Essentials of an Agency Contract

 Essentials of an Agency Contract Essentials of an Agency Contract

AGENCY

Agent and Principal defined –  An “agent” is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called “principal”. 

What distinguishes an agent from a person appointed to do an act, is the agent’s representative capacity coupled with a power to affect the legal relations of the principal with third persons.

not to represent another 

Merely because the words agency agreement and agent are mentioned in the contract doesn’t necessarily mean its a contract of agency, especially when the surrounding circumstances and the nature of the relationship as disclosed by evidence does not reveal so. 

A person does not become an agent merely because they give advice in matters of business. 

Essentials of Agency

Principal should be competent to contract 

Section 183) 

Minor cannot employ an agent. Appointment of an agent involves a contract, and a minor’s agreement is void. Neither by power of attorney nor by any other means. Such contract is void and incapable of ratification. 

Nothing in this Act prohibits the guardian of the minor from appointing an agent for her. - Mudanlal Dhariwal v Bherulal AIR 1965 Mys. 272

Where principal who had executed power of attorney became old, weak, mentally infirm and not in a position to think independently, power of attorney dissolves. No longer competent to give evidence on behalf of Principal. - Mahendra Pratap Singh v Padam Kumari Devi AIR 1993 All 143 

Right to appoint agent does not apply when the act to be performed is personal in character or when it is annexed to public office or an office involving fiduciary obligation.

S 184) Who may be an agent – As between Principal and Third party, any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to her principal according to the provisions in that behalf herein contained. 

As between Principal and third parties, agent need not be competent to contract. An agent generally incurs no personal liability while contracting for principal. 

A person may contract through a minor agent, but the minor won’t be held responsible . 

Section- 185

Consideration not necessary – No consideration is necessary to create an agency. 

An Agent is remunerated by way of commission for services rendered, but no consideration is immediately necessary at the time of appointment. 

Agent and Servant – 

In Lakshminarayan Ram Gopal and Sons v Hyderabad Government AIR 1954 SC 364, the difference between a Master-Servant and a Principal -Agent relationship was distinguished. In case of a Master -Servant relationship, the provisions under Agency of the Indian Contract Act 1872 may not apply.

In this case, the Agent acts on behalf of the Principle. Thus there is a capacity to create contractual Obligations. The Agent is not subject to direct control or supervision by Principal. A Principal says what to do. A Master says what and how to do. That is the difference between a Master and a Principal.

A Servant gets  salary or wages. But an Agent gets commission for her services.

A Master is held vicariously liable only if the fault by Servant occurs during the course of employment.

  A Principal is held liable if fault is committed by Agent within the scope of the Principal’s authority. 

A Servant usually serves one master. Agents generally work for multiple principals.

The Court is not bound by terminology of parties, but by substance of relation. It will

Agent and Bailee

Bailee holds goods belongings to bailor. She may become an agent when authorised to dispose of bailor’s goods according to the bailor’s directions in which case the bailor would be the Principal.

Agent may be in possession of principal’s property. To that extent she may also be considered a bailee. 

However, an agent is a representative of the principal with the power to contract on her behalf but the bailee lacks this power, which the the main distinction between a bailee and an agent. 

United Commercial Bank v Hem Chandra Sarkar (1990) 3 SCC 389, 396. - In this case the Banker was authorised to receive goods on behalf of the account holder and to release them in favour of her customers against payment. The Court held that she is not an agent, but a bailee.