THE LAW OF AGENCY

Introduction

Modern business is becoming complex day by day. Due to the vast expansion of the modern
business, it is not possible for a person to carry on all the business transactions himself.
Circumstances require a businessman to depend on another person to transact his business. He
must delegate some of his powers to another person.

The person who acts on behalf of another businessman is known as an Agent. The person to
whom such act is done, or who is represented is called the Principal. The contract which creates
the relationship of principal and agent is called Agency.

Agency may be defined as the fudiciary relation which results from the manifestation of consent
by one person to another that the other shall act on his behalf and subject to his control, and
consent by the other so to act. The word manifestation as herein used means the expression of the
will to another.

Rules of Agency

1. Agency exists whenever a person can bind another by acts done on his behalf i.e. when
acted upon by the agent; it connects the principal with third parties. The principal
acquires rights and liabilities and the agent drops out and ceases to be a party to the
contract. The agent acts only as a “conduit pipe”. The acts of the agent are considered the
acts of the principal.
2. Whenever a person can lawfully do himself, he may also do the same through an agent.
In other words “qui facit alium facit perse” is the principal of agency, which means, He
who does through another does by himself. However this rule is subject to certain
exemptions e.g. contracts involving personal services or skill as such as marriage, singing
etc.

Distinction between agency and other relations

Agent Servant
An agent authorized to act on behalf A servant has no representative
of his principal character. He has no authority to
make contract on behalf of his
master
An agent is not subject to the direct A servant acts under the direct
control and supervision of the control and supervision of the
principal master
An agent may work for several A whole time servant serves only
principals the master
The principal directs the agent as to The master has the right to right
what is to be done not only what work is to be done

An agent may be paid by way of
commission on the basis of work
done
The principal is liable for only
those acts of his agent which are
done within the scope of authority
and is not liable for those acts of
agent which are done outside the
scope of such authority
but also how the work is to be
done
A servant is paid by way of salary
or wages
An employer is liable for the
wrongful acts of the servant, if
such acts are committed in the
course of employment

Essentials of Agency

1. The principal must be competent to enter int a valid contract. Competency here means
that the principal must be of the age of majority and be of sound mind. A minor or lunatic
cannot be a principal
2. Any person may become an agent. An agent need not be competent to contract. Even a
person having contractual capacity e.g. a minor or a person of unsound mind may become
an agent. An agent brings about contractual relationship between his principal and third
parties therefore his contractual capacity is immaterial. Incompetent person can be
appointed as agents only at the risk of the principal himself
3. There should be agreement between the principal and the agent. The agreement may be
express of implied
4. The agent must act in a representative capacity. The essence of the matter is that the
principal authorizes the agent to represent or act for him in bringing the principal into
contractual relationship with a third person
5. No consideration i.e. nothing of value is required for the creation of a valid agency
relationship

NB: the agent must give his consent to act on behalf of the principal and once he has given his
consent, then he also accept be under the control and direction of