BUSINESS LAW REPORT.docx

BUSINESS LAW REPORT

SUBMITTED BY: RAMSHA SOHAILSUBMITTED TO:

12/4/2011

Running head: Business Law

Table of Contents

Introducing the main terms 3

The law of agency: The relationship 5

Duties of agents (Rights of principal) 8

Rights of agents ( Duties of principal) 10

Creation of agency: Getting into the contract 12

Termination of the agency contract……………………………………………………………………………………………………….13

Conclussion……………………………………………………………………………………………………………………………………………14

Sample Agency Contract………………………………………………………………………………………………………………………..15

References…………………………………………………………………………………………………………………………………………….18

Page 2 of 18


AGENT, AGENCY AND AGREEMENT-THE RELATION

BETWEEN THREE

Today business world has become one the most important thing in our lives and when one person

does business with another it usually happen in a direct manner. But sometimes it is not possible

to deal with other people directly so what should we do then? Should we stop dealing with those

people and loose business?

The answer to these questions is NO; we definitely cannot stop dealing with people to whom we

cannot interact directly. The solution to these sorts of problems is the AGENCY AGREEMENT

or in other words the LAW OF AGENCY.

INTRODUCING THE MAIN TERMS

The laws have many different terminologies so it is very important to understand the exact

meanings of the word and terms. The main important terms which are used in this agency

agreement are as follow:

1. Agent:

An agent is a person or even any other company employed to do any act for another or

to represent another in dealing with the third party and the agent is also authorized to

represent or deal with the third party on the behalf of someone.

Page 3 of 18


DIFFERENT TYPES OF AGENTS

2. Sub agent:

Sub Agent is a person employed and acting under the control of the original agent. He

is not responsible for his acts to the principal. He is only responsible to the agent.

3. Principal:

A principal is a person or a company which an agent represents or in other words it is

the one which is represented to the third party by an agent.

4. Agency:

An agency is the relationship between the agent and the principal and this relationship

of agency is governed by the agreement of agency.

Page 4 of 18


5. Agreement:

An agreement of agency is the legal contract between the agent and the principal and it

binds these two parties legally and it also defines their role and the duties they have to

perform. It also includes the restriction upon the agent and sometimes the principal.

THE LAW OF AGENCY: THE RELATIONSHIP

The law of agency is made for the convenience of the businessmen and it also protects the rights

of the businessman and even the agents. In this law a principal which is mostly a company gets

in to contract with an agent which is responsible to deal with the third party with whom the

principal cannot deal directly.

For example Pepsi cannot provide their products to each and every customer directly so what

they do is that they get into contract with the agents and then these agents supply the products to

different stores and restaurants. Sometimes these agents hire sub agents which help the agents to

supply the products to a particular customer.

The relationship between the principal, agent and the third party is very important each one of

them is dependent on each other.

The relationship of a principal and agent is that the principal hires the agent and expects the

agent to be loyal and to fulfill its duties properly. The principal relies on the agent e.g. for the

effectiveness of the delivery of the products or sale of a particular products. Sometime the

principal hires agents for negotiations or buying etc so the relationship between the two is very

important and it is mostly consists of loyalty and trust. The other important point is that if an

Page 5 of 18


agent hires a subagent then the agent is responsible for any act of the sub agent and the agent is

accountable to the principal for this. For example:

Case study

“Clark worked as a warehouse manager for a restaurant chain Buffets. His friend, Parsons, ran

a shipping company, Carr Freight, which handled shipments for Buffets. The two conspired to

steal from Buffets. Parsons, through Carr, would overbill Buffets for shipments, Clark would

approve the inflated bill, and Parsons would kickback part of the overpayment received by Carr.

Carr, a local transport company, worked with Transgroup for interstate shipments and for

billing and accounting services, so paperwork bore the name Transgroup, not Carr. When the

scheme was uncovered by an audit at Buffets, it was turned over to the U.S. Attorney. Clark and

Parsons ended up in prison. Buffets filed a loss claim with its insurer, Hartford, which paid

Buffets about $3 million for the losses from the scheme. Hartford then sued Clark, Parsons, and

Transgroup to recover the payout. Hartford claimed that Transgroup was liable based on

vicarious liability for the acts of its local subagent, Carr/Parsons. Transgroup moved for

summary judgment.

Motion denied. The key question for liability, under Minnesota law, is if Parsons’ actions were

foreseeable. That is, should Transgroup have known that its local subagents could engage in

such fraud? That will be determined at trial. An agent who deals with a subagent is put to a

certain burden of reasonableness and diligence. Transgroup received revenue from business

generated by Parsons, but did not know there was fraud involved in the business dealings.

Nevertheless, Hartford can claim unjust enrichment by Transgroup because it received the

business due to Parsons’ fraud. Under the Third Restatement of Agency, “a subagent is a person

appointed by an agent to perform functions that the agent has consented to perform on behalf of

the agent’s principal and for whose conduct the appointing agent is responsible to the

principal.” It will be for the jury to determine if Parsons was in fact Transgroup’s subagent”.

Page 6 of 18


The relationship between the agent and the third party is equally important as it is the agent

which is dealing with the third party. The third party buys a particular product because of the

agent and sometimes on the guarantee of the agent, this is the situation where the agent while

contracting with the third party expressly agrees to be personally liable on the contract and he

can be held liable for any breach of the contract. The other scenario could be that a foreign

company hires an agent in Pakistan and he is supplying or selling the products of the principal so

in that case the agent can be sues or held responsible for the dissatisfaction or damage of the

customers. Sometimes the name of the principal is not disclosed or the principal is unnamed so

in that scenario the third party buys a particular product due to the reliability and guarantee on

the agent. So the relationship of the agent and the third party is quite important

The last relationship is of the principal and the third party, that is somehow same as the agent

and the third party but obviously there are some differences. The principal is equally responsible

of the damage or harm to the third party as the agent is. But the principal cannot hold

accountable only in one situation when the agent expressly wish to be liable for the damage or

harm to the third party.

Page 7 of 18


DUTIES OF AGENTS: (RIGHTS OF PRINCIPAL)

The relationship of agent and agency can be more easily understand by the rights and duties of

agents. The duties of the agents are the rights of the principal and the rights of the agents are the

duties of the principal. The duties of the agents are as follow:

1) Duty to follow principal’s directions or customs: For example a principal instructed the

agent to warehouse the goods at a particular place and the agent warehoused them at a

different place which is equally safe and the good were destroyed by fire without

negligence, it was held that the agent was liable for the loss because any departure from

the instructions makes the agent absolutely liable.

Case study

“The defendant contracted to warehouse certain goods for the plaintiff in defendant’s deposit at

Kingsland Road, but instead stored a part of them at another place where, without any

negligence on his part, they we destroyed by fire. The plaintiff had insured the goods, giving

Kingsland Road as the place where they were deposited, and in consequence of change of place

of storage lost the benefit of the insurance. Plaintiffs contended that there was a conversion to

recover the value of goods lost and the being in breach of contract the defendant took a risk of

the loss of the goods upon himself and was liable for their value. Defendant’s argument was that

there was no conversion and his liability can only arise when the lack of reasonable care for

goods has been proved.

The judge in his leading judgment left the question of conversion without consideration and

applied the general rule that bailee is responsible for the risks associated with the goods in his

custody when he deals with that bailor’s property in non-authorized manner. Much reliance was

Page 8 of 18


placed by the learned judge on decision of Tindal J in Davis v Garrett (1830) 6 Bing 716, which

treated the wrongdoer to be strictly liable for his own wrong unless the same damage must have

been caused to the goods irrespectively of his wrongful act

2) Duty to render accounts: it is the duty of the agent to keep proper account of his

principal’s money or property and render them to him on demand.

3) Duty not to deal on his own account: the agent must not himself but from or sell to his

principal goods he is asked to sell or buy on behalf of his principal.

4) Duty not makes any profits out of his agency except his remuneration: an agent stands in

a fiduciary relation to his principal and so he must not make any profit and he should give

all the money back to his principal.

5) Duty on termination of agency on the death of the principal or his insanity

6) An agent cannot delegate the authority further to another person, but perform the work of

agency himself.

Page 9 of 18

http://www.lawandsea.net/List_of_Cases/D/Davis_v_Garrett_1830_6_Bing_716.html


THE RIGHTS OF AN AGENT: (DUTIES OF THE PRIMCIPAL)

1) The agent has the right to receive remuneration and the agent can claim his remuneration.

Case study

“Motion denied. The key question for liability, under Minnesota law, is if Parsons’

actions were foreseeable. That is, should Transgroup have known that its local subagents

could engage in such fraud? That will be determined at trial. An agent who deals with a

subagent is put to a certain burden of reasonableness and diligence. Transgroup received

revenue from business generated by Parsons, but did not know there was fraud involved

in the business dealings. Nevertheless, Hartford can claim unjust enrichment by

Transgroup because it received the business due to Parsons’ fraud. Under the Third

Restatement of Agency, “a subagent is a person appointed by an agent to perform

functions that the agent has consented to perform on behalf of the agent’s principal and

for whose conduct the appointing agent is responsible to the principal.” It will be for the

jury to determine if Parsons was in fact Transgroup’s subagent.”

Page 10 of 18


2) An agent has the right to retain any amount of sums received on the account of the

principal, all money due to himself in respect of his remuneration or advances made or

expenses properly incurred by him in conducting the business of agency.

3) The agent has the right to retain the property or documents of the principal unless and

until the commission due is received.

4) An agent also has the right to be indemnified against the consequences of all lawful acts

done by him in exercise of the authority conferred upon him.

5) An agent can be indemnified by principal for acts done in good faith.

The above were the rights and duties of an agent and it more specifically explains relationship of

the principal and the agent or the relationships of the contract of agency.

Page 11 of 18


CREATION OF AGENCY: (GETTING INTO THE CONTRACT)

There are a few formalities and ways in which both the agent and the principal can get into the

relationship. The process of getting into the relationship or agency is as follow:

1) By the express agreement which means that the agent is appointed directly by the

principal. The agent in this case may be appointed either by word of mouth or by an

agreement in writing.

2) Implied agreement or getting into the relationship by the implied agreement, this happens

when there is no express agreement in appointing someone as the agent. This can be

further divided into agency by estoppels, agency by holding out (It occurs where there is

no actual principal/agent relationship, but the principal makes a third party think that

there is) and agency by necessity which is when an emergency acts without authority.

3) Agency by ratification is when an act is made valid which was previously unauthorized.

A principal affirms or adopts the unauthorized act of his agent, he is said to have ratified

that act and there comes into existence an agency by ratification.

Page 12 of 18


TERMINATION OF THE AGENCY CONTRACT

The termination of the contract of agency or getting out of the principal and agent relationship

has many ways and they are as follow:

1) By the act of the parties:

Agreement of the agency can be terminated at any time by the mutual agreement

between the principal and the agent.

Revocation by the principal

Renunciation by the agent

2) Termination by the operation of law:

Completion of the business of the agency

Expiry of time

Death of the principal or the agent

Insanity of the principal or the agent

Insolvency or bankruptcy of the principal

Destruction of the subject matter

Dissolution of the company

Principal and agent become alien enemies

Page 13 of 18


CONCLUSSION

The above points showed us that the relationship between the agent, principal and the third party

is very important and it should be of trust and loyalty. The above points which included the

rights and duties of the agents also explained the relationship between the agent and the

principal.

The other important conclusion which we can draw about the relationship between the principal

and agent was that loyalty and trust is a major factor and it is a sort of base on which the whole

relationship is standing

The contract of agency has a lot of good points as far as the society and the business world as a

whole in concerned. This law helps protect the rights of both the principal and the agent and it

also helped the growth of the business on the whole because due to this law or agreement the

companies can now reach to the market and customers which previously they couldn’t and it also

helped a lot of people to save time be obtaining or hiring an agent to do a particular task which

was out of their reach and this has provided the business world a huge opportunity to make it

BIG.

Page 14 of 18


SAMPLE AGENCY AGREEMENT

Agreement made this ________day of __________, 20_____

Between

XYZ Manufacturing Company Limited (hereinafter called the ‘Company”)

(Note: If the Company is unincorporated, the names of the proprietors should be set out

as parties to the agreement and the proprietors should sign it.)

-and-

John Doe, of the city ____________, in

The ________________ of ____________________ (hereinafter called the ‘Agent”)

1. The Company hereby appoints as its exclusive and sole agent for the sale of

(PRODUCT) in the territory and upon such terms and conditions as set out herein.

2. The territory assigned to the Agent by the Company shall consist of (DESCRIBE

THE TERRITORY HERE).

3. This agreement shall commence on the date hereof and shall expire (_________) year(s) thereafter, and shall be automatically renewed for successive terms of

(_____) year(s) unless either party gives notice to the other party (________) month(s) prior to the expiration of the original term or any renewal term that they do not intend to renew. 4. The parties hereby agree that the Agent will devote his/her time exclusively to the sale and promotion of the products of the Company and will not engage in any other line or product for any other company.

-OR-

The parties hereby agree that the Agent may sell or promote other lines or products during the life of this agreement, provided that the sale of such lines or products does not involve competition or conflict with the sales of the product(s) described in paragraph 1 herein.

-OR-

The parties hereby agree that the Agent may sell or promote other lines or products during the life of this agreement subject to prior approval by the Company.

Page 15 of 18


5. The Agent shall be responsible for the expenses incurred by Him/her in the performance of the obligations incurred pursuant to this agreement.

-OR-

The Agent shall be reimbursed for reasonable expenses incurred in the performance of obligations incurred pursuant to this agreement, provided that such reimbursement shall be on a monthly basis upon receipt of an expense statement, properly documented.

6. The Company agrees to pay the Agent commission on sales made, shipped, or distributed to the territory described in paragraph 2 herein, whether or not such sales were obtained by the Agent personally according to the following schedule:

(HEREIN SET OUT COMMISSION RATE).

7. Commissions shall be due and payable to the Agent on the 15 the day of the month following the month in which the goods were shipped.

8. The parties agree that the responsibility for the investigations into and approval of the creditworthiness of customers shall be the responsibility of the Company, and further agree that the Agent’s commission on unpaid accounts.

-OR-

The parties agree that the Agent shall exercise his/her best effort in assisting the collection of overdue account of customers. It is further agreed that the Agent’s commission account shall be debited with the amounts representing commission on unpaid accounts ultimately collected in whole or in part, the Agent’s commission shall be credited accordingly. 9,This agreement may be terminated by the Agent upon the Agent providing notice in writing to the Company of the termination, such termination to be effective

(____________) month(s) from the receipt by the Company of such notice.

10. This agreement may be terminated by the Company upon the Company providing notice in writing to the Agent, such termination to be effective in accordance with the following schedule:

Duration of Agency Relationship Period of Notice

1 – 5 years 3 months

5 –10 years 6 months

More than 10 years 9 months

11. This agreement may be terminated by the Company without notice provided that the Company pays the agent damages in lieu of notice, such damages to be calculated as follows:

Page 16 of 18


Duration of the Relationship Damages 1-5 year’s Average monthly commission in previous year X 3

5 –10 years Average monthly commission in previous year X 6

More than 10 years Average monthly commission in previous year X 9

12. The Company agrees to provide the Agent with the monthly commission statements showing commissions owing, credits and debits to the commission account, sales made in the Agent’s territory and copies of the invoices on all shipments made within the territory. The company further agrees to provide the

Agent with reasonable access to its books and records

To permit the Agent to verify the commission statement.

13. Variations to the paragraphs 2 and 6 herein may be made on the mutual consent of both parties. In the event the Company unilaterally varies the terms of paragraphs

2 and/or 6, the Agent may, within 60 days of receipt of notice of the variations, elect to consider this agreement at an end, and in that event the provisions of paragraph 11 shall apply and the Agent shall be entitled to appropriate damages.

14. Samples in the possession of the Agent shall remain the property of the Company, and no responsibility or liability shall attach to the Agent for loss of or damages to such samples, however caused.

15. The failure of either party to strictly enforce any particular term of this agreement shall not constitute waiver or estoppel. 16. This agreement shall be binding upon and ensure to the benefit of, the parties hereto, their heirs and assigns.

17. The parties hereto agree that this agreement shall be governed by the laws of the

Province of (________________).

18. The parties have requested and agreed that this agreement and any ancillary documents relating hereto shall be drawn up in the English language only.

Signed and sealed the __________ day of _____________, 20_____.

__________________________________________________ Corporate Seal

Witness for the XYZ Company Ltd

_____________________________________________ Seal

Witness John Doe, Agent

Page 17 of 18


REFERENCES:

http://www.swlearning.com/blaw/cases/agency/0810_agency_01.html

http://www.swlearning.com/blaw/cases/topic_agency.html

http://www.lawandsea.net/List_of_Cases/L/Lilley_v_Doubleday_1881_7QBD510.html

Mercantile Law by DR.Avatar

Mercantile Law by M.C Kuchhel

Mercantile Law in Pakistan by A.G Chaudhry

www.wikipedia.org/

www.cgta.org

Page 18 of 18

http://www.lawandsea.net/List_of_Cases/L/Lilley_v_Doubleday_1881_7QBD510.html

http://www.swlearning.com/blaw/cases/topic_agency.html

http://www.swlearning.com/blaw/cases/agency/0810_agency_01.html

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BUSINESS LAW REPORT.docx