Contract of Agency

Agent and Principle

An agent is someone hired to do things for another person. The person they work for is
called the principal. The agreement that sets up this relationship between the principal
and agent is called an agency.

The agent has permission to make agreements between their principal and other
people. For example, if A asks C to buy 10 bags of sugar for them, A is the principal and
C is the agent. The agreement between them is the agency.

Essential of Agency
1. Agreement
The connection between a principal and an agent happens because they
agree to it. This agreement can be made in different ways: by talking
about it directly (express) or by how they act towards each other without
explicitly saying it (implied).
2. 2. Who can be Principle
Anyone who is legally considered an adult according to the rules of their
country and who is thinking clearly can hire someone to be their agent.
3. Who can be Agent
Anyone can be an agent, including someone who is underage or not thinking
clearly. This means that a child or someone who isn't thinking clearly can be
chosen to act on behalf of someone else. If a child acts as an agent, they can
make agreements that tie the person they're working for to other people.
However, the child won't be personally responsible to the person they're
working for.
4. Consideration not necessary (Some thing for Some
thing)

When setting up an agency, you don't always need something in return (like
money or a favor) for it to work. Sometimes, there might be something in
return, sometimes not. The main thing is that the person being represented
(the principal) has agreed to let the agent act on their behalf. This agreement
alone is enough for the contract to be supported.
5. Intention (Act on behalf of Principle)
When someone acts as an agent for someone else, they have to intend to do things for
that person. If the agent makes a deal for themselves without intending to act for the
other person, the person they're working for isn't responsible. The person is only
responsible for deals made by the agent if the agent meant to act on their behalf.

Duties of an Agent
1. Duty to Follow Direction of Customs
When someone works for another person (the principal) as their agent,
they have to follow what the principal tells them to do. If the principal
doesn't say anything specific, the agent should do things the way it's
usually done in that type of business. If the agent doesn't do things the
usual way and causes the person they're working for to lose money, the
agent will be responsible for that loss.

For example, if the principal, A, asks their agent, B, to get insurance for
some goods but B forgets to do it and the goods get damaged, B has to
pay for the damage.

Similarly, if A is working for B's business as an agent, and it's normal in

that business to earn interest by investing available money, but A
doesn't do that, A will have to pay B for the interest that could have
been earned through that investment.
2. Duty to work with reasonable skill
When someone acts as an agent for another person, they should do their job with care
and effort that an average person would reasonably do. If the agent doesn't work
carefully and causes harm or loss to the person they're working for, they have to pay for
that loss.
For instance, if A is an agent and sells goods to B on credit without checking if B can
actually pay for them (if B is financially stable), and later it turns out that B cannot pay
because they are broke, A has to compensate the person they're working for (the
principal) for the loss incurred due to this mistake.

3. Duty to Render accounts

When someone works as an agent for another person, they must show
or explain all the details of what they've done if the person they're
working for asks for it. The agent has to keep accurate records of
everything related to the money or things that belong to the person
they're working for.

For example, if Y gives goods to their agent X to sell to others on credit,

X has to keep good records of the sales and be ready to show them to Y
whenever Y asks for it.

5. Duty to communicate

When an agent faces a problem and can't reach the person they're working
for, they should try their best to get in touch and ask for instructions. But if it's
impossible to contact that person, the agent can make decisions on their own
that they believe are best for the person they're working for.

For instance, if P sends goods to their agent A in Karachi for exporting, and A
discovers that some of the goods are damaged, A should inform P to ask what
to do about it. If A can't reach P, then A can decide what actions to take that
would be best for P's interests.Top of Form
5. Duty on termination of Agency
When the arrangement between an agent and the person they're
working for ends because that person (the principal) has passed away or
become unable to make decisions, the agent should take sensible
 actions to protect the interests of the person who now represents the
late principal.

For example, if Y, as an agent, sells goods to their Principal P, who later

passes away or can no longer make decisions, Y should make efforts to
collect the owed money and send it to the person legally representing P
now.
6. Duty not to deal with his on Act
If an agent makes a deal for themselves in the business they're supposed to be handling
for someone else without getting permission first, that person (the principal) can say no
to that deal. If it turns out that the agent hid important information and made a profit
from it, the principal has the right to ask for that profit.

For instance, if A tells their agent B to buy a specific house, but instead, B buys it for
themselves, A has the right to cancel the agreement.
7. Duty not to make secret profit
An agent is not allowed to make extra money secretly from the work they're
doing for someone else. If the agent does make any secret profit, the person
they're working for (the principal) can ask for that money back from the agent.
Also, the principal can decide not to pay the agent their commission and can
end their working arrangement. However, the agent can still ask for the money
they're owed for their work and any expenses they've had.

For example, if A tells their agent B to buy a specific house, and B buys the
house and makes some extra money secretly, B has to give that secret extra
money to A.

8. Duty to pay sum received

If someone works for another person to collect money on their behalf, all the
money they receive must be given to the person they're working for. However,
the person doing the work (the agent) can take out their expenses and
payment from that money.
 For instance, if A asks B to collect rent from X, and B collects the rent, but
during the process, B spent Rs 200 on traveling, B should give the collected
rent money to A after subtracting the traveling expense from it.
9. Duty not to delegate Authority
When someone is working for another person as their agent, they should do the job
themselves and not pass their responsibilities to someone else. However, there are a few
situations where this rule can be overlooked:

1. When the person they're working for (the principal) agrees to let them pass on their
responsibilities.
2. If it's a normal practice in that type of business to have someone else help out (a sub-
agent).
3. When the type of work needs additional help or expertise (appointing a sub-agent is
necessary).
4. When there's an urgent situation that requires getting someone else to help.

For example, if P asks A to buy a specific house as their agent, A is not supposed to ask
someone else, like X, to do it for them unless there's a specific permission or a valid
reason to do so.

Indemnity and Guaranty

Indemnity means making up for a loss that happened. A contract of indemnity is when
one person promises to compensate the other for any loss caused either by their own
actions or by someone else's actions.

Indemnifier: This is the person who agrees to cover the loss (the Promisor). They're the
ones who will pay for any loss.

Indemnified: This is the person who will receive compensation for their loss (the
Promisee). They're the ones who suffered the loss.

For example, if A parked their car in a parking lot and lost the ticket given by B, who
manages the parking. B refuses to give the car back without the ticket. A promises to
cover any losses that might happen if someone else claims the car.
 • Rights of Indemnity Holder
He can get back all the money he had to pay for any trouble or harm from a lawsuit that
was filed against him. He can get reimbursed for the money spent on a lawsuit that was
filed with the agreement or permission of the person providing indemnity. He can get
refunded for all the money he spent due to reaching an agreement with the consent of
the person providing indemnity.

• Rights of Indemnifier

Contract of Guarantee
A contract of Guarantee is when someone promises to take responsibility for
paying off someone else's debt or fulfilling their promise if that person can't
do it themselves.

This kind of contract helps someone get a loan, receive goods without
immediate payment, or even get a job. It can be spoken or written down.
Essentially, it's a promise to fulfill someone else's promise if they can't do it.

The person giving the guarantee is called the surety or guarantor. The person
receiving the guarantee is called the creditor. And the person whose promise
or debt is being guaranteed is called the principal debtor.

For example, if A asks B to lend Rs. 5 Lac to C, and A promises that if C can't
pay back the loan, A will give the money to B instead, this becomes a contract
of guarantee.

1. Tripartite Contract
2. In a Guarantee agreement, there are three separate agreements made among the
Principal debtor, the Creditor, and the Guarantor. Each of them has their own
contract. In this type of arrangement, the Guarantor becomes responsible if the
promise made by the Principal debtor isn't kept.
3. In a Guarantee contract, the main responsibility lies with the Principal debtor, and
the Guarantor becomes responsible only if the Principal debtor doesn't fulfill their
promise. The main or primary agreement is between the Principal debtor and the
 Creditor, and the secondary agreement is between the Creditor and the
Guarantor.
4. For instance, if A borrows money from B with the guarantee of C, the main
agreement exists between A and B, and the agreement for the guarantee exists
between B and C. C's responsibility comes into play if A fails to repay the loan to
B.

2. Consideration
In a guarantee contract, just like in other agreements, certain requirements need to be met
to be considered valid. It should have some form of benefit or value exchanged between
the parties involved, which is known as consideration. This consideration doesn't always
have to be directly between the guarantor and the creditor. The benefit received by the
person who initially owes the debt or promise (the principal debtor) is enough to count as
consideration for the guarantor.

For example, if A sells goods to B on credit with the guarantee of C, C's promise to guarantee
serves as the benefit or value that supports A's promise to sell the goods to B.

3. Misrepresentation
If a guarantee is obtained by the creditor using false information or if the creditor knows
and agrees to misleading details regarding an important aspect of the deal, that
guarantee is not valid. If the guarantor agrees to guarantee based on false information
they were given, they won't be responsible for fulfilling that guarantee.

For instance, if H was asked to guarantee the honesty of L's servant but L didn't tell H
that the servant was previously fired for being dishonest, and later the servant stole
money, H wouldn't be responsible for the guarantee because H was not given the
correct information before agreeing to it.

4. Concealment
If a creditor gets a guarantee by not telling important information deliberately,
that guarantee isn't valid. "Keeping silence" means purposefully hiding facts.
The creditor must share with the guarantor any details that could affect the
guarantor's responsibility.
For instance, if A hires B to collect money, and B steals some of it. Later, when
A asks C to be a guarantor for B without telling C about B's previous stealing,
and B steals again, C's guarantee becomes invalid because A didn't reveal the
important fact about B's previous behavior.

5. Writing not necessary

It is not necessary that the contract of guarantee be in the writing. The contract be either oral
or written. It may be expressed or implied.

e.g. A sells and delivered goods to B on the verbal guarantee of C. it is a valid Guarantee.

6.6 Continuing Guarantee

A guarantee which extends to a series of transactions is called, continue guarantee. In other words, a
guarantee which covers number of transactions over the period is called continue guarantee.

e.g. D guarantee C for B’s purchase to the extent of Rs. 5,000. for the next one year. This is
continuing guarantee.