mean an agent in ordinary sense of

the term. The use or omission of the word “agent” is not conclusive to determine the legal

23

nature of the relationship.

Keeping in view the fact that the Corporation did not make any offer to the employees nor

would directly make any communication with them regarding payment or non-payment of

the premium or any other matter in relation thereto and the inability of the employee to

approach the insurer directly, show that they were to treat their employers as ‘agents’ of the

Corporation and the employer had a key role to play in this whole affair. Furthermore, even

the terms and conditions of the policy were to be performed only through the employer.

This only points to the fact that the employers would be the agents of the insurer. When the

existence of an agency relationship would help to decide an individual problem and the fact

permits a court to conclude that such a relationship existed at a material time, then whether

or not any express or implied consent to the creation of an agency may have been given by

one party to another, the court is entitled to conclude that such relationship was in existence

at that time for the purpose in question.17

2. Ishaq Abdul Karim And Anr. vs Madan Lal on 2 January, 1964

FACTS: In this case, the plaintiff, a wholesale dealer of potatoes from Fatehpur, U.P sold and

dispatched a truck full of potatoes to the defendants, a dealor of potatoes at Khanwa. The

defendant refused to take delivery of the goods. The plaintiff sent his munim (agent) to

Khandwa, authorizing the munim to take delivery of the potatoes and sell them there at any

price he chooses. The truckload of potatoes was worth Rs. 1000/-. The munim contacted the

defendant and other dealers in Khandwa, who were in the business of trading potatoes. The

munim accepted the payment by the highest bidder for Rs. 800/-. The highest bidder turned out

to be the defendant himself. The munim gave in writing that the payment was of full settlement

of the claim of the plaintiff against the defendant.

HELD: It was held that the munim had an implied authority to act on behalf of his principal.

3. Badri Prasad v. State of Madhya Pradesh & Anr. 1969 SCR (2) 380

FACTS: The appellant (A) entered into a contract in respect of certain forests and became

entitled to cut teak trees with some specifications. After a legislation vesting the estate in the

17 SECTION 186 AND 187

24

State, A was prohibited from cutting timber in exercise of his rights under the contract. On

Feb, 1, the State said that A’s  claim to cut trees would be considered only if he gave up his

claim to a sum of Rs. 17,000 which he had already paid under the contract and was willing

to pay a further sum of Rs. 17,000 to the state. On February 5, 1955, A expressed his

willingness to pay the additional sum but reserved his right to claim a refund of the first

sum. The State rejected A’s right to cut trees. A then filed a Suit claiming specific

performance of the contract.

ISSUE: Whether the property was vested in the state by the Act or transferred to the

Appellant?

CONTENTIONS (A)

1. The forest and trees did not vest in the State under the Act

2. Even if they vested, the standing timber, having been sold to A, did .not vest in the State

3. In any event a new contract was completed on February 5, 1955, and the appellant was

entitled to its specific performance.

Supreme Court: (SIKRI, J.) (favoured the State)

1. The forest and trees vested in the State under the Act.

2. Under the contract A had not become the owner of the trees as goods. The property in the

timber could pass to A only when the trees are felled, but before they were felled, the trees

had vested in the State.

3. Under the terms of the contract, there was no sale of the whole of the trees[3], and, it had to

be ascertained which trees fell within the description of trees which the appellant was

entitled to cut.

4.  Till that was done they were not ‘ascertained goods’ within s. 19 of the Sale of Goods Act

1930.

5. Even if the letter of Feb 1 could be treated as an offer, there was no unconditional

acceptance of the offer, because, there was a reservation by the appellant of his right to

claim refund in his letter dated 5th Feb and hence there was no concluded contract.

25

AUSTRALIA AND INDIA

In Australia there is no distinct concept, either statutory or at common law, of a

‘commercial agent’.  Australia has a federal legal system. Accordingly, both Commonwealth

(federal) and State or Territory legislation will apply to commercial arrangements. The

common law applied in Australian jurisdictions contains the broader concept of an 'agent',

being a person with an authority or capacity to create or affect legal relations between a

principal and third parties. The common law governs the formation, operation and

termination of the agency relationship, as well as the rights and duties of the agent, the

principal and the third party. In particular circumstances an agent's activities are, under the

law applicable in Australian States and Territories, regulated by statutes.

Some examples of such agents and the corresponding statutes are:

• Auctioneers: Auction Sales Act 1958 (Victoria);

• Estate Agents: Estate Agents Act 1980 (Victoria);

• Finance Brokers: Consumer Credit (Victoria) Act 1995 (Victoria);

26

• Travel Agents: Travel Agents Act 1986 (Victoria);

• Mercantile Agents: Goods Act 1958 (Victoria); and

• Insurance Agents: Instruments Act 1958 (Victoria), Credit Act 1984 (Victoria)

The term 'Commercial Agent' is used in legislation in Australia in relation to activities such

as security and investigative activities (serving a writ or summons, repossessing or locating

goods, or collecting or requesting payment of debts). The term 'Commercial Agent’ means

“the holder of a master licence or operator licence with respect to one or more commercial

agent activities.” 'Commercial Agent activity' means debt collection, process serving or

repossession of goods. The broader common law concept of an ‘Agent’ would encompass

the sale and purchase of both goods and services.

Principal: Under Australian law, a ‘Principal’ is defined at common law as a person who

confers upon an Agent the authority to act on the person's behalf for the purpose of creating

or affecting legal rights and duties between the person and third parties.

Termination under Australian law : There is no statutory requirement in terms of notice

period to be given or the form the notice of termination should take. Termination of an

agency arrangement will usually be determined according to the terms of the relevant agency

contract. Any rights to damages or unpaid commission following termination of the agency

contract would be determined under common law principles. On termination of the agency

contract, an Agent will not have any other non-contractual entitlements specifically relating

to the agency relationship.

However, there may be other rights generally available in the circumstances of contractual

termination. The ability of an Agent to assign his rights and duties to another person as well

as the remedies for breach of contract is governed by Australian common law.

Choice of Law and Jurisdiction : Generally speaking, express choice of law and choice of

forum provisions in contracts are effective under the law applicable in Australian States and

Territories. Parties have a wide discretion to choose the proper law and forum of the contract.

Accordingly, provisions in an agency agreement stipulating that English law is to govern the

contract (and that English courts are to have jurisdiction) are likely to be given effect. Where

an agency contract has a jurisdiction clause, but is silent with respect to choice of law, there

27

is a strong presumption under Australian law that the parties have chosen the law of the

jurisdiction as the proper law of the contract.

However, in certain circumstances the law applicable in Australian States and Territories will

be applied regardless of the existence of a choice of law/forum provision in an agency

contract, including where: 

there is an initial question as to whether a valid contract has come into existence;

 it would be unconscionable to enforce the choice of law provision; or

the choice of law provision was designed to evade the application of a mandatory

Australian law (eg. an obligation imposed by statute).

In India, as in most other jurisdictions “Agency” signifies a relationship, which exists where

one person has an authority to act on behalf of another (the Principal) to create legal

relationships between the Principal and third parties.The similarity between these two

countries is quite evident in the above research conducted.

 

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FINDINGS:

Agent and Servant: There is too much of similarity between an agent and a servant as both

are employed to act for and on behalf of a person. However, there is a lot of difference

between an agent and a servant.

The Supreme Court clearly explained the distinction between an agent and a servant in

Lakshminarayan Ram Gopal and Sons v. Hyderabad Government. The points of

distinction are summarized as follows:

Agent

1. An agent has an authority to create contractual relationship between the principal and a

third party.

2. An agent is not subject to the direct control or supervision of the principal. As such, he

has greater discretion in his actions. A principal has the right to direct what the agent has to

do but the master has also the right to say how it is to be done.

3. An agent is paid commission on the basis of work done.

4. A principal is liable for only those acts which are within the scope of the authority given

to the agent.

5. An agent may work for a number of principals at the same time.

Servant

1. A servant has no such authority

2. A servant acts under the direct control and supervision of his master, and is bound to carry

out all reasonable orders given to him in the course of his work.

3. A servant is paid by way of salary or wages.

4. A master is liable for the wrongs of his servants committed in the course of employment.

5. A servant usually serves only one master.

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The agent helps both sides of the transaction, and an efficient legal rule benefits both buyer

and seller. As a result, it is wrong to try to decide whether someone is the buyer's agent or

the seller's agent by discovering who is the beneficiary of his actions. Everyone is a

beneficiary. A better approach is to ask who has control over the agent, which in fact is the

usual legal rule. Both parties, however, have some control over him, as in the model above,

where both principal and third party can take care to prevent agent mistakes. The principal

has authority, and usually has more control, but his power is limited by his absence from the

time and place of the transaction.

This research has attempted to analyze the central doctrines of agency as they apply to

contracts made by agents and to apply them to both the most common kinds of disputes and

a few of the many equally interesting if less common situations that can arise. The style of

analysis may also be usefully applied to other areas of the law such as partnership, criminal

conspiracy, and marriage, in which one person bears responsibility for the actions of

another.

A unifying theme has been the view of the agent as a means to reduce transaction costs, a

role in which he is useful to both parties in the transaction, the principal and the third party.

This view of the agent leads naturally to the idea that issues of liability should be related to

providing each of the two transactors with incentive to monitor the agent. The least-cost-

avoider principle has great unifying power, and reduces the complexity of assigning

liability, which must otherwise be done by applying a number of distinct doctrines such as

apparent authority and inherent agency power. Indeed, the decisions of the common law,

while doctrinally somewhat confused and easy to mock, make considerable sense when

viewed as allocating blame to the party who was the least- cost-avoider of agent mistakes or

malfeasance.

The idea also gives insight into the undisclosed principal problem. Binding an undisclosed

principal to pay for contracts made by agent, though a windfall for the third party, becomes

much more reasonable once one realizes that the principal has a lower cost of preventing the

agent from making inefficient contracts.

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A written contract for agency helps to minimise risks

It is much safer to have something in writing than to rely on someone's word. A written

contract will give you more certainty and minimise your business risks by making the

agreement clear from the outset.

Read every word before you sign

Read the fine print carefully and get advice about any terms you don't understand before you

sign. Once you sign a contract you are bound by all of its terms. If there is an indemnity

clause, don't sign until you understand the risks you are agreeing to accept if something goes

wrong.

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Cross out any blank spaces

Don't leave any spaces blank. If you don't need to fill in a blank space, always cross it out so

the contract can't be changed after you sign it.

Negotiate

You have the right to negotiate any contract before signing, including a standard form

contract. But remember that both parties must agree to any changes and record them in the

contract you sign. Your union or industry association or a lawyer can help you prepare for

negotiations.

Keep a copy

You should always have a copy of any contract you sign. It is best if you and the other party

sign two copies of the contract, so that you can both keep an original. If this isn't possible,

ask for a photocopy and check that it is an exact copy. Remember to keep your copy

somewhere safe for future reference.

A lawyer, your union or industry association might be able to provide you with information

about some common standard terms used in contracts in your industry. They may also be able

to provide you with a standard form contract for you to use.

Make yourself clear

A contract should clearly and accurately reflect what you and the other party have agreed

and set out exactly what you expect from each other. If you cannot agree about a matter, you

may need to discuss it in more detail so you better understand each other's point of view. Do

not enter into a contract hoping to sort it out later, because once it is signed the terms will be

legally binding. A dispute is less likely if you and the hirer are happy with the terms of a

contract from the start.

Know your responsibility

As an Agent and Principal one needs to be very clear about one’s liability, responsibility and

duties.

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Recovery of loss

Inform the Agent about his liability to repay the Principal on behalf of any losses occurring

due to the acts of the Agent.

Make the correct choice:

The Principal should be wise enough to choose his agent as he acts on his behalf. The Agent

must be a trusted person. Agents may take undue advantage as the Principal is vicariously

liable for his Agent’s act. Fraud may cause severe damages to the Principal ; thereby making

the right choice is essential.

Description of services or results

Every contract should include a description of the agreed work to be done or the result to be

achieved. This should be as detailed as necessary to make it clear.

It should state:

o what work will be done or what result will be achieved

o when the work will start and when it will be completed (specific dates)

o where the work will be done (the Agent's business premises, your home office or

another location).

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