BUSINESS REGULATORY FRAMEWORK

MODULE IV
2 MARK QUESTIONS
1. Who is a factor?
A factor is a mercantile agent entrusted with the possession of goods for the
purpose of selling them. He may sell the goods in his own name.
2. Who is an agent?
Section 182 of the act, defines agent as “a person employed to do any act for
another or to represent another in dealings with third persons.
3. What is agency?
The contract which creates the relationship of an agent and principal is called
‘agency’.
4. What is meant by ‘del credere’ agency?
A del credere agent is one who, in consideration of an extra commission,
guarantees his principal that the person with whom he enters into contract
shall perform their obligations.
5. What is a ‘sub agent’?
A sub agent is a person employed by, and acting under the control of the
original agent in the business of agency. Thus, sub agent is an agent
appointed by an agent.
6. Explain the term ‘substituted agency’?
A substituted agent is a person who is named by the agent to act for the
principal in the business of agency. He is not a sub-agent but an agent of the
principal. A privity of contract is established between the principal and
substituted agent.
7. Who is a universal agent?
A universal agent is one whose authority to bind his principal is almost
unlimited.
8. Who is a special agent?
A special agent is one who is appointed to perform a particular act or to
represent his principal in some particular transaction.
 9. What is ratification?
Ratification means giving approval to an act done without authority.
10.What is agency by necessity?
Sometimes extra ordinary circumstances required that a person who is not
really an agent should act as an agent of another. In such a case, though there
might not have been an express or implied authority to do an act, the law
implies such an authority in favor of that person. This is called agency by
necessity.
11.Distinguish between “agency by estoppel” and “agency by holding
out”.
Where a person knowingly permits another person to act as his agent,
he will be bound all those acts of that person. Third persons who enter
into agreements with that person are entitled to assume that the person
who acts as agent has authority to represent the principal. The principal is
estopped from denying the validity of the acts of the agent on him.
This is a branch of agency by estoppel. Sometimes prior positive or
affirmative act on the part of the principal may lead another person to believe
that there is an agent principal relationship
12.Who is mercantile agent?
A mercantile agent is one having in the customary course of business as such
agent, authority either to sell goods, or to consign goods for the purpose of sale,
or to buy goods, or to raise money on the security of goods.
13.Who is a sub agent and substituted agent?
A sub agent is a person employed by, and acting under the control of the
original agent in the business of agency. Thus, sub agent is an agent
appointed by an agent.
A substituted agent is a person who is named by the agent to act for the
principal in the business of agency. He is not a sub-agent but an agent of the
principal. A privity of contract is established between the principal and
substituted agent.
5 MARK QUESTIONS
1. When an agency can be terminated by operation of law?
a. Performance of the contract
The agency comes to an end by performing what the agent has undertaken to
do.
b. Expiry of time
Where the agency is for a fixed period, it terminates when that period lapses,
even if the work undertaken is not completed.
c. Death or Insanity
When the agent or the principal dies or becomes of unsound mind, the
agency is terminated.
d. Insolvency
When the principal becomes insolvent the agency gets terminated.
e. Destruction of the subject matter
If a contract of agency is created to deal with a particular subject matter, it
gets terminated when there is a destruction of that subject matter.
f. Principal becoming an alien enemy
If the principal becomes an alien enemy the agency become invalid.
g. Dissolution of a company
If a company has the role of either a principal or an agent, agency gets
terminated when it is dissolved.
h. Termination of sub-agents authority
When the authority of an agent is terminated, the authority of all sub-agents
appointed by him also cease.
2. List out any five requisites for valid ratification of agency.
(a) Agent must purport to act for a definite principal
If the agent enter into an agreement as if it is for himself, there cannot be a
ratification.
(b) The principal must be in existence at the time of the contract
A principal who was not in existence at the time of the contract cannot be
bound by the process of ratification.
(c) The principal must have contractual capacity both at the time of the
contract and at the time of ratification.
(d) Ratification must be with full knowledge of facts
No valid ratification can be made by a person whose knowledge of facts of
the case is materially defective.
(e) Ratification must not subject a third party to damages
3. Describe the essentials of a contract of agency.
a. Agreement between the principal and the agent
Agency is created on the basis of an agreement between the principal and the
agent. The agreement may be express or implied.
b. Principal should be competent
Only a person who is competent to contract may appoint an agent.
c. The agent need not be competent
An agent need not be competent to contract. Even a minor can bring about a
contractual relationship between a principal and a third party.
d. No consideration is required to create agency
Act expressly provides that there need not be any consideration to create an
agency.
4. What are the principles of agency?
Contracts of agency are based on two important principles given below;
a. ‘Whatever a person can do personally, he can do through an agent’. This
rule is subject only to very few exceptions like acts which are personal in
character, or duties annexed to an office.
b. ‘He who does an act through another does it by himself.’ This means that
the acts of the agent are considered to be the acts of the principal.
5. When is an agent personally liable?
a. Where the contract expressly provides; At the time when the third
person enters into contract with an agent, he may stipulate that the agent
should be personally liable.
b. Where the agent acts for a foreign principal
The agent will be personally liable if he acts for a merchant who is resident
abroad.
c. Where the agent acts for an undisclosed principal
An agent who is acting for an undisclosed principal is personally liable.
d. When the agent acts for a principal who cannot be sued
Where the principal is incompetent to contract, i.e., where he is a minor or a
person of unsound mind, the agent is personally liable.
e. Where the agent signs a contract in his own name
If an agent puts signature on a negotiable instrument, without making it clear
that he is signing on behalf of the principal, the agent will be personally
liable.
f. Where the agent acts for a principal not in existence
No agent can bind a principal who was not in existence at the time of making
of the contract.
g. Where the agent exceeds his authority
If an agent exceeds his authority, or represents to have some kind of
authority which he does not have, he commits breach of warranty of
authority and is personally liable to third parties who have acted under such
false representation.
h. Where the agent receives money by mistake or fraud
An agent has a right to sue for money paid by him under mistake or fraud.
i. Where his authority is coupled with interest
If the agent has an interest in the subject matter of contract, he is personally
liable.
j. Where there is a trade usage or custom
Where there is a trade usage or a custom making the agent personally liable.
15 MARK QUESTIONS
1. Explain the different ways by which a contract of agency can be
created.
(i) Agency by express contract
An agent appointed by words spoken or written is called express agency.
The most usual form of express agency is through a written contract called
power of attorney.
(ii) Agency by implied agreement
When agency arises from the conduct of the parties. Or inferred from the
circumstances of the case it is called an implied agency. The following are
major types of implied agency;
(a) Agency by estoppel
Where a person knowingly permits another person to act as his agent, he will
be bound all those acts of that person. Third persons who enters into
agreements with that person are entitled to assume that the person who acts
as agent has authority to represent the principal. The principal is estopped
from denying the validity of the acts of the agent on him.
(b) Agency by holding out
This is a branch of agency by estoppel. Sometimes prior positive or
affirmative act on the part of the principal may lead another person to
believe that there is an agent principal relationship
(c) Agency by necessity
Sometimes extra ordinary circumstances required that a person who is not
really an agent should act as an agent of another. In such a case, though there
might not have been an express or implied authority to do an act, the law
implies such an authority in favor of that person. This is called agency by
necessity.
(iii) Agency by operation of law
Sometimes agency may arise by operation of law.
(iv) Agency by ratification
Sometimes an agreement may be entered into on behalf of another person
but without his consent.
2. Discuss the different modes in which an agency may be terminated?
An agency may be terminated either (i) by the act of the parties; or (ii) by
operation of law.
(i) Termination of agency by the act of parties
(a) Agreement
An agency like any other contract can be terminated by mutual consent of
the parties.
(b) Revocation by the principal
Subject to few exceptions, the principal has got a right to terminate thereby
authority of the agent revocation. The authority of the agent cannot be
revoked in the following situations;
 Where the agent has exercised his authority, or
Where he has partly exercised his authority.
(c) Revocation by the agent
The agent can terminate agency by expressly renouncing it. He has to give a
reasonable notice to the principal regarding such revocation.
(ii) Termination of agency by operation of law
(a) Performance of the contract
The agency comes to an end by performing what the agent has undertaken to
do.
(b) Expiry of time
Where the agency is for a fixed period, it terminates when that period lapses,
even if the work undertaken is not completed.
(c) Death or insanity
When the agent or the principal dies or becomes of unsound mind, the
agency is terminated.
(d) Insolvency
When the principal becomes insolvent the agency gets terminated.
(e) Destruction of the subject matter
If a contract of agency is created to deal with a particular subject matter, it
gets terminated when there is a destruction of that subject matter.
(f) Principal becoming an alien enemy
If the principal becomes an alien enemy the agency become invalid.
(g) Dissolution of a company
If a company has the role of either a principal or an agent, agency gets
terminated when it is dissolved.
(h) Termination of sub-agents authority
When the authority of an agent is terminated, the authority of all sub-agents
appointed by him also cease.
3. Explain the rights and duties of an agent.
Duties of an agent
(i) Duty to work according to the directions given by the principal
The most important duty of an agent is to act according to the directions
given by the principal.
(ii)To work with reasonable skill and diligence
An agent is bound to conduct the business of agency with as much skill as is
generally possessed by persons engaged in similar business. The agent
should discharge his duties with reasonable skill and diligence. If there is
any neglect, he is liable to compensate the principal for the loss.
(iii) Duty to render accounts
An agent is bound to render accounts when the principal demands it.
(iv) Duty to communicate in case of difficulty
It is the duty of an agent to use all reasonable diligence in communicating
with his principal and to seek instructions from him.
(v) Duty not to deal on his own account
An agent must not deal on his own account in the business of the agency
without obtaining the consent of the principal and informing him about all
material facts within his knowledge.
(vi) Duty to pay money received
The agent is bound to pay to his principal all sums received on his own
account.
(vii) Duty not to use information obtained against the principal
Any information obtained by the agent in the course of agency should be
passed on to the principal. If the agent uses any such information against his
principal the principal can restrain the agent by an injunction from the court.
(viii) Duty not to set up adverse title
An agent should not set up against his principal, his own title or the title of
the third party.
(ix) Duty not to put himself in a position where interest and duty
conflict
An agent is under duty, in all situations to act in the interest of the principal.
(x) Duty to protect and preserve the interests of the principal in case
of his death or insolvency.
All reasonable steps for the protection and preservation of the interest
entrusted to him.
(xi) Duty not to delegate authority
The agent should not further delegate the tasks delegated to him by the
principal.
Rights of an agent
(i) Right of Retainer
The agent has a right to retain his principal’s money until his claims in
respect of his remuneration or advances made or expenses properly incurred
in the business of agency is received.
(ii) Right to remuneration
The agent is entitled to his agreed remuneration, or if there is no agreement,
to a reasonable remuneration from the principal.
(iii) Right of lien
An agent is entitled to retain goods, papers and other property of the
principal whether movable or immovable received by him until the amount
due to him for commission etc. has been paid or accounted for. This is a
right of particular lien.
(iv) Right to be indemnified against consequences of lawful acts.
The agent has a right to be indemnified against the consequences of all
lawful acts done by him in exercise of the authority conferred upon him.
(v) Right to be indemnified against consequences of acts done in good
faith
When an agent does the act in good faith, the employer is liable to indemnify
the agent against the consequences of that act even though such act causes
injury to the rights of third persons.
(vi) Right to Compensation
The agent has a right to be compensated for injuries sustained by him by
neglect or want of skill on the part of the principal.
4. Who is an agent? Explain the different types of agent.
Section 182 of the act, defines agent as “a person employed to do any act for
another or to represent another in dealings with third persons. Agents can be
classified on the basis of the extent of their authority into three;
a. Special agent: A special agent is one who is appointed to perform a
particular act or to represent his principal in some particular transaction.
b. General agent: A general agent is one who has authority to do all acts
connected with a particular trade, business or employment.
c. Universe agent: A universal agent is one whose authority to bind his
principal is almost unlimited.
On the basis of nature of work performed
a. Commercial or mercantile agents: A mercantile agent is one having in
the customary course of business as such agent, authority either to sell
goods, or to consign goods for the purpose of sale, or to buy goods, or to
raise money on the security of goods. Some of the mercantile agents are;
(1) Factor: Factor is a mercantile agent entrusted with the possession of
goods for the purpose of selling them. He may sell the goods in his own
name.
(2) Auctioneer: An auctioneer is an agent who is appointed to sell goods at a
public auction for reward generally in the form of a commission. The
auctioneer can receive the price of the goods sold and can even file a case
for the price in his own name.
(3) Broker: A broker is a mercantile agent who is employed to buy or sell
goods on behalf of another person, for a remuneration called brokerage.
(4) Commission agent : A commission agent is a mercantile agent who is
engaged to purchase or sell goods for his principal for a consideration in
the form of commission.
(5) Del credere agent : A del credere agent is one who, in consideration of
an extra commission, guarantees his principal that the persons with whom
he enters into contract shall perform their obligations.
(6) Banker: The relationship between a banker and his customer is usually
that of a debtor and creditor. But a banker may also assume the role of an
agent when he buys or sells securities, collects cheque.
b. Non – mercantile agents: Non mercantile agents include attorneys,
solicitors, insurance agents, clearing and forwarding agents etc.