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PROF.JAVAID TALIB
DEPT.OF LAW,AMU
STUDY MATERIAL
LLM . IV SEMESTER
LAW OF CONTRACT –II
UNIT – III
1.NATURE OF AGENCY
Introduction
In India, the agent and principle share a relationship that is contractual in nature, and therefore it
is governed by the terms and conditions of the contract between them. Chapter X of the Indian
Contract Act, 1872 provides the basic structure of rules and regulations that basically govern the
performance and formation of any type of contract including the agency contract. In agency
contracts, there exists a legal relationship between two people whereby one person acts on
behalf of the other. The person acting on behalf of the other is called an agent, and the person
from whom the agent derives authority to act is called the principal. The law of agency is based
on the Latin maxim “qui facit per alium, facit per se,” which means, “he who acts through
another is deemed in law to do it himself“[i]. Agent and principal are defined under Section
182 of the Indian Contract Act, 1872. According to the section “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 the principal”.[ii] The competent agent
is legally capable of acting for the principal vis-à-vis the third party. Now who can become an
agent? Section 184 answers this question. According to this section any person can become an
agent i.e. there is no need to have a contractual capacity to become an agent. Therefore, a minor
can also act as an agent. But the minor will not be responsible to his principal.[iii] Different
types of commercial agents have been identified under Indian law like brokers, auctioneers, del
credere agents, persons entrusted with money for obtaining sales and insurance agents.
Meaning of Agency
Section 182 of the Indian Contract Act defines an “agent” as a person employed to do any act for
another or to represent another in dealing with a third person. The person for whom such act is
done, or who is so represented, is called the “principal”. Chapter 10 of the Indian Contract Act
PROF.JAVAID TALIB
DEPT.OF LAW,AMU
deals with the rights and liabilities and duties of principal and agent inter se as well as those of
third parties. In an agency one person (principal) employs another person (agent) to represent
him or to act on his behalf, in dealing with the third person. If an agent has been duly authorized
to do an act on behalf of the principal, the principal is bound by such act with the third party as if
the principal had done the act himself.
Agent and Principal Defined
According to S. 182 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'.
Essentials of Agency
1. Principal must be competent to contract-S. 183 lays down that, Any person who is of the
age of majority according to the law to which he is subject, and who is of sound mind, may.
employ. an agent." Thus, it follows from S 183 that a minor cannot appoint an agent to act for
himself. The appointment of an agent involves a contract and a minor‟s contract is void. Thus, it
is clear that a minor himself cannot employ an agent and the appointment of an agent by a minor
will be void. Thus, an agent may be appointed only by a person who is competent to Contract.
2. Agent need not be competent-S. 184 clearly provides 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 of sound mind can become an agent, so as to be responsible to his principle.
3. No consideration is necessary to create an agency- S. 185 provides “ no consideration is
necessary to create agency.” Although an agent is generally remunerated by way of commission
for services rendered yet no consideration is immediately necessary at the time of his
appointment.
Different Kinds of Agents
Depending on the kind of authority given to the agent to act on behalf of the principal, the agents
are of the various kinds.
1. Auctioneers –
PROF.JAVAID TALIB
DEPT.OF LAW,AMU
An auctioneer is an agent whose business is to sell goods or other property by public
auction, i.e., by open sale. An auctioneer is a mercantile agent within the meaning of
Section 2(9) the Sale of Goods Act. He only has the authority to sell goods and not to give
warranties on behalf of the seller, unless expressly authorized in that behalf.
2. Factors –
A factor is also a mercantile agent who is entrusted with the possession of the goods for
the purpose of sale. He has the power to sell goods on credit and also to receive the price
from the buyer. A factor has the right of general lien over the goods belonging to his
principal, which are in his possession, for the general balance of the account.
3. Brokers –
A broker is an agent who has an authority to negotiate the sale or purchase of goods on
behalf of his principal, with a third person. Unlike factor, he himself has no possession of
the goods. He gets his commission whenever any transaction materializes through his
efforts.
4. Del Credere Agents –
He is an exception to the rule that an agent is not answerable to his principal for the failure
of the third party to perform the contract. A del credere agent is a mercantile agent, who, on
payment of some extra commission, known as del credere commission, guarantees the
performance of the contract by the third person. On the failure of the third person to pay,
the principal can make the del credere agent liable.
Some Features of a Contract of Agency
1. The principal should be competent to contract.(Section 183 of the Indian Contract
Act,1872)
Since through an agent, a contract is to be created between the principal and the third
person, it is necessary that both of these parties should be competent to contract. Therefore,
any person who is of the age of majority and of sound mind may employ an agent.
2. The agent may not be competent to contract.
The capacity of the agent could be looked from two angles i.e capacity of the agent to act
on behalf of the principal so as to bind the principal to the third person; and, the capacity of
the agent to bind himself by a contract between himself and the principal. Considering the
first case, Section 184 of the Indian Contract Act provides that, any person can become an
PROF.JAVAID TALIB
DEPT.OF LAW,AMU
agent even though he is not competent to contract. But, in the second case where it is about
the capacity of the agent to bind himself by a contract between himself and the principal, it
is necessary that the agent should be competent to contract. Thus, if an agent is minor,
through him a valid contractual relationship will be created between the principal and the
third person, though such an agent himself will not be responsible for his acts to his
principal.
3. No consideration is necessary to create an agency.
Agent Servant
An agent is authorized to act on behalf of his principal A servant does not have the authority to create
and create contractual obligations between the contractual obligations between the principal and a
principal and a third party. third party.
The principal has the authority to direct the agent as to The master can direct a servant as to what has to be
what he has to do but he cannot direct how it is to be done and also how it should be done
done.
An agent is paid in terms of commission A servant gets his salary or wages.
An agent can work for different principals at the same A servant usually works under one master at a given
time point of time.
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