Pakistan study notes for Matric, Intermediate, B.A, B.COM BSC, M.A, BCS. Free Pakistani Urdu educational school, colleges and University notes.

Law relating to agency

General consideration

These days no one can do everything himself. Likewise a businessman cannot transact ail his business by himself. It is Impossible for him to create legal relation with his suppliers and customers without the aid of any other person specially when he is at a distance. So he has to hire the sen/ices of certain suitable person to carry on his business successfully. This system is termed agency. The businessman who so hires the services of another is called the principal and the other person who is so engaged is termed the agent.

In fact all of us at one or the other time act as principal or agent. When a person ask his son to deposit utilities bills, the son is acting as agent. Again when Exe requests his friend Wye to buy a ticket for a journey. Exe is acting as a principal and Wye as an agent. Thus a businessman transacts major part of his business through agents.


Law relating to agency

Agency is a species type of contract. The law relating to contract of agency is contained in sections 182 to 238 of the Contract Act, 1872.


Agency Explained

Agency is a. relation based upon an express or implied agreement whereby one person, the agent, is authorized -ct for another, his principal In transactions with third party. Agency it relation existing between two parties for the purpose of enabling (the agency to make contracts on behalf of the other (the principal). Agency is based upon consent and for that reason, it is called contractual relation. If the consideration is present the relationship is contractual.


Express agency-Section 186-187

An excess agency is one which is created by express words either sponsor bitten. No particular form Is required for appointing an agent. Agency is created to represent a person in a particular document on his behalf. In such a case, a formal deed of appointment is drawn up and signed by the principal. Such a deed is called a power of attorney.


Power of attorney: A power of attorney may be (i) general, (ii) special, or (iii) particular. When it empowers the agent to represent the principal for all purposes generally i.e. to act generally in the business of agency, it is called a general power of attorney. Where it authorizes the agent to perform a single transaction e.g. selling a house or borrowing money on mortgage, it is called a special power of attorney. Where the agent is authorized to do a particular act on behalf of the principal, e.g. to present a document before the registrar for registration, it is called a particular power of attorney.


Implied agency-Section 187

Implied agency arises from the conduct, situation of the parties, or necessities or circumstances of the case. Implied agency arises when the principal conducts himself towards the person alleged to be the agent or the third party in such a manner, as if the principal had conceded to the appointment of that person a” agent.



(a)        A and B are brother. A resides in Karachi and B lives in Hydereabad. B ‘with the knowledge of A leases A’s agricultural land at Hyderabad. B realizes the rent and remits it to A. B is the agent of A, though not expressly appointed as such.

(b)        A owns a shop at Lahore and himself lives at Karachi and visits the shop occasionally. The shop is managed by B who is in the habit of ordering goods from C in the name of A for the purposes of the shop, and for paying for them out of A’s funds with A’s knowledge. B has implied authority from A to order the goods from C in the name of A for the purposes of the shop.


Agency by estoppel

Agency by estoppel is created where a person by his conduct, or by words spoken or written, leads wilfully another person to believe that a certain state of affairs exists and induces him to act on that belief so as to alter his previous position he is precluded from denying subsequently the fact of that state of affairs.


A tells B in the presence and within -:he hearing of C. that he (A) is C’s agent and 0 does not contract of his statement Later on supplies certain goods to A, who pretends to act as C’s agent. C is liable to pay the price to B. By keeping quiet he (C) had led B to believe that A is really his agent.


Section 237 of the Contract Act dealing with agency by estoppel provides that where an agent, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such person to believe that such acts and obligations were within the scope of the agent’s authority.


Agency by holding out

Agency by holding out is a branch of agency by estoppel yet a distinction between the two does exist.


In the case of agency by holding out some positive or affirmative act on the part of the principal is necessary to establish agency subsequently.


Example: A allowed his servant B habitually to purchase goods for him on credit from C and paid for them. On one occasion, he sent B with money, who bought the goods on credit pocketing the money. That C can recover the price from A as he has held out his servant as his agent on prior occasions.


Agency by necessity

Agency by necessity is created by law, under certain circumstances, where there is no opportunity of communicating by one person with the other. Such agency arises:

(a)        Husband and wife: A wife forced to live separate from her husband can pledge her husband’s credit to buy all necessaries of life according to the position of the husband even against his wishes.

(b)        Person entrusted with another’s property: Where a person is entrusted with the property of another which he has to protect and preserve, an agency by necessity is created. If a master of a ship or the carrier of goods has to take steps for the safety or protection of the cargo, he becomes the agent of necessity of shipowner or cargo owners.


Requisites of valid ratification


1. Agent must expressly act as agent for a principal who is in contemplation and is identifiable at the time of contract.


2.         Principal must exist at the time of contract: The person ratifying must have been in existence at the time of the contract. Thus, a company cannot ratify the contract made by the promoters on its behalf before its incorporation.


3.         Principal must have contractual capacity both at the time of contract and at the time of ratification. So a minor on whose behalf a contract is made cannot ratify it on attaining majority.


4.         Ratification must be with full knowledge of facts- Section 198: No valid ratification can be made by a person whose knowledge of facts of the case is materially defective.

If, however, the alleged principal is prepared to take the risk of what the agent had done, he can elect to ratify without full knowledge of facts.


5.         Ratification must take place within a reasonable time after the contract is made.


6.         Act to be ratified must be lawful i.e. it should not be void, illegal or ultra vires in the case of a company.


7.         Whole transaction must be ratified-Section 199: Principal cannot ratify a part and repudiate a part.


8.         Ratification must be communicated to the party who is liable by the act done by the agent.


9.         Ratification must be of acts which the principal had power to do e.g. a company cannot ratify acts of its directors which are ultra vires the powers of the company.


10.        Ratification should put third party to damages or terminating any right or interest of a third person, Section 200


Classification of agents

Agents may be classified in a number of ways from the point of extent of their authority or nature of work performed.

Related posts:

Leave a Reply

Content Protected Using Blog Protector By: PcDrome. & GeekyCube.