Contract of agency and its elements

Contract of agency and its elements

The contract of agency is a type of contract in which there is two party a principal and an agent, the agent act as the representative of the principle and deal with the business to create contractual relations between the other and the third party. An agency maybe created to perform any act which the creator of agency himself could lawfully do. The consideration is not an essential criterion to form an agency agreement.

The Indian contract act 1872 defines the agent and principal as “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 completed, or who is so represented, is known the Principal.”

The contract created between principal and the agent is known as the agency or agency agreement.  In the contract of agency an agent is appointed by the principal and on his behalf the agent takes care of all the contractual obligations.

For example, A is a big business tycoon and he has lot of contractual obligations to fulfill, therefore, to handle this he appoints B as his agent to look after all these works. Here B has the power to act as the agent of A on his behalf and perform his work in his place.

Types of agency contract

  1. Express agency
  2. Implied agency

Express agency

The contract of agency can be made in both the ways orally and written. The example of written agency is power of attorney, which gives the right to an agency to act on the behalf of the principal as per the terms and condition in the agreement. A power of attorney can be general or giving many powers to the agent or some special powers, giving authority to the agent for transacting a single act.

Implied agency

Implied agency arises when there is situation of the parties or any conduct which is necessary for the case. These authorities are not in written or expressed form, but the agent here assumes that he has the power to act on behalf of his agent. For example, you go to a restaurant with your family the waiter tells you that if you order any combo you will get ice cream free with it, here the waiter is acting on behalf of the restaurant owner and he assumes that he has the authority to inform the customers about the offer, which in true sense he has. Implied agency has two types which are

  • Agency by estoppel
  • Wife as an agent
  • Agency of Necessity
  • Agency by Ratification

Agency by estoppel

The agency by estoppel is defined under section 237 of Indian contract act which states that “When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent’s authority”.

For example, “A” a person is showing that B is acting as his authorized agent and approves all the actions taken by B. So in case B does any agreement with ant third party which A doesn’t like or approve of then A will be estopped from denying the agency that he has with B and the agreement made by B on behalf of A with the third party will be valid.

Wife as an agent  

In case where wife and husband lives together which is very common in the entire world the law presumes that the wife has the authority and consent of husband to act on his behalf, like in the case of his credit for the purchase of essentials. But the law also provides some exceptions when the husband shows that

  • He has strictly restrained or warned the salesman not to provide goods to his wife on credit.
  • He has instructed his wife not to use his credit.
  • He has already fulfilled the requirement of the items purchased by his wife on his credit.
  • He already gives his wife sufficient allowance.

Agency of Necessity

In certain cases where there is an emergency or necessity, the person to whom the agency is entrusted may have to go through certain expenses which may be unauthorized but to protect the property, the expense is necessary, and the principle has to pay the expenses that the agent has incurred and he is bound by the law to do it, these kind of agency is called agency of necessity.

For example A is neighbor of B, and has a dog as his pet suddenly one day in an emergency A has to go outstation and he cannot leave his dog alone at home so he asked B to take care of his dog B agreed but A took  days to return and during this this time the dog fell ill and for the treatment B made an expenditure of Rs. 5000. Here in this case even though A has not instructed B to take his dog to the doctor, B has done this as this was the case of emergency. A will have to pay the sum of Rs. 5000 to B.

Agency by Ratification

Agency of rectification is defined from the section 169-200 in the Indian contract act, in case where a person doesn’t has the authority to act as an agent and he acts beyond his authority, in certain circumstances the principal is not bound by the contract with the agent in respect of such authority. But the principal has the option to ratify the contract made by the agent and

These are the essentials of Contract of Agency which are given below:

  • Agreement- There shall be an agreement between the principal and agent.
  • Consideration not necessary- The contract shall be with or without consideration.
  • Intention to Act on behalf of the principal accept the liability- There shall be an intention of the agent to act on behalf of the principal. When the agent enters into a contract for himself, then the principal will not be liable.

Author: Rohit Soni,
NMIMS Kirit P Mehta School of Law, First year student

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