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Analysing the Essentials required for the creation of an Agent and Principal Relationship

Contractual relationship of Agency is dependent on the principle that a single individual cannot carry out all transactions and thus he can assign someone else to perform to act on his behalf. The main terms of �agent� and �principal� have defined clearly in Section 182 of the Indian Contract Act, 1872. Agent refers to an individual who assigned to perform any given act for another or to represent another in dealing with the third persons and for whom the said act is done or who is represented is called the principal.

Meaning of agency had been elaborated in P. Krishna Bhatta v. Mundila Ganapathi Bhatta [1] by Ramaswami J. of the Madras High Court. There are two methods to create an agency and they are: �Express Agency� in which �one can enter into the contract of agency through an express an agreement, i.e., oral or written. The other is �Implied Agency� in which it is not clearly or directly mentioned but is implied by �method of conduction, circumstances of the parties and as the need may arise.�

Furthermore, a test is presently known as:
Test of determining the existence of agency relationship[2]

Which means that �agency relies on the kind of relationship formed.� The mere usage of the terms such as �agency agreement� and �agent� by the parties in a contract does not by default formulate a legal bond of the agency. Thus, there exist certain essential terms[3] which must be met in order for an agency relationship to be formed. They are the �competency of the agency principal to enter into said contract� and �agent need not necessarily be competent� and �consideration for an appointment is not necessary.�

The agency contract bases itself on the legal principle qui facit per alium facit per se, which translates to "He who performs a task through other acts himself." It is a basic legal principle of agency law. It is a well-known maxim when addressing the vicarious responsibility of an employer for an employee's behavior."

Agency Principal Should Be Competent To Contract But Agent Need Not Be Competent

An agent which is a contract of employment develops a legal connection linking the �Principal� and a �Third party� and for this, the first requirement is a competent nature of the principal. As stated under Section 183 of the Indian Contracts Act, the first requirement is that of Majority, that is, the principal must have attained the age of majority, under the relevant laws. Secondly, there must be a presence of sound mind, that is a principal must be of sound mind which implies sanity and rationality of mind, at least at the moment of appointing the agent.

As a result, no person of the age of minority can appoint or employ an agent according to the law to which he is subject. The designation of an agent requires the formation of a contract, and an agreement entered into by a person who is a minor is void at the onset of it. Putting more emphasis on this said principle, in �Shephard v. Cartwright�[4] an infant cannot appoint an agent to act on his behalf neither by �means of power of attorney,� nor even through other possible methods.

However, in a case, if he does attempt to appoint an agent, in addition to this said appointment being void, everything which was carried out by the appointed agent on behalf of the infant is also �considered to be void and incapable of ratification.� It is understood that a minor fails to have the required ability to exercise discernment to appoint an agent to act on his behalf. The law believes that the person who hasn�t attained majority will in all likelihood choose wrongly and thus declares him to be incapable of making a choice for an agent for himself at all.

However, there arise certain conditions in which a minor is considered capable of entering into a binding contract, he may assign an agent to contract on his behalf. �Anything an individual is capable of doing by himself can be via an agent.� [5]

In addition, �There is no such thing in the Act that can prevent the caretaker of a person of the minority from assigning an agent for him.� From the case, �Madanlal Dhariwal v. Bherulal,�[6] only the legal caretaker can ensure the wellness of the property of the minor for the goodness and betterment of his property, activities carried out through a de facto guardian in absence of required permitted legal authorities are not acceptable.

In a situation wherein the principal-agent had carried out a �power of attorney� grows aged, feeble, mentally incapable and no longer in a state to reason and think on his own, it was decided that the said �power of attorney� has no significance as the one who held it was not capable to give evidence on behalf of the principal. As a result, �this concept of agent assignment does not apply to actions of a personal nature or where it is annexed to a public office or to an office involving some guardian duty.�

On the other hand, �Agent need not be competent� Section 184 [7] of the Indian Contracts Act, 1872, as in the middle of the Principal and third parties, whoever holds relevance to take up the responsibility of an agent provided he has attained the given age of Majority and is mentally sound. This strives to ensure that this person will maintain a responsible and mature relationship with the principal pertaining to the provisions agreed upon in the contract signed between them. The agent is obligated to carry out his principal's business and tasks in accordance with the directions provided to him, or in the absence of such directions, in accordance with the norm that prevails in doing similar business at the location where the agent conducts such said business.

An agent bears no individual liability all by himself contracting for his principal and hence it is not important and also irrelevant whether he is competent to contract or not.[8] Hence, one can enter a contractual relationship via a minor agent, but the minor won�t be accountable to the principal.

Consideration Is Not Necessary But Consent For Creation Of Agency Is

According to Section 185 [9] of Indian Contracts Act, 1872, "To establish an organization, no thought is required." The ideology that the principal has decided to be represented by the agent is enough of a 'discrimination' against the principal to justify the agency contract. Only after the principal has given their personal consent to be represented by the said agent, and under no circumstances before that. Hence, it is not required for there to be an additional separate consideration.

When A hires B as his agent, for example, A takes a loss because his affairs are entrusted to B's care. As a result, no additional consideration in the form of remuneration is required. As a result, a gratuitous agency contract will exist, and a gratuitous agent would be as bound by his contract as a paid agent.

There are three prominent ways of the creation of agency: 1. Agency by Express Appointment 2. By the conduct or situation of the parties 3. By necessity of the case and 4. By subsequent ratification of an unauthorized act. As expressed by Desai J of the Supreme Court: �The relation of the agency is given birth whenever one person called the agent holds the power to act on behalf of another called the principal and consents so to act.� [10]

In case of �Express appointment� a person of sound mind is capable of appointing an agent and such said appointment may be expressed in writing or it may be oral in nature. [11] No one may turn into the agent of someone else without his will that is his given consent for the same. In every case, the agency may be created only after getting the consent or will of the employer.

Implied agencies are given birth from the �conduct, situation or relationship of parties.� In a case when an individual is put in such a circumstance in which the other is understood to act on his behalf, he becomes an implied agent with no statements against the same. And in the case of �Estoppel� a principal by �task based on his own will� placed an agent in such a situation that a �person or ordinary prudence and rationality is right in assuming that such agent holds the power for carrying out certain task also thus handles the agent, the principal is estopped as against such third person from refusing to perform the agent�s work.�

When the necessity arises, [12]which is considered to be an extraordinary situation or emergency herein an individual whoever is an the agent may from said pressing emergencies of the case, be legally right in taking hold of special abilities and in these circumstances tasks performed by him will be binding on his �Principal.�

Contract of Agency is formed when an individual known as the Agent holds the power to act on behalf of another individual known as the Principal who appoints him based on his will and consent for the same. This relationship can be established �by expressed appointment, by conduct, by necessity, or by subsequent ratification of an unauthorized act.�
In order to form a relationship of agency in the legal sense, certain essentials are to be ensured.

These are that the Agency Principal must be competent to contract and having attained the age of majority is able to ably choose an Agent to act on his behalf. In addition, it is not necessary for the Agent to be competent but must not be a minor.

Through whichever prescribed method the agency is created, it must be based on will and consent as it is essential for its formation. Also, as per Section 185, �Consideration is not necessary.� The fact that the principal has not denied being acted for by the agent is an adequate 'detriment' against the principal to justify the agency contract, and thus no additional consideration will be needed.

Suggestions would be as follows so as to not assume or without knowledge of all required essentials that a certain relationship between a �Principal� and �Agent� is that of Agency or not. All the essentials must be met in the legal sense in order to ensure that there is the establishment of a contract of agency but even in the absence of a single essential, it will fail to be an agency.

  1. AIR 1955 Mad 648, 651.
  3. Avtar Singh, Contract and Specific Relief, 12th edition, 740-746.
  4. 1953 Ch 728, 755: (1953) 1 WLR 460 (CA).
  5. Powell, THE LAW OF AGENCY (1952) 242, citing Beaven v. Webb, (1901) 2 Ch 59, 77.
  6. AIR 1965 Mys 272.
  7. Avtar Singh, Contract and Specific Relief, 12th edition, 740-746
  8. L.C. De Souza, re, AIR 1932 All 374.
  10. Syed Ram v. Tulsi Ram, (1927) 26 All L J 81, per SEN J at p. 82.
  11. Delhasse, ex p, (1878) LR 7 Ch D 511.
  12. On Agency (9th Edn) S. 141 as cited by McCARDIE J in Prager v. Blastpiel Stamp & Heacock Ltd, (1924) 1 KB 566, 571.

    Award Winning Article Is Written By: Ms.Vibhuti Rao
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