Under the agency relationship, the principal permits the agent legally to act on his behalf. There should not be any conflict of interest while performing an act appointed to the agent on behalf of the principal. The legal relationship is covered under well-established rules of the law of agency. For example, individuals are allowed under the law of agency to hire others for performing their job or sell their product or purchase the property. It depends on the principal who can authorize the agent for performing certain duties or by curtailing certain acts. Authorization of tasks to the agent represents the principal’s control. A partnership is based on the law of agency and theory of contract; the requirement to enter into partnership is the capacity of contracting, which implies that for a person to enter into a partnership must be of competent age and mentally capable of understanding the obligations of the same. Following are the importance and characteristics of Partnership Law:
The legal authority of partners to bind other partners in the partnership
Partners are jointly as well as severally liable for any debt incurring or legal obligations
For enforcing a judgment, the assets of partners are available to the creditors of judgment.
The concept of separate legal entities is defeated in a business operating about the partnership by managing the organization’s liability.
Agency Relationship Creation
The following two ways create the relation of agency-
The agency is created by agreement- As most of the creation of the agencies is through contract, rules, and provisions of the contract law govern it. However, the creation of the agencies can be made by agreement. When an agency is created by agreement, three principles of a contract are taken into consideration. The first principle, which is important for creating agency by agreement, is a prerequisite for consideration. The agencies that are created by consent about the agreement are not mandatorily contractual. However, without consideration, an agent cannot work for another person. The second principle concerns the contracts of oral agency that need not be in writing as they are already legally binding. However, there are certain circumstances where the agency contracts are necessary to be there in written form. For example, if there is uncertainty about the completion of the purpose agreed on by the agency or agency relationship happens to continue for a term of more than one year, where there is an agreement for paying a commission to the real estate broker, an agent is in the authority of selling real estate and agreement is also required if a contract is made between organization and the representative of the sales. The third principle is capacity, where a contract is rendered void or voidable due to the lack of capacity of one party to make it. The law being focused on the principal’s capacity makes the contract voidable even though the agent is fully competent.
Creation of agency by operation of Law- Even though maximum agency contracts are created by contract, they may also be created by the implied or apparent agency. Under implied agency, courts have given a declaration regarding having implied agencies in certain areas of social need, and no agreement is required. The implied agency is also created when individual acts as an agent. The principal having the knowledge that the agent behaves in a particular manner allows the individual to hold himself out as an agent. Whereas in an apparent agency, where termination of the agency is not communicated, it is deemed to be considered as performed by the authorized agent.
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