Essentials and Modes of Creation of Agency
Introduction
A valid contract of agency requires certain basic conditions to be fulfilled. These essentials ensure that the relationship between principal and agent is legally binding. The Indian Contract Act, 1872 also provides different ways in which an agency can be created.
Meaning / Definition
Essentials of agency are the legal requirements that must exist for a valid relationship between principal and agent. Modes of creation refer to the different ways in which such a relationship can arise.
Modes or Types
Essentials of Agency
Competency of Principal (Section 183)
The principal must:
- be of the age of majority, and
- be of sound mind
Only such a person can appoint an agent because the agent creates legal relations with third parties on behalf of the principal.
Capacity of Agent (Section 184)
- Any person can act as an agent
- Even a minor or person of unsound mind can act as an agent
However, such an agent:
- can bind the principal with third parties, but
- is not personally liable to the principal
No consideration required (Section 185)
No payment or benefit is needed to create an agency.
The principal’s acceptance of liability for agent’s acts is sufficient.
Creation without formal contract
Agency can arise even without a formal agreement.
It is enough if one person acts for another and the other accepts it.
Modes of Creation of Agency
By express authority (Section 187)
Authority is given clearly by:
- spoken words, or
- written words
Example: Power of Attorney (a legal document giving authority)
By implied authority (Section 187)
Authority is inferred from:
- conduct (behaviour), or
- circumstances of the case
Agent can do all lawful acts necessary to complete the task.
By necessity (emergency)
In urgent situations, a person may act as an agent to protect the principal’s interests.
By estoppel
If the principal’s conduct makes others believe that a person is his agent, he cannot later deny it.
By ratification
If a person acts without authority, the principal can later approve (accept) the act.
This approval makes the act valid from the beginning.
By presumption (relationship)
Certain relationships automatically create agency, such as:
- husband and wife (in some situations)
Important Case Law
Mahendra Pratap Singh v Padam Kumar Devi (1993)
Power of attorney becomes invalid if the principal later becomes mentally incapable.
Madanlal Dhariwal v Bherulal (1965)
A minor cannot appoint an agent, but a guardian can appoint an agent on behalf of the minor.
Distinction / Comparison
Capacity of Principal vs Agent
| Basis | Principal | Agent |
|---|---|---|
| Age requirement | Must be major | Any person can be agent |
| Mental capacity | Must be of sound mind | May be unsound |
| Liability | Fully liable | Minor agent not liable |
Practical Example
A gives B authority to sell his car.
- If authority is given in writing → Express agency
- If B sells car based on past practice → Implied agency
- If B sells without authority but A later accepts → Ratification
Summary
- Principal must be major and of sound mind
- Any person can act as agent but may not be liable
- No consideration is required to create agency
- Agency can exist without formal contract
- Modes include express, implied, necessity, estoppel, ratification, and presumption
- Agent’s acts bind the principal if within authority