Law of Agency

The Law of Agency

 

Law of Agency

The law of agency is governed by Part X of the Contracts Act 1950. An agent is defined as a person employed to do any act for another or represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the “principal”

In other words, agency is the relationship which subsists between the principal and the agent, who has been authorized to act for him or represent him in dealings with others

Thus in agency there are in effect two contracts:-

i. the first made between the principal and the agent from which the agent derives his authority to act for and on behalf of the principal; and
ii. the second, made between the principal and the third party through the work of the agent.

Section 136 CA - Any person who is eighteen years old and above and who is of sound mind may be a principal. As between the principal and third persons, any person may be come an agent, but persons of unsound mind and who are below 18 years of age are not liable towards their principal for acts done by them as agents.

Creation of Agency   

 Like any other contracts, a contract of agency can be expressed or implied for the circumstances and the conduct of the parties. In other words, the authority of an agent may be expressed (given by words spoken or written) or implied (inferred from things spoken or written or from the ordinary course of dealings). 

Agency in Relation to Banking

The law of agency is relevant to bankers because the relation between a banker and a customer is based on agency. Furthermore, bank employees are agents of the bank.

Termination of Agency

Section 154 – 163 of Contract Act 1950 deal with the manner which an agent may be terminated.  

Termination by the Act of Third Party

When both parties agree that the agency shall terminate, the agency is terminated. The principal may revoke the authority of the agent at any time before it has been exercised to bind the principal.

When the agency is for an indefinite period of time, the agent can terminate the agency by giving reasonable notice of termination to the principal - Section 159. 

Termination By Operation of Law 

 An agency may be revoked by operation of law in any of the following circumstances.:-

i. When the contract of agency has been performed
ii. Upon the expiry of the period fixed in the contract
iii. Death of the principal or agent
iv. When the principal or agent become insane
v. When the principal or agent become insolvent
vi. Upon the happening of a event which renders the agency unlawful.