Definition of Contract of Agency, and its Essentials


Contract of Agency is a relationship between two people in which one party acts as the representative of the other in business dealings in order to establish contractual relations between them.

An agency can be created to do any act that the agency’s creator could legally perform.

Relevant Provisions:

Sections 182 to 187 and 196, 201, 219, 221 to 223,225, 273 and 273 of Contract Act, 1872.

Contract Act Definition:

Section 182 of the Contract Act1872 defines Agent and Principal as: “An agent is someone employed to do any act on behalf of another person or to represent another in dealings involving third persons.” The Principal is the person for whom such an act is completed or who is represented by it.

“Agency” or “Agency agreement is the contract that creates the connection between principal and agent.


A contract of agency is where the principal hires an agent to represent him in front of a third party with or without compensation to the agent.

Importantly, the agent must follow the instructions of the principal. The principal is not responsible for any act that the agent does in contravention of his instructions and directions.

The Essentials of a Contract of Agency

  • These are the key elements of a Contract of Agency.
  • Agreement
  • Not necessary
  • Intention to act on behalf of the principal
  • Agreement:
  • The principal and agent must reach an agreement.
  • It is not necessary to consider:
  • The contract may be made with or without consideration.

Intention to act on behalf of the principal

The agent must have the intention to act for the principal. The principal is not liable if the agent signs a contract on his behalf.

Creation of an Agency

Any of the following methods could be used to create the Contract of Agency:

Express Agency

  • Implied Agency
  • Express Agency
  • A written agreement or oral agreement can also create the agency or agreement.
  • Implied Agency

A situation, conduct, or relationship between the parties can create an implied agency or agreement.

Agents’ duties:

The following are the duties for the agent:

  • An agent is responsible for fulfilling the principal’s mandate.
  • Agents have a duty to the principal to take reasonable care and not destroy the sale.
  • A principal is required to demand that an agent renders proper accounts.

Agents must notify the principal in case of difficulty and receive instruction before they can take any action to address the emergency or difficulty.

  • Agents have a duty not to trade on their own accounts.
  • Agents should not profit secretly from their agency or agency agreements.
  • Agents must not delegate their authority to another person. They must perform the agency work themselves.

Rights of agents:

These are the rights of an agent:

Each agent has the right to an agreed remuneration or, in the absence of agreement, a reasonable one.

Agents have the right to keep all money related to their remuneration, advances and reasonable expenses incurred in the course of the business.

Agents must be covered for the consequences of any lawful acts he does in exercising the authority he has been given.

An agent can stop goods being transported to the principal as an unpaid seller if the principal has insolvency or has purchased goods with his own money.

Principal’s duties:

The duties of the principal are as follows:

The principal is responsible for insuring the agent against any consequences of lawful acts by the agent while he exercises the authority.

In the event of an injury to his agent due to negligence or lack of skill, the principal must compensate the agent.

Rights of the Principal

These are the rights of the principal:

  1. If the principal is the victim of any loss, he can recover from his agent.
  2. The principal directs the agent to not take any action.
  3. In the absence of direction, it is not possible to follow the customs of trade.
  4. He will not perform his duties with skill or care.

The principal can recover any secrets profiles that the agent makes without the consent or knowledge of the principal.

If the principal can prove that the agent acted as a principal and not as an agent, he may refuse to indemnify him for any loss incurred by the agent during such transactions.

Termination/Revocation of Agency Agreements or Agency Agreements:

End of agency

A contract or agency could also be terminated in the following ways:

  • Agreement
  • Revocation by the Principal
  • Agent can revoke the contract
  • Agency’s business is complete
  • Expiry of Time
  • Death of the principal or agent
  • The Insanity and Madness of the Agent or Principal
  • Insolvency of the Principal/Agent
  • Destruction of subject matter
  • Alien enemy becomes principal or agent

1). Agreement:

A mutual agreement between the agent and the principal can terminate an agency or agreement. The authority of an agent ends when the principal and agent agree to end it.

2). Revocation by the Principal

The agent’s authority can be revoked by the principal at any time, even if the agent has already exercised it.

3). 3).

Agents can terminate or cancel agency agreements or agencies. This is because agents cannot be forced to work for them.

4). Agency’s business is complete

When the agency’s business is complete, an agency or agency agreement ends automatically.

5). Time expiry:

The agency ends when the appointed agent has completed their fixed term.

6). 6. Death of the principal or agent:

A principal or agent’s death will automatically cause an agency agreement or agency to end.

7). The madness of the principal or agent:

If the principal or agent is unable to think clearly, the agency or agreement will be terminated automatically. The agent cannot act on behalf of an insane principal if the principal is mentally ill.

8). Insolvency of the Principal

Insolvency of the principal can also cause the termination of an agency or agreement.

9). 9).

A contract of agency, or agency agreement, is dissolved upon the destruction of its subject matter.

10). 10).

If the agent and principal are citizens of different countries, and there is a conflict between them, the agency agreement (contract of agency) will be terminated.