BUSINESS LAW -1 1. What is contract of agency ?

What is the true

test of agency ? Contract of agency : An agent can bind his principal to a third party In a contract of agency consideration is not necessary. Principal must be competent to contract Agent may not be competent to contract.

An agent can bind his principal to a third

party :

Agent is a person who is a connecting link between the principal and the third parties where the principal becomes answerable to the third parties.

In a contract necessary :

of agency consideration is not

A contract of agency is an exception to the general principal that a contract without consideration is void CONSIDERATION is NECESSARY.

Principal must be competent to contract :

The principal must be competent to contract a principal must not be a minor and un-sound minded person.

Agent may not be competent to contract :

Any person can become an agent therefore a minor or even a person of unsound minded person. Therefore the principal should be a major and a sound minded person only then the can appoint an agent.

TEST of

agency :

Whether the person has the capacity to bind the principal and make him answerable to third

Whether he can create legal relation between the principal and such third parties and the principal.

Definition of an agent Who may be an agent Who may be a principal

Consideration in a agency contract Distinction between agent and servant Distinction between agent and bailee Distinction between agent and trustee

Definition of an agent : Every person who acts for another is not an agent a person does not become an agent an behalf of another merely because he gives him advice.

Who may be an agent : Section 184 of contract act provides they any person may become an agent in other even a minor can be employed as agent and the principal shall he bound by the acts of such an agent.

Who may be a principal : A person who is major and who is of sound mind can employ another person as an agent section 183 states that a person who is of the age of majority and is sound mind can become a principal

Consideration in agency contract : It may be noted that consideration is essential for validity of a contract but section 185 lays down that no consideration is necessary to create an agency the acceptance of the office of an agent.

Distinction between agent and servant : An agent is employed to act an behalf of the principal and to bring him in to legal relation such third person a servant generally does not enjoy such authority.

Distinction between agent and bailee : The relation of bailor and bailee exists only so long as bailee holds goods belonging to the

bailor whereas this is not necessary for the existence of agency. An agent of representative with in authority to contract on behalf of his principal does not have that power.

Distinction between agent and trustee : Both agent and trustee exercise their power and authority in the interest and on behalf of other person and further should not be permitted to regard them as similar in all respect.

A points of distinction between the two are stated below : A trustee exercise power in his own name and on his behalf whereas an agent exercise merely the delegated powers given to him by principal. A trustee dose the same thing the contract is for him and only for him.