THE LAW OF AGENCY

An agency contract is a
legal agreement between
two parties: the principal
and the agent. In this
contract, the principal
grants the agent the
authority to act on their
behalf to perform specific
tasks, make decisions, or
represent them in certain
matters. The agent, in
turn, agrees to act in the
best interests of the
principal and follow their
instructions while
carrying out the assigned
tasks.
Key elements of an
agency contract include:
1. Principal: The
individual, organization,
or entity that appoints
the agent to act on them
behalf.
2. Agent: The individual
or entity who is
authorized to represent
and act on behalf of the
principal.
3. Scope of Authority:
The contract specifies the
extent of the agent's
authority, including
the tasks they are
authorized to perform
and any limitations on
their decision-making
powers.
4. Fiduciary Duty: The
agent has a fiduciary
duty towards the
principal, meaning they
must
act with utmost loyalty,
honesty, and good faith,
putting the principal's
interests before
their own.
5. Duration: The
contract may have a
specific duration or
may be open-ended
until
terminated by either
party.
6. Termination: The
contract outlines the
conditions and
procedures for
terminating the
agency relationship,
including any notice
periods required.
7. Compensation: The
contract may stipulate
the agent's
compensation or
commission for
their services.
8. Confidentiality: Often,
the contract includes
provisions to maintain
confidentiality and
protect sensitive
information shared
between the principal
and the agent.
9. Liability: The contract
may address the agent's
liability for their actions
while acting on
behalf of the principal.
Agency contracts can
take various forms, such
as a formal written
agreement, an oral
contract, or
an implied relationship
based on the conduct of
the parties involved.
However, having a
written
agency contract is
advisable to avoid
misunderstandings and
to clearly define the
rights, duties,
and responsibilities of
both the principal and
the agent in the business
or legal arrangement.
Agency can be created
through various methods,
and the formation of an
agency relationship
depends on the mutual
consent and agreement
between the principal
and the agent. The ways
in
which agency is created
include:
1. Express Agreement:
Agency is often created
through an express
agreement, which is a
formal and explicit
contract between the
principal and the agent.
This agreement can be
Name: Nabila sultan

Unit name: Business Law

Unit code: HCB 0201

Reg no.HDB111-C005-0074/2023
THE LAW OF AGENCY
An agency contract is a legal agreement between two parties: the principal and the agent. In this
contract, the principal grants the agent the authority to act on their behalf to perform specific
tasks, make decisions, or represent them in certain matters. The agent, in turn, agrees to act in the
best interests of the principal and follow their instructions while carrying out the assigned tasks.
Key elements of an agency contract include:
1. Principal: The individual, organization, or entity that appoints the agent to act on them
behalf.
2. Agent: The individual or entity who is authorized to represent and act on behalf of the
principal.
3. Scope of Authority: The contract specifies the extent of the agent's authority, including
the tasks they are authorized to perform and any limitations on their decision-making
powers.
4. Fiduciary Duty: The agent has a fiduciary duty towards the principal, meaning they must
act with utmost loyalty, honesty, and good faith, putting the principal's interests before
their own.
5. Duration: The contract may have a specific duration or may be open-ended
until
terminated by either party.
6. Termination: The contract outlines the conditions and procedures for terminating the
agency relationship, including any notice periods required.
7. Compensation: The contract may stipulate the agent's compensation or commission for
their services.
8. Confidentiality: Often, the contract includes provisions to maintain confidentiality and
protect sensitive information shared between the principal and the agent.
9. Liability: The contract may address the agent's liability for their actions while acting on
behalf of the principal.
Agency contracts can take various forms, such as a formal written agreement, an oral contract, or
an implied relationship based on the conduct of the parties involved. However, having a written
agency contract is advisable to avoid misunderstandings and to clearly define the rights, duties,
and responsibilities of both the principal and the agent in the business or legal arrangement.
Agency can be created through various methods, and the formation of an agency relationship
depends on the mutual consent and agreement between the principal and the agent. The ways in
which agency is created include:
1. Express Agreement: Agency is often created through an express agreement, which is a
formal and explicit contract between the principal and the agent. This agreement can be in
writing or orally expressed, outlining the scope of the agent's authority and the
responsibilities they will undertake on behalf of the principal.
2. Implied Agreement: Sometimes, an agency relationship can be created by the conduct
and actions of the parties involved. If the principal and the agent behave in a manner that
suggests an agency relationship exists, even without a formal written contract, an implied
agency may be considered to exist based on their actions and interactions.
3. Ratification: In some instances, agency can be created after the agent has acted on behalf
of the principal without prior authorization. If the principal later agrees to the agent's
actions and accepts the benefits of those actions, they can "ratify" the agent's acts,
effectively creating a retroactive agency relationship.

Ratification is the process by which a principal affirms and accepts the actions taken by an agent
on their behalf, even if those actions were not initially authorized. For ratification to be valid and
legally binding, certain requirements must be met:
a. Agent's Act on Behalf of the Principal: The agent must have acted on behalf of the
principal without prior authorization. In other words, the agent must have believed they
had authority to act on behalf of the principal, and the principal should not have explicitly
authorized or instructed those actions.
b. Capacity to Ratify: The principal must have the legal capacity to ratify the agent's
actions. This means they must be mentally competent and of legal age (or have proper
legal representation if they are a minor or otherwise incapacitated).
c. Full Knowledge: The principal must have full knowledge of all the material facts related
to the agent’s actions at the time of ratification. They must be aware of the specific
actions taken by the agent, the consequences of those actions, and any relevant
circumstances surrounding the transaction.
d. Voluntary and Unconditional: The ratification must be voluntary and unconditional. It
should be a clear and deliberate decision made by the principal with full understanding
and without any duress or undue influence.
e. Intent to Ratify: The principal must expressly indicate their intention to ratify the agent's
actions. This can be done through words, conduct, or other means that clearly show them
approval and acceptance of the agent's unauthorized acts.
f. Timeliness: Ratification should occur within a reasonable time after the principal
becomes aware of the agent's actions. Delayed ratification might not be valid, especially
if the circumstances have changed significantly since the agent's actions were taken.
g. Legal Purpose: The agent's actions must have been legal at the time they were taken.
Ratification cannot be used to validate illegal or fraudulent acts.
h. No Conflicting Rights of Third Parties: Ratification should not interfere with the rights
of third parties who have already acquired rights in connection with the agent's actions. If
a third party's rights have already vested or their position has materially changed,
ratification may not be effective.
4. Necessity: In emergency situations or circumstances where it is necessary to protect the
principal's interests, an agency relationship can be created by necessity. This is a limited
and temporary agency arrangement that arises out of the need to act in the principal's best
interests.
Agency by necessity arises in emergency situations where it becomes essential to protect the
principal's interests even without prior authorization. For a valid agency under necessity, the
following requirements must generally be met:
a. Emergency Situation: There must be a genuine emergency or unforeseen circumstance
where immediate action is required to protect the principal's interests. The situation
should be such that waiting for the principal's instructions would result in significant
harm or loss.
b. No Time to Communicate: Due to the urgency of the situation, there should be no
reasonable means to contact the principal or obtain their instructions in a timely manner.
c. Acting in the Principal's Best Interest: The agent must act in the best interest of the
principal. The agent's actions should be reasonable, necessary, and aimed at protecting the
principal's interests.
d. Lack of Unauthorized Benefit: The agent should not have a personal interest
or
unauthorized benefit in the matter at hand. Their actions must be solely for the benefit of
the principal.
e. Scope of Authority: The agent's authority is limited to the specific emergency situation
at hand. Once the emergency is over, the agency relationship under necessity ends, and
the agent's authority no longer applies.
f. Notice to the Principal: As soon as reasonably possible, the agent must inform the
principal about the actions taken and the reasons for their necessity.
g. Acceptance by the Principal: After being informed about the actions taken by the agent,
the principal must accept or ratify those actions. If the principal disagrees with the agent's
actions, they may not be bound by them under the doctrine of necessity.
It's important to note that the doctrine of necessity is applied on a case-by-case basis, and its
validity may depend on the specific laws and regulations of the jurisdiction in question.
5. Agency by Estoppel: When a principal’s actions or omissions lead a third party
to
reasonably believe that an agency relationship exists, the principal may be "estopped" from
denying that agency, and the third party may hold the principal liable for the agent's
actions.
Classification of agency
Agents can be categorized based on the following
I. Nature of the work they do
II. Extent of their authority
Agents can be classified based on their authority into four main categories:
1. Universal Agents:
Universal agents have broad authority to act on behalf of the principal in all
matters, both legal and financial.
Their authority is comprehensive, allowing them to make decisions and take
actions in various aspects of the principal's affairs.
2. General Agents:
General agents are appointed with authority over a specific set of tasks or within a
defined area of responsibility.
They have the power to act on behalf of the principal in a particular domain or
scope of work.
3. Special Agents:
Special agents have limited authority and are appointed for a specific task or
transaction.
Their authority is restricted to the particular purpose for which they are appointed,
and it typically ends once the task is completed.
Agents can be classified based on the work they perform into the following categories:
1. Sales Agents:
Sales agents are responsible for selling products or services on behalf of a
company or organization. They may work as sales representatives, retail
salespeople, or telemarketers.
2. Procurement Agents:
Procurement agents are involved in the purchasing and sourcing of goods and
services for businesses or organizations. They negotiate with suppliers and ensure
the procurement process is efficient and cost-effective.
3. Real Estate Agents:
Real estate agents assist clients in buying, selling, or renting properties. They
facilitate property transactions, handle negotiations, and guide clients through the
real estate process.
4. Insurance Agents:
Insurance agents sell insurance policies to individuals or businesses. They assess clients'
insurance needs and provide suitable coverage options.
Travel Agents:
Travel agents help individuals and groups plan and book travel arrangements, such as flights,
hotels, tours, and vacation packages.
6. Marketing Agents:
Marketing agents help businesses promote their products or services. They may work in
advertising agencies or as independent marketing consultants.
7. Social Media Agents/Influencers:
Social media agents or influencers promote products or services on social media platforms and
are often engaged by brands for marketing purposes.
8. Employment Agents/Recruiters:
Employment agents, also known as recruiters or headhunters, assist employer’s in finding
suitable candidates for job positions and help job seekers find employment
opportunities.
9. Stockbrokers/Investment Agents:
Stockbrokers and investment agents deal with the buying and selling of securities and provide
investment advice to.

Nature & Creation of the Contract of Agency

This is a contractual relationship wherein a person referred to the PRINCIPAL appoints another
referred to as the AGENT to act on his behalf.
As a result of this appointment, an agent assumes a legal authority to create, vary or discharge
contractual relations between the principal and the third party. The Principal is the consequently
bound in law to the third party as a result of the agent’s acts. Any rights acquired and duties
assumed by the agent are for the principal and not for the agent. The contract of agency is
derived from a Latin maxim Qui facet per allium facet per se, meaning that “He who acts
through another does the act himself, or is deemed by law to do it himself”
The agent’s authority to act is based on the principal’s consent. You will see later in on the
discussions that not every by the agent is binding to the principal, similarly, that not every person
referred as an agent is in fact not an agent in a legal sense. The agency relationship is therefore
determined by the authorization given to the agent by the principal to perform any acts on the
principal’s behalf, who in return will be legally bound by them.
According to Peter Having et al in the General Principles of Commercial
Law suggests that the agency relationship serves various needs in modern society, such as, the
interests of those who have no capacity to act can be protected, secondly it makes it possible for
juristic acts to be performed on behalf of persons who are absent. They continue to suggest that it
allows the use of specialized services of specific agents, for example, a power of attorney to be
given to the conveyancer who as the agent, acts to register property in the name of someone else
on behalf of the principal (the client, who would normally be seller).
It is worth noting at this stage that the authority given by the principal to the agent may be
express or may even be implied by law or the facts of particular circumstances. In some
instances, as you will see later on, agency may arise where there was in actual fact no authority,
e.g. by estoppel or by ratification. However, in the absence such express or implied authority,
and if no estoppel operates, nor any ratification, the relationship of the principal is null and void.
It is important to understand that while there may be three parties in the picture, namely, the
principal, the agent and the third party, the agency agreement is not tripartite in nature.
Contract of Agency: Principal Agent.
Resulting Contract: Principal Third Party.

FEATURES OF THE AGENT:

1. The agent act for and on behalf of the principal not for himself and not in his own capacity. He
acts in the interests of the principal. Since it is the principal who bears personal liability on the
acts of the agent, it is therefore not necessary for the agent to have contractual capacity.
2. It is essential to contract of agency that the agent relies on the authority given to him by the
principal in order perform.
3. The authority of the principal may enable the agent to negotiate and conclude legally binding
contracts with third parties on behalf of the principal. Once the contract is concluded, the agent
falls out of the picture and the resulting contract stays binding between the principal and the third
party.
4. The agent may receive payment on behalf of the principal from the third party and in return,
the principal may also make payment to the agent in the form of a fee, commission or even a
salary.
5. Commercial dealers are often referred to as agents, but they are in the legal sense not. A
commercial dealer is a person who buys goods and resells them to the public. If there is a defect
in the goods, the dealer himself will be personally liable for that.
The general method of determining whether an alleged agent can legitimately perform a legally
binding act on behalf of the principal requires the following questions to be answered:
a) Have all the formalities been complied with, should any required?
b) Is there a principal who has contractual capacity at the time of conducting the legally binding
act (juristic act)?
c) Does the agent have the capacity and authority to represent the principal?

FEATURES OF THE PRINCIPAL:

1. The principal is party to both the contract of agency and the resulting contract with the third
party.
2. Not every person or entity may be a principal. To be a principal one must have the capacity to
execute a contract. Minors, incompetents, and other natural persons with limited contractual
capacity may be restricted in their ability to be a principal or even prohibited entirely from
becoming a principal. Adult persons of limited mental capacities or adults who are temporarily
incapacitated (for example, while intoxicated) are not permitted to appoint agents freely. Under
modern legal theory, minors have contractual capacity for necessities and thus may be principals
and appoint agents for any item deemed to be necessary (food, shelter, and so on).
This is complicated by the fact that there is no uniform definition of what falls within the term
"necessary." Consequently, the practical result is that very few people are willing to contract
with minors for anything, and even fewer people will deal with the agent of a minor.
3. A corporation has contractual capacity and can be a principal. The corporation’s ability to
appoint an agent is limited to the scope of activities authorized in its articles of incorporation.
This caused some
problems in the past because lawyers used to draft the articles of incorporation to encompass
only those activities contemplated by the incorporators (for example, to operate a railroad).
However, since modern legal practice is to create a corporation with the ability to conduct any
business, the law allows, there are few limitations on a corporation’s capacity to act as a
principal.
4. Partnerships can usually act as principals, although there are two legal theories to explain how.
In Lesotho, the Partnership Proclamation of 1957 does not treat a partnership as a legal entity,
therefore, a partnership itself is not technically capable of being a principal. Because the
partnership lacks contractual capacity, the individual partners are deemed to be the principal and
the partnership’s agent is really the agent of the partners.
5. The principal gives authority to the agent to act on his behalf and thereby becomes personally
liable for any such action of the agent.
2. AUTHORITY OF THE AGENT
As it has already mentioned in the nature of the contract of agency, the agent relies on the
authority given to him by the principal before concluding any juristic act on behalf of the
principle.
This section will elaborate on the different forms of authority by the principal, namely, express
authority, implied authority, ostensible authority, authority by estoppel and authority by
ratification.
a) EXPRESS AUTHORITY
There is generally no formality required for the appointment of the agent, therefore the principal
can through an agreement expressly by writing or orally appoint an agent to act on his behalf.
The parties can simply agree on the scope of authority and the remuneration (often commission)
which is to be paid to the agent. The amount of the remuneration need not expressed by trade
usage – in general, an agent is entitled to a reasonable remuneration. Factors in determining a
reasonable remuneration include time and labour by the agent, the value of the services as
rendered to the principal and the nature of the agent's occupation, together with all the
circumstances of each case. Express authority is however often written down, the principal
consents in the document to the agent’s actions, and the third party may then rely on the
document attesting to the agent’s authority to deal on behalf of the principal.
B) IMPLIED/TACIT AUTHORITY
The basis of this kind of authority is any conduct by the principal which implies that he has given
authority to the agent to act on his behalf. If the agent acts upon any such conduct by the
principal, he will be deemed to have to been given a valid authority by the principal. For
instance, if a person places his car upon for action and the auctioneer sells the vehicle to a buyer,
the owner conduct would indicate that he or she had given the auctioneer implied authority to
sell the cattle.
Substantive laws
Substantive laws define the rights and responsibilities in civil law and crimes and

punishments in criminal law. Substantive laws are codified in legislated statutes or may be

practiced or modified through precedent, especially in the common law system. These laws

can also be enacted through the initiative process. Substantive laws refer to the actual

claims and defenses to refer to in any particular case.

Nature of substantive laws

*Substantive laws deal with those areas of law which establish the rights and obligations
of the individuals and what individuals may or may not do.
*These laws have independent power to decide any case.
*Substantive laws dictate the legal context of any crime such as how the case will be
handled and what specific punishments to be given for any crime.
*Statutory laws or precedents in the common law system are substantive laws.
*Substantive laws deal with the legal relationship between individuals or the legal
relationship between an individual and the State.
*Substantive laws are the statutory laws which define and determine both the rights and
obligations of the citizens to be protected by law and the crimes or wrongs and also them
remedies.
*Substantive laws determine the subject matter of litigation pertaining to the
administration of justice.
In the case of Thirumalai Chemicals Ltd. v. Union of India and others (2011), the Supreme
Court ruled that substantive laws are a body of rules that <creates, defines and regulates
rights and liabilities=. On the other hand, procedural laws establish <a mechanism for
determining those rights and liabilities and a machinery for enforcing them=.
Sources of substantive laws
The Substantive Laws are usually derived from:
I. the principles in Common laws which already exist, codified statutory laws
II. Constitution
III. judicial precedents in cases with similar facts and circumstances.
Substantive laws are also derived from various treaties that dictate the conditions of the
law. One such example is the regulations and directives of the European Union followed by
trade treaties, rules of the WTO and bilateral treaties.
Other sources of substantive laws include:
The writings of legal scholars: In civil laws, academic writings which explain or
interpret the Constitution or laws influence the decisions of the courts.
Edicts from a king/ ruler;
“Sharia law” in religious books and edicts in the case of some of the Islamic countries.
Types of substantive laws
The substantive laws define both the rights and the wrong and the punishment or remedy
for it. The laws include all categories of Public and Private law also including both
substantive civil and criminal laws.
Substantive civil laws
Substantive civil laws are the laws which deal with disputes between any individuals,
organizations or between both of them where the victim is entitled to compensation. Using
substantive civil laws, the courts find out whether the legal rights of the plaintiff have been
violated or not.
The plaintiff should have to prove that he/ she has gone through damages or has suffered
injury by using the relevant substantive civil laws. If the plaintiff is successful in proving his/
her point before the court by himself/ herself or through his/ her attorney, substantive civil
laws would be used to compensate the plaintiff for any injury or harm caused accordingly.
Substantive civil laws do not provide any constitutional protection to any of the parties but
provide the right to appeal to both the parties.
Examples
Some examples and functions of substantive civil laws in India include:
Law of Contracts such as the Indian Contract Act, 1872 defines what are the essential
elements and conditions required to enter into any contract. The broader category of the
laws related to the contract also includes the Sale of Goods Act, 1930 for the sale of
goods and the Partnership Act, 1932 for the law related to the formation and registration
of partnership firms and businesses.
The Indian Succession Act, 1925 is an Act dealing with the substantive laws of
testamentary and intestate succession concerning the persons who follow any forms of
Christianity in India.
Other substantive civil laws in India are the Transfer of Property Act 1882; Indian Trust
Act, 1882; Maternity Benefit Act, 1961; The Factories Act, 1948; Industrial Disputes Act,
1947 etc.
Substantive civil laws also include any private wrong caused to anyone or 8Tort9. The Law
of Torts is also an example of substantive civil laws. However, the law of Tort in India has
evolved from that of its English counterpart and is not codified.
Substantive criminal laws
Substantive criminal laws deal with criminal offences and the punishments to be awarded
for each of these criminal offences.
A criminal prosecution starts after the defendant violates any criminal statute. The primary
purpose of substantive criminal laws is to provide punishment to the convict while
compensation may be provided to the victim depending on the situations.
Using substantive criminal laws, the court finds out whether the accused is guilty or not and
if found guilty, what should be the punishments for the criminal offence.
Unlike substantive civil laws, substantive criminal laws offer constitutional protections to the
accused from the very beginning of the trial. However, here only the defendant can appeal
instead of both the parties as in the case of substantive civil laws.
Examples
Various penal offences and their respective punishments have been described in the Indian
Penal Code (IPC). It also defines the conditions for various penal offences such as 8Murder9,
8Rape9, 8Abduction9 etc.
Apart from IPC, Domestic Violence Act, 2005; the Juvenile Justice (Care and Protection of
Children) Act,2000; the Sexual Harassment of Women at Workplace (Prevention, Prohibition
And Redressal) Act, 2013 are some of the substantive criminal laws in India.
Limitations of substantive laws
Elements of substantive laws sometimes act as an obstacle to access to justice. Some
elements of substantive laws which are unfavorable to any litigant will constitute an
impediment to justice.
Substantive laws can be used to limit and restrict the power and freedom of any
individual.
The State possesses the uncontrolled and unlimited power to frame laws according to its
own will which the judiciary is bound to follow.
However, in India, the judiciary may strike down any law if it is unconstitutional.
For example, the Supreme Court of India struck down the Constitution (Ninety-Ninth
Amendment) Act, 2014, which established the National Judicial Appointment Commission
(NJAC) for the appointment of judges instead of the traditional collegium system of
appointment of judges, in the case of Supreme Court Advocates-On-Record Association and
another v. Union of India (2016).