Law of Agency

The law or legislation governing the relationship between a person and his agent a person who acts on the other's behalf is known as the law of agency. In other words, the law that regulates interactions between individuals and others who act on their behalf is known as the law of agency. Men have had agency relationships throughout all of recorded history, so it is impossible to overstate the significance of this law.

The agency connection can be traced back to the beginning of time when God created man and appointed him as his agent on earth after creating the world and realizing that he needed someone to act as his representative and reign over it. Men have always needed someone to act on their behalf and even bind them, especially in business dealings, just as even God needed someone to act on his behalf.

What is the Meaning of the Law of Agency?

The legal connection between two parties that delegate to the other the power to act on their behalf is governed by agency law. A person who represents another is referred to as an agent. The principal is the person who delegates authority to the agent.

The relationship between agents, principals, and other parties who work with them is also outlined under agency law. As is discussed below, the principal is bound by and liable for the acts of the agent that are done within the scope of the agent's authority.

It's possible for agencies to exist through almost any kind of connection. A spouse, for instance, can represent their partner. The estate of a deceased person can be represented by a personal representative. An employee may represent their employer in legal matters.

Liability in Agency Relationship

As previously mentioned, agency law regulates interactions between principals, agents, and any third parties they come into contact with in addition to the connection between the principal and agent. When determining business responsibility, this is crucial.

In general, when an agent is acting within the bounds of their authority, the principal is liable for the actions of the agent. Consider the situation where you have a worker who is in charge of employing other people and negotiating their employment agreements. Under agency law, you are accountable for upholding those contracts.

According to a corollary, the contract is yours and not the agent's if they sign it on your behalf. Even if they negotiated and signed the contract, the agent is not bound by its terms.

Example of Law of Agency

Major examples are −

  • Sales representatives: act on behalf of a company to buy or sell items (e.g., a manufacturer's representative, a pharmaceutical representative).

  • Assisting with insurance claims and selling insurance on behalf of an insurance provider are insurance agents.

  • Agents in real estate: they represent buyers and sellers of homes and land

  • Talent agents: represent athletes or artists in contract negotiations (including writers, actors, etc.).

Types of Law of Agency

There are two ways to establish an agency. They may be expressed, as when one person verbally or in writing delegated authority to another. Alternatively, they may be implied, as when one person behaves in a way that makes it appropriate to hold them responsible for the actions of another.

Express Agency

Often, express agencies are established through a verbal or written business agreement. Both the agent and the principal attest to their desire to establish an agency relationship in such a contract.

The extent of the authority that the principal grants the agent may be specified in the contract. For instance, the agent might be given authority over the company's investment portfolio or given management of its real estate holdings by the principal. Similarly, to this, the principal may authorize the agent to sign specific contracts on their behalf.

Implied Agency

The actions of the parties generate implied agencies. With an implied agency, the principal's actions provide the agent with the authority to take any reasonable actions that are required to further the principal's objectives. The conditions suggest (or, more accurately, imply) the extent of the agent's power to act. Due to implied agency, third parties that transact with a company's representatives can feel secure knowing that their agreement is backed by the law.

Essential Features of the Agency

According to the Indian Contract Act of 1872, the principal characteristics that govern the contractual relationship of agency in India are based on the requirement that the principal is competent to contract, even though an agent is exempt from this requirement, and the fact that no consideration is required to establish the contract of agency. It can be as easy as an adult requesting a child to make grocery purchases for them at the store. Even though he lacks the legal capacity to enter into a contract and is not compensated for his or her services, the youngster in this situation acts as the adult's agent.

Competency of the Principal

The Indian Contract Act of 1872 allows anyone to hire an agent and operate as a principal, provided that −

  • He is of the majority age (18 years as per Indian laws)

  • He is mentally sound (sound mind means the person is capable of understanding the terms and conditions of the contract or relationship he is entering into and thus, can take reasonable decisions)

The principal is responsible for any actions taken by the agent while acting in the role of an agent, and he would be subject to the same legal repercussions if he had taken the action himself.

Competency of the Agent

According to the 1872 statute, any individual operating between the principal and third parties may do so as an agent, regardless of age or mental condition.

Because the agent acts on behalf of the principal, who is legally capable of entering into contracts and liable for the consequences of those activities, it is not necessary for the agent to be a competent party to contracts.

Normally, an agent would be responsible to the principal, but if the agent is a minor or is not of sound mind, he is exempt from all obligations and legal ramifications.

Consideration Not Required

No consideration is necessary for the agency contract, as per the provisions of Section 185 of the Indian Contract Act of 1872. The principal and the agent have sole discretion on the clause of consideration. Although the Indian Contract Act of 1872 (Section 217) mentions an agent's right to compensation for his services as well as his right to retain his share of the money received on behalf of the principal in the business with respect to all costs and expenses incurred by him in conducting such business.


The agency agreement serves only as a conduit for communication between the principal and the third party and is founded on consent. Through the use of his specialized abilities, the agent helps the principal carry out duties or effectively represent him in front of third parties, serving as a conduit between the two to ensure a successful transaction. The agency is a worthwhile and necessary endeavor for society.

Frequently Asked Question

Q1. What is the origin of agency law?

Ans. Yet, it wasn't until the 15th and 16th centuries that the idea of the agency began to take shape in Roman law, and it was then that the procurator's actions in relation to these two types of people were gradually acknowledged.

Q2. Why is the law of agency important?

Ans. Not only does agency law enable the delegation of authority, as is frequently claimed, but it also significantly affects creditors' rights through asset division.

Q3. What is a law of agency in ethics?

Ans. The connection between the agent and the principal, as well as their contractual and tort liability to other parties, are governed by the common law of the agency. When the agent consents to act on behalf of another (the principal), as directed by the principal, and with the consent of the principal, an agency relationship is established.

Updated on: 06-Apr-2023


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