Contracts Cases Essay

FACTS: An Agency agreement was entered into between the Mills Company and the appellants appointing the appellants it’s Agents for a period of 30 years. The appellants throughout worked only as the Agents of the Mills Company and for the Fasli years 1351 and 1352 they received their remuneration under the terms of the Agency agreement. Notice was sent to the appellants to pay the amount of tax appertaining to these chargeable accounting periods. The appellants submitted their accounts and contended that the remuneration received by them from the Mills Company was not taxable on the ground that it is was not income, profits or gains from business and was outside the pale of the Excess Profits Tax Regulation. The Excess Profits Tax Officer made an order assessing the income of the appellants for the accounting periods 1351 and 1352 Fasli at Rs. 8,957 and Rs. 83,768 respectively and assessed the tax accordingly. ISSUES: 1. Whether under the terms of the agreement the petitioner is an employee of the Mills Company or is carrying on business? 2. Whether the remuneration received from the Mills is on account of service or is the remuneration for business? ANALYSIS OF THE FACTS: 1. The appellants were registered as a private limited company having their registered office in Bombay and the objects for which they were incorporated were the following : To act as agents for Governments or Authorities or for any bankers, manufactures merchants, shippers, Joint Stock Companies and others and carry on all kinds of agency business. 2. Under the Articles of Association of the Mills Company the appellants and their assigns were appointed the agents of the Company. The general management of the business of the Company subject to the control and supervision of the Directors, was to be in the hands of the Agents of the Company. They were to have power to appoint and employ in or for the purposes of the transaction and management of the affairs and business of the Company. The agents were authorized to sub-delegate all or any of the powers, authorities and discretions for the time being vested in them. 3. The Agency agreement which was executed provided that the appellants and their assign were to be the Agents of the Company for a period of 30 years from the date of registration of the Company and they were to continue to act as such agents until they of their own will resigned. 4. The remuneration of the appellants as such Agents was to be a commission of 2 1/2 per cent on the amount of sale proceeds of all yarn cloth and other produce of the Company. The appellants were to be paid in addition all expenses and charges actually incurred by them in connection with the business of the Company and supervision and management thereof. JUDGMENT: 1. â€Å"An agent is to be distinguished on the one hand from a servant, and on the other from an independent contractor. A servant acts under the direct control and supervision of his master, and is bound to conform to all reasonable orders given him in the course of his work; an independent contractor, on the other hand, is entirely independent of any control or interference and merely undertakes to produce a specified result, employing his own means to produce that result. An agent, though bound to exercise his authority in accordance with all lawful instructions which may be given to him from time to time by his principal, is not subject in its exercise to the direct control or supervision of the principal. An agent, as such is not a servant, but a servant is generally for some purposes his master’s implied agent, the extent of the agency depending upon the duties or position of the servant.† 2. The difference between the relations of master and servant and of principal and agent may be said to be this: a principal has the right to direct what work the agent has to do: but a master has the further right to direct how the work is to be done.† 3. In the present case, the powers did not spell a direct control and supervision of the Directors as of a master over his servant but constituted the appellants the agents of the Company who were to exercise their authority subject to the control and supervision of the Directors but were not subject in such exercise to the direct control or supervision of the principals. 4. The remuneration by way of commission of 2 1/2 per cent. of the amount of sale proceeds of the produce of the Company savoured more of the remuneration given by a principal to his agent in the carrying out of the general management of the business of the principals than of wages or salary which would not normally be on such a basis. 5. All these circumstances together with the power of sub-delegation go to establish that the appellants were the agents of the Company and not merely the servants of the Company remunerated by wages or salary. 6. The objects of the appellants in this case inter alia were to act as agents for Governments or Authorities or for any bankers, manufacturers, merchants, shippers, Joint Stock Companies and others and carry on all kinds of agency business. This object standing by itself would comprise within its ambit the activities of the appellants as the agents of the Company and constitute the work which they did by way of general management of the business of the company an agency business. Apart however from this there is the further fact that there was a continuity of operations which constituted the activities of the appellants in the general management of the Company a business. 7. All these factors taken into consideration along with the fixity of tenure, the nature of remuneration and the assignability of their rights, are sufficient to enable us to come to the conclusion that the activities of the appellants as the agents of the Company constituted a business and the remuneration which the appellants received from the Company under the terms of the Agency Agreement was income, profits or gain from business. 8. The appellants were therefore rightly assessed for excess profits tax and these appeals must stand dismissed with costs. 2. P. Krishna Bhatta And Ors. vs Mundila Ganapathi Bhatta 1955 MAD HC FACTS: The dispute in this case relates to three items of properties, viz., two parcels of land used for raising paddy and arecanut in Kedila village and a coffee estate in Coorg, ISSUES: whether in regard to these items of properties Ganapathi Bhatta was benamidar and apparent owner? (IRRELEVANT ISSUE FOR US) whether Section 66, C.P.C. applies to the transactions relating to the two items or Kedila properties, in regard to which two sale certificates have been issued in favour of Ganapathi Bhatta. The other alleged in the pleadings that Ganapathi Bhatta was an agent for the joint family of Bheernayya throughout these transactions and that therefore the prohibition under Section 66, C.P.C., would not apply to this case. Ganapathi Bhatta by no stretch of imagination can be described as the agent of Bheemayya for the purpose of buying this property in Court auction sale. PRINCIPLE: In legal phraseology, every person who acts for another is not an agent. A domestic servant renders to his master a personal service; a person may till another’s field or tend his Hocks or work in his shop or factory or mine or may be employed upon his roads or ways; one may act for another in aiding in the performance of his Legal or contractual obligations to third persons, as when he serves a public carrier, warehouse-man or innkeeper in performance of the latter’s duties to the public. In none of these capacities he is an â€Å"agent† within the above meaning as he is not acting for another in dealings with third persons. It is only when he acts as representative of the other in business negotiations, that is to say, in the creation, modification, or termination of contractual obligations between that other and the third persons, that he is an â€Å"agent.† Representation of another in business negotiations with third persons so as to bind such other by his own acts as if they were done by the former, is of the essence of the relation of agency and the distinguishing feature between art â€Å"agent† and other persons who act for another. Looked at from this point of view, an agency is a contract of employment for the purpose of bringing another-in legal relation with a third party or in other words, the contract between the principal and agent is primarily a contract of employment to bring him into legal relation with a third party Or to contract such business as may be going on between him and the third party. An agent is thus a person either actually or by law held to be authorised and employed by any person to bring hint into contractual or other legal relations with a third party. He is a representative vested with authority, real or ostensible, to create voluntary primary obligations for his principal by making promises or representations to third persons calculated induce them to change their legal relations. Representative character and derivative authority may briefly be said to be the distinguishing features of an agent. HOLDING: It is not stated in the pleadings in the present case as to when precisely Ganapathi Bhatta was constituted an agent, or on what terms he was so constituted or when the agency was got terminated or other details to spell out an agency. HE IS NOT AN AGENT. SIDE NOTE: The ‘karta’ is not the agent, or trustee of the joint family, but his position has been described as like that of a chairman of a committee 3. Loon Karan Sohan Lal vs Firm John And Co. And Ors. 1967 All HC Facts: The defendant had entered into an agreement with the defendant for the deliver of 15 bales of yarn. Since the plaintiff did not deliver on time, he went on to sue his principal, the govt. Of assam. Mr. Misra argued that the plaintiff was appointed by the Assam Government as their agent to perform the duties of procuring yarn and if in the performance of his duties as agent he suffered loss he is entitled under Sections 222 and 223 of the Contract Act to be reimbursed by the Assam Government as principal. The agreement between the plaintiff and govt. Of Assam stated: â€Å"This agreement made between the Governor of Assam represented by the Additional Secretary in th Department of Supply (Textile) hereinafter called the Govt. of the one part and M/s Loonkaran Sohanla hereinafter called the agent of the other part. The agent has been appointed for the purpose of procuring yarfor the month of August and September 1948 on the following terms and conditions.† JUDGEMET But in my opinion the description of the plaintiff in the agreement Ex. C-l and in the letter Ex. 47 as the agent of the Assam government is not conclusive. The court must examine the true nature of the agreement and the subsequent dealings between the parties, and then decide whether it established a relationship of agency under the law. It is common experience that the word ‘agent’ is frequently used to describe a relationship which is not an agency in law. an agent primarily means a person employed for the purpose of placing the principal in contractual or other relations with a third party and it is essential to an agency of this character that a third party should be in existence or contemplated. † The agreement Ex. C-l does not suggest, even by implication, that the plaintiff was to represent the Assam Government in any transaction or dealings with any other party or parties. No such parties were mentioned in the agreement or in contemplation of the signatori es to the agreement. The conduct of the plaintiff after the agreement shows that he never functioned as the agent of the Assam Government. He entered into the agreement of sale of yarn with John and Co. in his own name and on his own behalf; he paid the price from his own pocket and did not debit it to the Assam Government; he regarded himself as the owner of the goods and filed this suit in his own name. He might have been advised, when things went wrong, that the Assam Government had described him as their agent and were therefore liable to reimburse him for theloss suffered by him in the discharge of his obligations under the agreement. He is entitled to our sympathy, but he cannot in the circumstances ask this Court to make the Government liable for his losses. Mr. Misra contended that even if the plaintiff was not employed under the agreement to represent the Assam Government in dealings with third persons, he was appointed â€Å"for the purpose of procuring yarn† for the Assam Government and thus employed† to do any act for another† and this made him an agent under Section 182. I am unable to agree. There are several answers to this argument. First. it is based on a misapprehension of the words â€Å"a person employed to do an act for another† in Section 182 of the Contract Act. There is a distinction between a person employed In do an act for another and a person who does an act at the bidding if another. In the first place the act done is not that of the person employed but of him who employs him in the second, the act is that of the person himself Again, in the first case, the person employed is an agent of the employer, in the second, he merely acts at the request of another. Then again in the first case, under Section 222 the person is entitled to be indemnified against the consequences of all lawful acts done by him in the exercise of his authority as an agent, in the latter, he is entitled to be indemnified only if there is a contract of indemnity to this effect. If the plaintiff had been employed to purchase and sell cotton yarn on behalf of the Government of Assam, or asked by them to distribute yarn, belonging to the Government, he would have been their agent under Section 182 of the Contract Act and entitled to be indemnified for the consequences of all lawful acts done by him But the plaintiff, under the agreement, was to purchase yarn from others and sell it to consumers in Assam The utmost he can claim is that he entered into a transaction of sale with John & Co at the bidding of the Government of Assam. But there was no undertaking by that Government, either under the agreement exhibit C-1 or any other to indemnify the plaintiff against loss. 10. After a careful analysis of the agreement Exhibit C, I am of the opinion that it is really a license conferring upon the plaintiff the exclusive right to purchase yarn and sell it to consumers within the province of Assam. Though the plaintiff is called an agent, he was no more an agent in law than a licensee under a permit to sell intoxicating liquor subject to terms and conditions specified in the permit. Here a representative character would be required for him to be an agent which is absent. 4. Unit Trust Of India vs Ravinder Kumar Shukla The Appellant is a statutory corporation established under Section 3 of the UTI Act, 1963. As part of its activities the Appellants float various schemes. Under the various schemes from time to time, the Appellant issue cheques towards maturity amount of the units purchased and/or towards repurchase value. It appears that the Appellant normally draw Account Payee, Non-transferable and Not Negotiable cheques and send them to the payee by registered post.The Appellant started receiving a large number of complaints from unit holders alleging non-receipt of the cheques. In all 1600 unit holders had not received cheques of the value of app. Rs. 3 Crores 35 lakhs. All these cheques were intercepted, new accounts opened in Banks/Post Offices in the names of payees of the cheques and thereafter the moneis were withdrawn leaving a minimum balance in the accounts. In respect of this colossal fraud, F.I.Rs. have been lodged, investigations and prosecution are in progress. The question before this Court is whether the loss is to be borne by the unit holder payee and/or by the Appellant. The answer to this question would depend on whether the post office was acting as an agent of the unit holder and/or the Appellant. Thus the law is that in the absence of any contract or request from the payee, mere posting would not amount to payment. In cases where there is no contract or request, either express or implied, the post office would continue to act as the agent of the drawer. In that case the loss is of the drawer. (drawer here is the appellant) any proof of any contract that the amounts could be sent by post or any proof that any request had been made by any of the payees that the amount be sent by post. Mr. Bhat was also asked whether there was any proof of any practice from which it can be implied that the payee had requested/consented to have the cheques sent by post, since the prrof of such a contract could not be established. Appellant/ drawer held liable.