Principal and Agent 1

Principal And Agent- Section 182 of the Indian Contract Act defines the two main parties which exist in a Contract of agency that is principal and agent .

An agent is a person who is employed to do any act or to represent another in dealings with third person. A principal according to Section 182 is a person for whom such an act is done and he is represented by his agent.

The essence of the matter is that principal authorized the of the matter is that principal authorized the agent to represent or act for him in bringing the principal into contractual relation with a third person. The concept of agency has been explained by Justice Ramaswamy as a domestic servant renders to his master a personal service, a person may till another yield or tend his plough or work in his shop or factory, one may act for another in aiding the performance of his legal or contractual obligation of third person, he may be called an agent .


The test for determining the existence of agency has been explained by Justice Dhawan of the Allahabad High Court as follows-

1) Agency depends on true nature of relationships. It has been held in several decisions that the terms such as agency agreement and agent by the parties in a contract do not always establish a relationship of agency in legal sense. If the relationship as disclosed by the evidence does not justify a finding of agency and that the court must examine the true nature of the relationship and the functions and responsibilities of the agent.

Agency refers to the understanding of the true nature of parties of the contract and the functions and responsibilities as a principal or agent.


An agency being a contract of employment to bring the principal into legal relations with a third party following are the essential conditions-

1) Who may employ an agent (Section 183)

Section 183 states that any person who is a major and of sound mind may employ an agent or in simple words can be referred to as the principal. It follows that a minor cannot appoint an agent because such an appointment involves a contract and the Indian Contract Act clearly states that a minor’s agreement is void.

An infant cannot appoint an agent to act for him neither by means of a power of attorney nor by any other means. An infant cannot appoint an agent to act for him neither by means of a power of attorney nor by any other means. An infant is not permitted by the law to engage into a contract.

But where a principal who had executed a power of attorney has become very old, weak, and mentally infirm and is not in a position to think independently. It has been held by the court that the power of attorney in such a case becomes worthless as the principal is unable to give instructions because of his mental infirmity and that of power of attorney holder. Power of Attorney Holder becomes no longer competent to give evidence before the Court on behalf of the principal.

The principal that every person has the right to appoint an agent for any purpose does not apply where the act to be performed is personal in character or when it is annexed to a public office or to an office involving any feudatory obligation.

2) Who May be an Agent (Section 184)- Section 184 of the Indian Contract Act defines the conditions for becoming an agent and it states apart from principal and the third person, any person can become an agent but that person should be of majority of age and should be of sound mind so as to be responsible to his principal according to the provision in that behalf therein contained.

Section 184 lays down very clearly ‘’As between the principal and third person any person may become an agent.’’ Ordinarily an agent incurs no personal liability while contracting for his principal and therefore, it is not necessary that he should be competent to contract thus a person may contract to a minor agent, but the minor will not be responsible to his principal.

In the days when married women were not allowed to enter into a contract they could none the fewer acts as agents. Company may act as an agent beyond its capacity.

3) Consideration Not Necessary – Section 185 of the Indian Contract Act states that a consideration is not a necessary to create a contract of agency. Section 185 provides that no consideration is necessary. Generally an agent is remunerated by way of commission for services rendered but no consideration is immediately necessary at the time of the appointment of agency.

4) Types of Agency- Agents are of several types

The description ‘’agent’’ is often employed in business in a complementary and not in a legal sense, thus one can hear terms such as private agent, secret agent etc.

a) FACTOR- The word factor is used in India to refer to an agent entrusted with the possession of goods for the purpose of selling them. Hence he may also be called as a mercantile agent whose ordinary course of business is to dispose off the goods of which he is entrusted with the possession or controlled by the principal.

b) BROKER- Broker is also a kind of a mercantile agent. He is appointed to negotiate and make contract for the sell or purchase of property on behalf of his principal but he is not given the possession of the goods.

 c) DEL CREDERE AGENT- In ordinary cases the only function of an agent is to affect a contract between his principal and the third party. The agent drops out. He can neither sue on the contract nor is he held liable for the failure of the third party to perform but where an agent undertakes, on the payment of such extra commission, to be liable to the principal for the failure of the third party to perform the contract then he is called DEL CREDERE AGENT and his extra commission for the guarantee is known as DEL CREDERE COMMISSION.

The nature of liability incurred by a DEL CREDERE AGENT has been explained by the Allahabad High Court as follows-

A DEL CREDERE AGENT incurs only a secondary liability towards the principal. His legal possession is partly that of an insurer and partly that of a surety. For the parties with whom he deals to the extent of any default by reason of insolvency or something equivalent. His liability does not go to the extent of making him responsible to the principal where there can be low profits by reason of any stringency in the market. A DEL CREDERE AGENT is however not liable to the buyer for any default on the part of the principal.

Nor he is liable for any dispute between the principal and the buyer relating to the contract or the summary.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

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You may also like to read:

License and Easement in Property Law – 1

License and Easement in Property Law – 2

Basics of Company Law


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