This article is written by Mihuka Singh & this article discusses the Principles & Essentials of Agency Law.

Introduction

Agency law embodies delegation of responsibility, establishing fiduciary obligations that bind agents to act in the best interests of principals. Consent is the foundation of this connection, emphasizing the voluntary character of the parties involved. Control defines the parameters within which agents function, ensuring that their activities are consistent with the best interests of the principal. Agency law is a cornerstone in the intricate web of legal relationships, describing the interplay between principals and agents. This blog post aims to provide a complete introduction of agency law, essentials of the contract of agency, supported by notable case laws that have affected its evolution.

Understanding Agency Law

The legal connection between the principal and the agent is defined under agency law. An "agent" is a person hired to perform any act or to represent another in transactions with third parties, and the principal is the person for whom such an act is performed or who is so represented. The principal gives the agent power to act on their behalf in a variety of capacities, such as making contracts, engaging in agreements, or doing particular tasks. This connection entails fiduciary duties, which require the agent to act in the best interests of the principal.

Principles of Agency

• Consent: The agency relationship is established by mutual consent between the principal and the agent. This consent may be given directly or implicitly through actions and situations.

• Authority: The agent's authority refers to their ability to act on the principal's behalf. It could be actual, implicit, or apparent:

  • Actual authority is officially conferred.

  • Implied authority is reasonably required to carry out the agent's tasks.

  • Apparent authority occurs when a third party reasonably believes the agent has authority.

• Fiduciary duty: Agents have a fiduciary duty to their principals, which requires them to act in the best interests of the principal. This obligation includes loyalty, obedience, and diligence.

Essentials of Contract of Agency

• Competency of Principal: Any person who has reached the age of majority under the applicable legislation and is of sound mind may hire an agent. The age of majority means the principal must have attained the age of majority under the relevant laws. The sound mind means that the principal must be of sound mind at the time of appointing the agent. If a person is of sound mind sometimes and unsound mind at other times, they can appoint the agent when they are of sound mind.

• Competency of Agent: As between the principal and third parties, any individual may become an agent, but no person under the age of majority or of unsound mind may become an agent in order to be responsible to his principal under the conditions set forth. According to the section's general description, any person, including those who may not be competent to contract (minors and persons of unsound mind included), has the capacity to represent and bind their principals in direct and valid contractual relationships.

• Consideration: Creating an agency does not require consideration. However, unless demonstrated otherwise in the contract, these restrictions do not deprive the agent of their legal and reasonable remunerations. These contract act principles are based on Common Law ideologies, which state that no consideration is required to give an individual the authority of an agent, and that neither party is barred from suing the other, whether for negligence on the part of the agent or to recover due compensation from the principal.

Case Laws

• Watteau v Fenwick: 

• Bolton Partners v Lambert: 

• Keighley Maxted and Co. v Durant: 

This case is frequently cited as creating the concept of "apparent authority," where a principal permitted an agent to purchase goods but prohibited them from doing so on credit. The agent defied these orders and purchased items on credit. The court held the principal accountable because of the agent's apparent authority.

A made an offer to B, the managing director of a company, and it was accepted without authority on behalf of the company. A then withdrew his offer and notified the firm, after which the company ratified B's unlawful acceptance. The ratification dated back to the point of acceptance, rendering the withdrawal useless.

Unless there is an agreement or custom to the contrary, an agent's authority expires following the death of the principal. In this situation, the agent continued to act on behalf of the deceased principal despite being unaware of the latter's death. The court decided that the agent's authority expired with the principal's death, underlining the importance of providing timely notice of a principal's death to avoid unforeseen repercussions in ongoing transactions.

Conclusion

Agency law is a vibrant and complex area of law, shaped by a rich tapestry of cases and legal concepts. Agency law is integral to the legal system, shaping relationships, transactions, and contractual agreements. Its principles form a solid foundation for trust, responsibility, and legal clarity in a variety of situations. Understanding the fundamentals of agency law is critical for individuals, corporations, and legal professionals alike, as it allows them to manage the intricacies of relationships with confidence and in accordance with legal norms. Whether in business, real estate, or personal transactions, a thorough understanding of agency law is a crucial advantage in today's connected and legally complex world.

References

• Nitish Thukral, ‘Essentials to the Contract of Agency under Indian Contract Act, 1872’ (IPleaders, 19 March 2020) < https://blog.ipleaders.in/essentials-to-the-contract-of-agency/> accessed 07 January 2024

• [1893] 1 QB 346.

• [1889] 41 CH D 295

• [1901] AC 240.

• Singh, A. (2009) Textbook on Law of Contract and Specific Relief. Lucknow: Eastern Book Co.