Faculty of Law

CONTRACT II
Five Year Law
Second Semester
Agency: Lesson-1

Faculty of Law Five Year Law Contract II

 Agency
o Definitions: Agent, Principal, Agency
o Powers of an Agent
o Test of Agency
o Distinction between Agent and servant
o Distinction between Agent and Independent
Contractor

Faculty of Law Five Year Law Contract II

 Agency - The Indian Contract Act, 1872:
Agency signifies a relationship, which exists where one person has an
authority to act on behalf of another occupying the position of principal, to
create legal relationship between him and third parties.

The Indian Contract Act, 1872 makes statutory provisions governing rights
and obligations of the principal and the agent.

Faculty of Law Five Year Law Contract II

 Definitions under Indian Contract Act, 1872:
Agent and Principal:
Section 182 defines “an agent” as 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”.

But every person, who does something for the other is not necessarily an agent, for
example, a contractor employed to carry on some construction work is not necessarily
the agent of the principal. A servant may be technically an agent of the master, but he is
not strictly an agent in as much as he must act entirely under the orders of the master
as to how anything needs to be done. An agent has more authority and independence
to function in comparison to that of a servant.

Faculty of Law Five Year Law Contract II

 Definitions under Indian Contract Act, 1872:
Agency:

An agent is a person, who acts for and on behalf of the principal and under the latter’s
express or implied authority and his acts done within such authority are binding on his
principal and for his such acts, the principal is liable to the party with whom the agent
has dealings as such agent.

The contract which creates the relationship of agent and principal is called an agency.
For example, if Bank of India appoints a company named Galaxy to purchase CCTV
cameras on its behalf, Bank of India is the ‘Principal’, the company Galaxy is the ‘Agent’
and the contract between them is the ‘Agency’.

Faculty of Law Five Year Law Contract II

 “He, who does through another, does by Himself.”
Whatever a person is competent to contract may do by himself, he may do through an
agent, except for acts involving personal skill and qualifications. In fact, where the work
to be done is obviously personal, no agent can be employed. For example, a person
cannot marry through an agent, cannot paint a picture through an agent and so on.

Section 226 provides to the same effect: “ Contracts entered through an agent, and
obligations arising from acts done by an agent, may be enforced in the same manner,
and will have the same legal consequences as if the contracts had been entered into and
the acts done by the principal in person.”

Faculty of Law Five Year Law Contract II

 Powers of an Agent:
An agent has authority to do all acts and things, which are expressly given to him but
he has also implied authority to do all acts which are incidental to the main powers.
Sec. 189 of the Indian Contract Act, 1872 provides that an agent also has powers to do
all acts for the purpose of protecting the principal in emergency as would be done by
a man of prudence in his own case. An agency can be granted orally or through writing
and it can also be created through subsequent ratification of the acts done by one
person for the other.

Faculty of Law Five Year Law Contract II

 Test of Agency
Agency exists ‘whenever a person has the authority to act on behalf of the other and
to create contractual relations between that other and third persons.’

When this kind of power is not enjoyed, the relationship is not one of Agency. Thus, a
person is not an agent merely because he gives another advice in matter of business.
Similarly, a person rendering personal service to his master or working in his factory
cannot be called as an agent, because in these cases he is not acting for another in
dealing with third persons. It is only when one acts as representative of the other in
business dealing to create contractual relations between that other and third persons,
that he is an agent and there is an Agency.

Faculty of Law Five Year Law Contract II

 Distinction between Agent and Servant

A servant acts under the direct control and supervision of his employer, that is, he
must act according to the orders of the master. He does not create relations between
his employer and third persons and cannot bind the master to third parties. If, for
some purpose, he is authorized to bind the master, then to that extent he is an agent.

An agent is not subject to the direct control and supervision of the Principal. He has
often a large discretion to act within the scope of his authority. A ‘principal’ directs the
agent “as to what is to be done” while a ‘master’ has the further right to direct “how
the work is to be done.”

Faculty of Law Five Year Law Contract II

 Distinction between Agent and Independent Contractor
An Independent Contractor is one who is employed to perform certain specified work
but the manner and means of performance are entirely left to his discretion. He is free
to do the specified job independently of the employer’s control and interference. Such
a contractor also differs from an Agent. The main point of distinction is that while the
contractor does not represent his employer in relation to other persons and as such
cannot bind the employer by contracts entered into with others, the agent, on the
other hand, does not represent his employer in relation to other persons and can bind
the employer ( his principal) by contracts entered into with other persons within the
scope of his authority.

Faculty of Law Five Year Law Contract II

 Thank You

Faculty of Law Five Year Law Contract II