25 February, 2016

How is an agency created and terminated ?

The contract of agency may be in writing under seal and it is then called a power of attorney, or it may be simple writing, or it may be by an oral agreement, or may be inferred from the conduct of the parties and the circumstances of the case, as in case of master and servant, or husband and wife, or partners inter se.
Test for Determining Agency:-
Whether  a particular relation between two persons does or does not amount to agency has to be gathered from the terms and conditions of the contract. The terminology used by the parties is not conclusive of their legal relationship. Thus, even if a person is specifically called an agent in a written contract, he is not so in the eyes of the law if the actual relationship between the two parties is that of principle and principle. Conversely, even if a clause in a hire purchase agreement provides that the car dealer is not the agent of the finance company, the dealer may be an agent in the eyes of the law.
Various ways of constituting agency:-
An agency may be created in following five ways:-
1.                  By Express appointment by the principal called express agency:-
Any person who is competent to contract and who is of sound mind may appoint an agent. The appointment may be expressed in writing or it may be oral. But our definition of agency is wider than that of English Law. Our definition does not limit the employment to one by the principal only…….. It will include an employment by any authority authorized by law to make the employment. Thus, where an agent was appointed under the provisions of Bengal Tenancy Act, 1885 for the protection of the interests of quarrelling co-owners and of third person, the Calcutta High Court held that the agent so appointed would come within the definition, though he would not have the same “ well-known and settled incidents”. Attached to him as arise in the case of contractual agency, Similarly, loan incurred by an agent appointed under the terms of a statute was held binding on the proprietors.
2.  By implication of law from the conduct of the parties called implied agency:- Implied agencies arise from the conduct, situation or relationship of parties. Whenever a person places another in a situation in which that other is understood to represent or to act for him, he becomes an implied agent. For Example-    
(i) Smith Vs. Moss, 1940 K.B. a woman allowed her son to drive a car for her she paying all the expenses of maintenance and operation, it was held that the son n was an implied agent of the mother and when he made a collision injuring his wife, the wife could sue the mother for the fault of her agent.     
(ii) Ormrod Vs. Crasvil1e Motor Series Ltd. 1953. A permission granted to a person to ferry a car from one place to another makes him an agent for the limited, purpose so as to create. liability for consequences of negligent driving.
3.                   By Necessity - Agency of necessity is created in the following two ways-
(i) Law itself creating relationship of principal and agent-In certain circumstances law itself creates a relationship of principal and agent between two parties without their consent. For Example -A husband is bound to maintain his wife; and if he makes no adequate provision for her maintenance, she is entitled to supply her needs 'by pledging her husband's credit for necessaries. In such a case the wife will be treated as an agent of necessity of the husband.
(ii) Law allowing the agent to exceed his authority in emergency-An authority of necessity is conferred by law in certain cases w re an agent, in the course of his employment, is faced with an emergency in which the property or interests of his principal are in imminent jeopardy and it becomes necessary, in order to preserve the property or interests of the principal, to act before the principal's instructions can be obtained. Thus, a carrier of goods, or a master of ship, may under certain circumstances, in the interest of his employer pledge his credit or incur such other ob1igation as is necessary, and will be considered to have his authority to do. so.
For Example -           
(i) A horse was sent by train. On its arrival at the destination there was no one to receive it. The railway company fed the horse. Held the railway company was an agent by necessity of the owner and was entitled to recover the amount spent in feeding the horse.         
(ii) The master of a ship in case of necessity can pledge the ship as security for the cost of repairs necessary to enable her to continue the voyage. The master will be considered as' agent of the owner by necessity.   
(iii) A master of a ship finds that the cargo is, perishing rapidly. He puts into the nearest port and sells the goods for the best price obtainable. He Win be considered as agent of the owner by necessity.
4.      By Estoppel or by Holding out-
Where any person by words or conduct; represents or permits it to be represented that another person has authority to act on his behalf, he is bound by the acts of such other person with respect to anyone dealing with him as an agent on the faith of such representation to the same extent as if such other person had the authority which he was so represented to have. For Example
(i) Summers Vs. Solomon (1857) 26 L. Q. B: 301':"'A had for some years managed a shop belonging to B and ordered goods in B's name from C, and B had duly paid for them. A absconded, called on C and bought goods in B's name and took them away. Held B was liable for the price of the goods.
(ii) Pickering Vs. Busk (1812) 15 East 38 -A employed B, a broker, to buy hemp for him and at the request of A it was kept in the name of B in the warehouse. B without A’s authority sold the hemp. Held, A was bound 'by the sale because he had allowed B. to assume the apparent right of disposing of the hemp in the ordinary course of trade.
5.      By Ratification or Ex-post facto agency - Where an act is done in the, name or professedly on behalf of 'a. person without his authority by another person purporting to act as his agent, the person in whose name or on whose behalf the act is done may, by ratifying the act make it as valid and effectual, as if it had been originally done by his authority. The effect of ratification is to render the contract as binding on the principal as if the agent had been properly authorized beforehand. Ratificaion relates back to the original making of the contract. For Example - A purchases goods for B without B's authority. B sells those goods to C in his own account. This shows that B has ratified the act of A.. 

Termination of Agency
According to S. 201 the relationship of the principal and agent may end in two ways -            .
(a) By Acts of parties and (b) By Operation or Law.
(a) By Acts or Parties - The agency may be terminated by the acts of parties in the following ways -         
1.      By Revocation of Agent's authority by the Principal- According to S. 203 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.  
S. 207 further provides that revocation may be expressed Or implied by the conduct of the principal. For Example - A empowers B to let A’s house. Afterwards A lets it himself. Thus, it is an implied revocation of B’s authority. Similarly where the owner of a colliery appointed a sole selling agent for his coals for seven years, it was held that the owner could sell the colliery even before the expiry of this period and thus terminate the agency. He was not bound to keep his colliery.
i)   Notice of revocation must be given-According to S. 206 “reasonable notice must be given of such revocation or renunciation; other wise the damage there by resulting to the principle or the agent, as the case may be, must be made good to the one by the other’.
ii)  Liability to compensate each other – According to S. 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.
iii)Agency coupled with interest becomes irrevocable under certain circumstances -S. 202 says-“when an 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”. For Example:-
a)      A gives authority to B to sell A’s land, and to pay himself, out of the procees, the debts due to him from A. A cannot revoke this authority, nor can it be terminated b his insanity or death.
b)     A consigns 1000 bales of cotton to C, 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 his authority, nor it is terminated by his insanity or death.
2.      By renunciation by agent- S. 206 provides that an agent may renounce the business of agency in the same manner in which the principal has the right of revocation. In the first place, if the agency is for a fixed period, the agent would have to compensate the principal for any premature renunciation without sufficient cause. Secondly, a reasonable notice of renunciation is necessary.
(b)  By Operation of Law- According to S.201 the agency may be terminated automatically operation of law in the following as under-
1.  By completion of business of agency- An agency is automatically and by operation of law determined when its business is completed. Thus, For Example, the authority of an agent appointed to sell goods cases to be exercisable when the sale is completed. He cannot afterwards alter the terms of the sale. But the Allahabad and Calcutta High Courts have held that agency is not terminated on the completion of the sale but continues until payment of the sale proceeds to the principal.
2.  By death or Insanity of the principal or agent-An agency is determined automatically by the death or insanity of the principal or the agent. Winding up of a company or dissolution of a partnership has the same effect. Acts done by the agent before death of principal would remain binding but the acts done subsequent to death would be invalid. For Example:-
Where a principal authorized his power of attorney to present a document disposing of his property for registration, but the principal died before the agent could do so, a subsequent registration was held to be invalid. In this case the Registrar also knew that the principal was dead.
3.   By the principal's insolvency - An agency is. terminated automatically on the principal being adjudicated insolvent.
4.      By the expiry of the period of agency - Where an agent has been appointed for a fixed term; the. Expiration of the term puts an end to the agency; whether the purpose of the agency has been accomplished or not.
5.      By destruction of the subject-matter-of the agency-When the subject matter of the contract of agency is destroyed the agency comes to an end. For Example:-A was appointed agent by B to sell his bales of cotton in Calcutta. The agency is terminated when the bales are gutted by fire. 

Courtesy:- Legal Point Foundation

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