Contract of Agency

Contract of Agency

Contract of agency is a special contract provided under Chapter X and sections 182 to 238 of the Indian Contract Act, 1872. The contract of agency is a legal relationship where one person appoints the person to perform the transactions on his behalf. This is called a contract of agency in contract law.

Agency Meaning in Law

Agency is a relationship between two persons (where one is the principal and another is the agent) to act on behalf of the other individual. There are two parties in a contract of agency i.e. principal and agent.

In simple words, in the law agency, two persons enter into a contract where one is the principal and another is the agent, therefore, the duty of the agent is to work on behalf of the principal.

As indicated by the Indian Contract Act, 1872, the legal agency is a contract by which an individual utilizes someone else to do any act for himself or to address him managing a third individual.

Definition of Agency

Definition of Agency can be defined as the relationship between two persons, wherein a person has the authority to act on behalf of another person, and bind him into a legal relationship with the third party.

The agent and principal in contract law have been provided under section 182 of the Indian Contract Act, 1872.

As per the Black Law’s Dictionary, Agency is a cycle of assigning the authority by a principal to the agent to act and address for his sake. The act done by an agent is not the act of the agent but is viewed as the act of the principal.

Explanation

In the contract of agency, the principal employs an agent on his behalf to represent him before a third person or work on his behalf with or without consideration to the agent. This is a contract of agency.

It is also important that the agent shall act as per the directions and instructions of the principal. If the act done by the agent is against the directions and instructions of the principal, then the principal shall not be responsible for such an act of an agent.

Who is an Agent?

An agent is defined under section 182 of the Contract Act, as “An agent is a person who employed to do any act for another person or to represent another in dealings with the third persons is an Agent.”

Who is a Principal?

A principal has been defined under section 182 of the Contract Act as “When an employed person (agent) do any act or represent on behalf of the other person, whom such act is done or who is so represented is called as the Principal.”

Who may Employ an Agent?

As per section 183 of the Indian Contract Act, 1872, any person who is an eligible or competent party to the contract, who is of the age of majority according to the law to which he is subject, and who is of sound mind my employ as an agent. Therefore, minors, unsound mind persons cannot employ an agent.

Who may be an Agent?

As per section 184 of the Indian Contract Act, 1872, as between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and sound mind can become an agent, so as to responsible to this principal according to the provisions is that behalf herein contained. Therefore, minors, unsound mind persons cannot be an agent.

Essential Elements of Contract of Agency

The contract of the agency becomes valid when it fulfils all the essential elements given below;

• Competency of the Principal
• Competency of an Agent
• Consideration not Necessary
• Intention to Act on behalf of the Principal
• Legal Binding

Competency of the Principal

The competency of the principal has been provided under section 183 and section 10 of the Indian Contract Act, 1872. The conditions laid down under section 10 of the said act are the essential elements of a valid contract. Therefore, these conditions are seen under section 183 of the said Act.

The conditions for the competency of the principal as per sections 183 and 10 are given below;

The Majority – The principal who is a party in the contract of the agency must have attained the age of majority i.e. the principal must complete at least eighteen years of age at the time of formation of the contract law agency.

Sound mind – The principal who is a party in the contract of the agency must be a sound mind person.

Here, the basic rule is that the principal who is a contracting party should be capable of performing the obligations in law which are agreed upon by the contracting parties while the formation of the contract of agency.

Therefore, any appointment of an agent by a minor or unsound mind person is explicitly declared to be null and void.

Competency of the Agent

The competency of an agent has been provided under section 184 of the Indian Contract Act, 1872. It is provided that as between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and sound mind can become an agent, so as to be responsible to this principal according to the provisions in that behalf herein contained.

Therefore, any appointment of an agent who is a minor or unsound mind person is explicitly declared to be null and void.

Consideration not Necessary

According to section 185 of the Indian Contract Act, 1872, no consideration is necessary to create an agency. Therefore, consideration is not an essential element for the creation of an agency, hence, it is the condition or essential element that there is no consideration is required to be presented while the formation of the contract of agency.

Intention to Act on behalf of Principal

The essential element for the creation of a contract of agency is that an intention must be there to act on behalf of the principal.

Legal Binding

Another essential element for the creation of a contract of agency is that the principal is legally bound to the acts done by the agent on behalf of the principal in the same manner as he has done that act himself.

FAQ

Conclusion

Contract of agency has been clearly established by the law of contracts, any person who shall represent any other person on his behalf, in his authority, with the capacity to bind that person into a legal relationship is entitled to be called an agent, with the person to whom he represents is called as the principal.

Referred Books:

• Law of Contract – Bare Act 2021 Edition Professional
• The Indian Contract Act 1872 Bare Act 2021 Edition
• Law of Contract & Specific Relief Dr Avtar Singh Latest Edition-2020
• Pollock & Mulla – The Indian Contract Act, 1872
• CONTRACT Paper  I – By R.K. Bangia [Edtion 2019 – 2020]
• CONTRACT Paper-II – By R. K. Bangia
• NOTES ON INDIAN CONTRACT ACT 1872: BEST NOTES FOR LAW STUDENTS