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ANALYZING THE PROCESS AND FORMATION OF CONTRACT OF AGENCY

INTRODUCTION

This research attempts to examine how the agency contract is established and formed. Aside from that, it shall examine the stated and implicit forms of Agency contracts.

The existence of a contract of Agency between a husband and a wife, as well as the essential characteristics. The Indian Contract Act, 1872 governs the relationship between agents and principals. These are legally binding and must be followed under special contexts. The "Agent Law'' is a law that defines the conditions for the formation and termination of an agent, the agent's obligations, the person’s, and the agent's liabilities, and so on. The main criteria and regulations to be followed while establishing an agency contract are outlined in Chapter X of the Indian Contract Act of 1872. Almost every trade in the world is undertaken by an agent, thus it is a critical situation to understand the agent's rights. All businesses, large and small, conduct their operations through intermediaries.

Three parties are involved in the principal-agent relationship: the principal, the agent, and a third party. Section 182 of the Indian Contract Act of 1872 defines an agent and a principal, an “agent” is a person engaged to undertake any act for another or to represent another in dealings with third persons. The “principal” is the person for whom such an act is conducted or who is so represented.

In the past, the theory of agency was significantly essential in the common law. The underlined concept was that businessmen should delegate work to their subordinates, i.e., agents, and that this approach is possible not only for major corporations but also for small businesses. The Law of Agency is based on the Latin phrase "quit facit per alium, facit per se," which means that one who acts via another is considered to have attempted to accomplish the deed himself.

The competent agent is de jure capable of acting on behalf of the principal about a third party. Agents go by several titles, such as factor, broker, del credere, and so on. Every individual who acts on behalf of the principal does not become his agent. Domestic servants occasionally execute the actions. There is a distinction between a servant and an agent, and this was underlined in the landmark case of Lakshminarayan Ram Gopal & Sons v Govt of Hyderabad, (1955) 1 SCR 393; AIR 1954 SC 364. A domestic worker essentially conducts daily tasks for the master or offers personal services. However, the agents are engaged to negotiate with third parties on behalf of the principal.


ESSENTIAL CHARACTERISTICS REQUIRED FOR AGENCY

Legal binding

Agency agreements are legally enforceable contracts in which the principal and the agent form a fiduciary relationship.

The essence of the agency contract is that the principal is legally obligated by the acts done by the agent, granting the agent authority to act on the principal's behalf.

Consideration is not mandatory

There is no legal requirement of consideration, to support the relationship between the principal and agent. According to Section 185 of the Indian Contract Act, 1872 consideration is not necessary for the formation of an agency; hence, no consideration is required to be offered. However, unless indicated differently in the contract, these stipulations do not deprive the agent of his lawful and reasonable remunerations.

The contract act principles are rooted in Common Law theories, which specify that no consideration is required to give an individual the authority of an agent, nor does it preclude any of the parties from suing each other, whether for the agent's negligence or the recovery of due compensation from the principal.

Capacity of principal

The ability necessary to appoint an agent is discussed in Section 183 of the Indian Contract Act of 1872. It stipulates that any individual who has reached the legal age of majority and is of sound mind may appoint an agent for the duty. It was also contended that if a minor enters into an agency contract, it is void.

A minor lacks the capacity to contract, as shown in the case of Mohori Bibee v. Dharmodas Ghose, (1903) ILR 30 Cal 539 (PC). An agreement or contract with a minor is void ab initio in India because such persons do not have the legal competence to enter into a contract or agreement. In Shephard v. Cartwright, (1955) AC 431, it was stated that a minor cannot designate an agent, either as an attorney or in any other capacity. And if he does this, the entire contract becomes null and void, and it cannot be ratified. The learned judge provided the explanation for this decision, saying, "To appoint or choose an agent, you need a reasonable competence to do so." However, since he lacks the necessary capacity, a minor is unable to select the appropriate person as his agent.

Capacity of an agent

The conditions for an agent’s competency are outlined in Section 184 of the act, where it is expressly stated that anybody between the principal and the third party may become

an agent, regardless of age or mental capacity. However, until they have reached the age of majority and are of sound mind, they (the agent) may not be accountable to the principal. According to the fundamental description provided under the provision, every person, even those who may not be competent to contract (minors and those of unsound mind included), has to have the competence to represent and bind their principals into direct and legal contractual agreements. The authority to contract is the most fundamental need for being an agent. So, while a minor does not have the competence to act as an agent, he does have the authority to act as an agent.

Authority of an agent

An agent's authority might be an actual authority or ostensible authority. Actual authority can be expressed or implied. According to section 187 of the act, it is "expressed" when it is stated orally or in writing, and it is "implied" when it is determined from the facts and circumstances of the case. In essence, apparent or ostensible authority occurs when the principal leads the third party to believe the agent has authority while, in fact, the agent does not. The agent has the appearance of authority but no actual authority to act on the principal's behalf. This form of contract is nonetheless legally enforceable.


CREATION OF CONTRACT OF AGENCY

Direct/expressed appointment

The direct appointment is the most common method of establishing an agency. When a person designates another person as his agent in writing or orally, an agency relationship is formed between the two.

An express agreement, either oral or written, can be used to engage in an agency contract. The power of attorney is transmitted in the name of the agent in a formal contract of agency, giving him the right and capacity to act on for the principal, in accordance with the terms and conditions established in the contract.

Agency by implication

An agency is formed by implication when an agent is not formally appointed but the appointment may be inferred from the circumstances. As a result, the implied agency is generated by the action of the parties, i.e. principal and agent. When a statement is not expressed explicitly or directly, it is said to be inferred.

Pickering v Busk, (1812) 15 East 38, included a broker who was tasked with purchasing and selling hemp and sold the hemp that the customer entrusted him to retain in his custody. The principal claimed he never authorized the broker to sell the hemp. However, the court determined that the principal is obligated by the sale and receipt of money since he delegated apparent authority to the agent to sell and acquire hemp. In the event of an implied contract of Agency, the apparent authority might be considered an actual authority, and so it is binding on the principal.

Out of Necessity

In an urgent situation, one person can act on behalf of another to rescue the person from loss or injury without being formally authorized as an agent.

Out of necessity, an agency is formed. Certain situations may force the parties to enter into an agency contract. If a person is entrusted with another property or goods, he is expected to take reasonable care of them as well as pay necessary costs to keep and preserve them.

Estoppel

Estoppel can also be used to establish an agency. An agency by estoppel is formed when one person acts in such a way in front of a third person that makes someone believe he is an authorized agent on behalf of someone. Assume a person notifies another person by his actions that a certain person is his agent, and the person who is denoted as an agent is present and listening at the moment when it is implied. Now, suppose the third party believes he is the agent and enters into a contract with that individual.

This is an example of agency by estoppel, in which the agent is prohibited from declining his authority.

By Ratification

A principle may later ratify an act performed on his behalf by a party who acted without his consent or knowledge. If the act is ratified, an agency relationship will be formed, and it will be as if he had previously authorized the person to perform as his agent. Ratification can be expressed (orally or in writing) or implied (by act or conduct).

Exceptions –

1. When the person's understanding of the facts of the situation is faulty. That is, he only understands half of what he is ratifying.

2. An act performed on behalf of another person that would injure or hurt the person or violate any of his rights if performed with his authorization.


CAN THERE BE AN AGENCY BETWEEN A HUSBAND AND WIFE?

In general, there is no agency between a husband and wife, unless it has been expressly or implicitly agreed that either of them would do particular acts or transactions as the agent of the other.

That is, by contract, appointment, or ratification, the two might establish an agency connection. When a husband's mistake causes them to live apart, he is liable for his wife's needs. This creates an agency of necessity in which the woman can use her husband's credit to reimburse for what she requires to live. However, if they are separated for no reason other than the wife's whims or faults, the husband is not obligated for the wife's necessaries.

For example, a wife borrowed money from a friend for personal purposes. The sum is claimed by the friend from the husband. However, because they were both cohabiting and not in a domestic establishment, the husband will not be liable for the sum. As a result, there was no such thing as "necessity." Similarly, in Debenham v. Mellon, (1880) LR 6 AC 24, the court concluded that the husband was not liable for the money obtained by the wife from the tradesman for some apparel since they were both in cohabitation and not in a domestic establishment. Therefore, there was no contract of necessity between the pair.


CONCLUSION

The aspects of the agency contract have been given. It describes the numerous strategies for forming it.

A person who has reached the age of majority and is of sound mind can create an agency contract. To become an agent, no qualifications or competencies are necessary. A contract of agency does not even require consideration. In corporate law, contracts establishing a connection with the agency are fairly prevalent. These can be expressed or implied. An agency is formed when one person delegates power to another, appointing them to execute a certain task or a number of them in specialized areas of work. The formation of a Principal-Agent relationship gives both parties rights and obligations. Insurance agencies, advertising agencies, travel agencies, factors, brokers, del credere agents, and so on are all examples of such a relationship. The Indian Contract Act of 1872 incorporated this fundamental premise.


REFERENCES

https://indiankanoon.org/

https://www.casemine.com/

Contract of Agency Project - Lawordo.com

What is Contract of Agency? definition, characteristics and creation - Business Jargons

Understanding Contract of Agency (legalserviceindia.com)