Under the umbrella of the Indian Contract Act of 1872, we study few special
contracts. In this paper, we will focus on one such contract, the contract of
agency. Contract of agency is given under chapter 10 of the Indian Contract
Act,1872, defined in sections 182-238. Contract of agency can precisely be
described as a fiduciary relationship between an employer, known as principal
and a person, who is authorised to perform any act or act as a representative
for the principal while dealing with a third party. The contract between them
forms a contract of agency. In the paper, we will study the essentials required
to create a valid contract of agency.
Contract Of Agency
To understand agency, we need to understand the terms agent
which are defined under Section 182 of the Indian Contract Act (referred to as
Act). The employer, who authorises a person to act as his representatives, whose
actions will bind the employer legally with the third party the employee deals
with, is known as the principal. And the person authorised to perform such Act
or act as a representative is known as an agent
The term persons discussed above can be a natural person or a legal person.
Therefore, the term agent can be given to an individual who is a living person
and an imaginary being capable of rights and liabilities as per the law.
The High Court of Madras attempted to clarify the meaning of agency in P.
Krishna Bhatta V. Mundila Ganpathi Bhatta
. In this case, Justice Ramaswami
attempted to explain that any individual acting on behalf of another is not
referred to as an agent in legal terms.
An individual who behaves as another person's representative in business
transactions and negotiations in front of a third party is referred to as an
agent by him. That person may be legally referred to as the representative of
the person for whom he is working.
The definition is wide enough to include a casual employee, or a servant, etc.,
under the category of an agent. Therefore, we need to study the essentials
required for a contract to fall under the scope of an agency contract.
The essentials for the creation of an agency are as follows:
- The principal should be competent to contract
- The agent should be competent to contract
- Consideration not required
- Intention to create a contract
Competency Of Principal
A person competent to contract under section 10 of the Indian Contract Act, 1872
is qualified for the contract of agency. The conditions for the eligibility are
given under section 183 of the Act, which are:
- The person should have attained the age of maturity
- The person should be of sound mind
Competency Of Agent
The eligibility for a person to be an agent is specified under section 184 of
Act 1872. As per the section, any person is eligible to be an agent, but no
person who has either not attained majority or is of unsound mind can be held
responsible for their actions taken against their actions as an agent.
Consideration Not Necessary
According to section 185 of the Act, no consideration is needed to establish an
agency contract. In most cases, an agent is paid by commission for services
rendered, although no payment is required at the time of the appointment.
Intention Of The Agent
There is a necessity for the intention to be present on behalf of the agent to
act as a representative of the principal. And if the agent enters into a
contract with its own beneficiary intention, then the principal is not liable.
- Is a minor competent to behave as an agent and a principal? If yes, to
what extent are they liable?
- Can a contract be considered void against the agent's words? Is explicit
consent necessary for the contract's formation?
Competency Of A Minor
Minor As A Principal
As per section 183 of the Act, only an individual who is of sound mind and is a
major as per the law is competent to employ an agent.
An agent's appointment involves an agreement between the agent and the
principal, and as seen in Mohori Bibee v Dharmodas Ghose, minors agreement
is void ab inito.
In Shephard v Cartwright,
 Lord Denning LJ addressed this definition,
declaring that an infant is incapable of appointing an official to represent him
or by the use of a power of attorney or some other means. He also observed that
if he employs an agent, not only the agreement would be void, but everything
done by the agent on the minor's behalf is also void and incapable of
The reason behind the concept considers whether the infant has sufficient
discretion to choose an agent to act for him. He is declared incapable of
choosing an agent by the law, as he is likely to choose the wrong man.
It is considered that the infant is competent to choose an agent for himself if
he is capable of binding himself by the contract. In essence, it means that
whatever a person can do personally can do through an agent.
However, there are certain expect ions to the rule the minor cannot appoint an
agent. It was held in Madanlal Dhariwal v Bherulal by the High Cout of
Karnataka that a minor's guardian could appoint an agent for him. But only the
natural guardian of the minor can deal with the property of his benefit solely.
Dealing by a de facto guardian without courts permission is void.
Minor As An Agent
As there is ordinarily no liability per se of the agent when the actions
performed are under the agency's scope. Therefore agent need not be competent to
It was held in Mohamedally Ebrahim Pirkhan v Schiller
 that an agent incurs
no liability while contracting for the principal; there, he need not be
competent in the contract.
As stated in Foreman v Great Western Rly Co, an individual may contract
through a minor agent, but the minor is not liable to his principal.
Consent Of The Agent
The agency rule is based on the Latin maxim qui facit per alium, facit per
, which roughly translates to he who acts through another is considered in
law to act for himself
Other circumstances, such as a need, a statutory obligation imposed on an
individual, or other circumstances, which give rise to the contract of the
agency are not always required for the agent to be directly employed by the
principal, and the relationship between the principal and the agent does not
always emerge out of a contractual relationship; other circumstances, such as a
need, a statutory obligation placed on an entity, or other circumstances, which
give rise to the contract of the agency are not always required for the agent to
be directly employed by the principal. Contract of agency can be created through
two modes, namely express agency and implied agency.
An agency can be created by following methods:
- By express or implied contract:
A principal can employ an agent either explicitly or indirectly via a
contract. It is possible for the appointment to be written or oral.
- By the conduct of party or situation:
When one person permits another to act on his behalf to the point that a
third party would reasonably believe the two are in an agency relationship.
- By ratification:
Assent is given to an act performed by someone who did not have prior authorisation to act or action that violated an agent's
- By necessity:
In an emergency, an individual act on behalf of another without their
Though no matter how the contractual relation emerges, it cannot be formed
without the essential element, i.e. consent.
However, we must note that consent does not always have to be explicit. Even if
the 'principal' and 'agent' remain adamant in their refusal to recognise the
agreement, a court of law will presume their consent to form a contractual
obligation if they consented to a situation that created the contractual
principal-agent relationship in some way.
In the case, Eagle Iron Co. v Baugh, it was observed that the declaration
of an agent, who allegedly declares himself to have the authority, is not valid
to prove such authorisation.
An agent's words have been understood to have the same value as the words of a
stranger testifying (under oath) clear facts relating to the entity that he
claims to be real when it comes to parol proof for demonstrating the existence
of agency and establishing authority.
The question raised above holds true in the sense of Indian law. The Indian
Contract Act only specifies a few rules for special agency contracts, which may
be the deciding factor. Even the explanations/principles given are so broad and
general that they apply to all and treat them as agents, regardless of their
intention or intent.
This is perplexing because an agent's idea includes everything from a
multinational employee hired to manage the company's assets to a cobbler hired
to blacken one's shoes beside the driveway.
However, in the Indian context, a simple testcan be used to determine
whether the contractual contract of agency exists, i.e. specific conditions have
been established by the High Court of Patna, which can be used to search for the
presence of an agency if necessary.
- If the agent can work on behalf of the principal, that is, if he intends
to engage in transactions on the principal's behalf.
- If he has the power to enter into, change, or terminate contractual
relationships with third parties on behalf of the principal
And if these conditions are met, it is reasonable to conclude that the two
parties have entered into a contractual arrangement in which one has agreed to
represent the other. In contrast, the other has been granted authority to do so
and subsequently bind him into fiduciary relationships with third parties.
Loopholes In The Contract Of Agency
The Indian Contract Act, 1872 defines agency and the essentials for its
creation, but it is not exhaustive. In essence, an agency is a contract between
an employer and an agent, where the agent performs on behalf of the principal
and is not liable for such actions.
The essentials for creating agency creation are not exhaustive, as we discussed
the concept regarding the minors liability. As discussed, ordinarily, the agent
is not liable; hence a minor can be an agent, but in situations where the agent
is liable, the Indian Contract Act does not talk about the minor's liability in
As discussed, the agent's consent is ambiguous, as the consent of the agent is
necessary at the time of the contract, that the agent has consented to act on
behalf of the principal. But the consent is not required for the creation of the
contract. Chapter 10 of the Act talks about the concept of Agency with the
addition of few other concepts, which combine when we discuss the agency.
The Indian contract act, 1872, describes the agency as a fiduciary relationship
between an agent and a principal, where the agent deals on behalf of the
principal. An agent is a person who represents another person under his control
and has the authority to bind that person into a binding legal relationship.
has been identified, the individual he represents is regarded as the principal.
The principal is bound by his agent's actions and may profit from them as if he
had done them himself. For all legal purposes, the agent's actions are deemed to
be the behaviour of the principal.
The essentials for the formation of such an agency have been discussed in the
paper above. As with most items that a person encounters daily, it becomes so
routine that he overlooks its complexity. However, as a contract or employment
law, the agency is considered a core part of an individual's legal professional
life engaged in a business. This task necessitates a high level of practical
- Avtar Singh, Contract & Specific Relief, 12th edition
- P. Krishna Bhatta V. Mundila Ganpathi Bhatta AIR 1955 Mad 648
- Mohori Bibee v Dharmodas Ghose ILR(1903) 30 Cal. 539 (PC)
- Shephard v Cartwright 1953 Ch 728, 755: (1953) I WLR 460 (CA)
- Powell, THE LAW OF AGENCY (1952) 242
- Madanlal Dhar iwal v Bherulal AIR 1965 Kant 272
- Mohamedally Ebrah im Pirk han v Sch iller, ILR (1889) 13 Bom 470
- Forem an v Great We stern Rly Co, (1878) 38 LT 851
- Eagle Iron Co. v Baugh, 41 South
- State of Bihar v Dukh ulal Das, AIR 1962 Pat 140
Award Winning Article Is Written By: Ms.Falgun Wairya
Authentication No: JL34683829504-05-0721