Powers of Attorney - Legality - Analysis

(1) It has become a practice now a day to make a Powers of Attorney from landowners/Principal. The Power of Attorney holder then deals with the property as if his own and even gets sale deeds made in his name.

(2) Let us see how good is such thing by going through certain provisions of the Indian Contract Act 1872.

Section Provision 182 'Agent' and 'principal' defined.

An 'agent' is a person employed to do any act for another, or to represent another in dealings with the third person. The person for whom such act is done, or who is so represented, is called the 'principal'.

184 Who may be an agent.

As between the principal and third person any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible to his principle according to the provisions in that behalf herein contained.

201 Termination of agency.

An agency is terminated by the principal revoking his authority, or by the agent renouncing the business of the agency; or by the business of the agency being completed; or by either the principal or agent dying or becoming of unsound mind; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insolvent debtors.

202 Termination of agency, where agent has an interest in subject-matter.

Where the agent has himself an interest in the property which forms the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

(a) A gives authority to B to sell A's land, and to pay himself, out of the proceeds, the debts due to him from A. A cannot revoke this authority, nor can it be terminated by his insanity or death.

(b) A consigns 1,000 bales of cotton to B, who has made advances to him on such cotton, and desires B to sell the cotton, and to repay himself out of the price the amount of his own advances. A cannot revoke this authority, nor is it terminated by his insanity or death."

207 Revocation or renunciation may be expressed or may be implied in the conduct of that principal or agent respectively.

Illustration A empowers B to let A's house. Afterwards A lets it himself. This is an implied revocation of B's authority.

215 Right of principal when agent deals, on his own account, in business of agency without principal's consent.

If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows, either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to him.

(a) A directs B to sell A's estate. B buys the estate for himself in the name of C. A, on discovering that B has bought the estate for himself, may repudiate the sale, if he can show that B has dishonestly concealed any material fact, or that the sale has been disadvantageous to him.

(b) A directs B to sell A's estate. B, on looking over the estate before selling it, finds a mine on the estate which is unknown to A. B informs A that he wishes to buy the estate for himself, but conceals the discovery of the mine. A allows B to buy, in ignorance of the existence of the mine. A, on discovering that B knew of the mine at the time he bought the estate, may either repudiate or adopt the sale at his option.

216 If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.

Illustration A directs B, his agent, to buy a certain house for him. B tells A it cannot be bought, and buys the house for himself. A may, on discovering that B has bought the house, compel him to sell it to A at the price he gave for it.

(3) First it is necessary to understand that, only parties of the contract acquire legal rights and liabilities. This creates privity and legal relationship between them. Further it is principle of Transfer of Property act 1882, that no person can pass a better title than he can. It is only in the manner of agency as per chapter 10 of contract act, in which the agent binds the principal with 3rd party. Thus in essence agency is a special contract, whereby the principal allow an agent [appointed by the principal] to make a contract for the principal with 3rd parties. The subject matter of, being, the extent to which the principal allows the agent to bind the principal with the 3rd parties, is the subject matter of agency.

(4) After going through the above provision following things are clear viz:-

Agency involves 3 parties

(i) Principal 
(ii) Agent 
(iii) 3rd Party

(5) Thus if there is no Principal, the Agent & 3rd party, are clearly acting on their own and at their own liability and therefore there is no agency. If there is no Agent, then there is direct legal relationship with the 3rd party and Principal and therefore there is no agency. If there is no 3rd party there is no agency at all.

(6) Thus seen, it is the limited legal relationship between the Principal and Agent, the vector being directed toward a 3rd party only, and not otherwise. And thus given the power to make a privity between the Principal and the 3rd Party, the Agents powers are strictly construed, and are required to be construed even by the 3rd party in same manner, while dealing with agent, as the 3rd party also is bound by the principle of "caveat". The Agent is mere representative of Principal, and not of himself. The legal personality of Principal and Agent is distinct and different.

(7) There are cases where there is some consideration given to the Agent for executing the agency, and there are cases where the Agent is to get consideration from execution of the agency [agency generating the fund]. In context of s/202, the "interest in subject matter agency" unquestionably means that the Agent has INTEREST in the "agency business" OR "agency generating fund" OR anything in which has secured some interest for the Agent "in the agency'. Of-course his interest is subject to compliance of the duties of the Agent in the agency.

(8) In any event the point of this Article is to highlight a forgotten principle of agency which is,: every act by the Agent has to be with 3rd person only, and not otherwise. Not even himself. And not at all in his own name.

(9) Thus in this context whenever an agent act on behalf of principal and 3rd person, he is not acting as agent within the strict provisions of Chapter X of Indian Contract Act 1872, and such act is clearly, not an agency.

(10) I would leave it for you to decide if it is Cheating/CBT/Forgery. An aspect of s/111 of Indian Evidence Act also comes into play. So it would be necessary to strictly construe the POA, and in that context the Supreme Court Judgment in Suraj Lamps case is a turning point, though it can be read in the clear legal principle of Contract Act as above and strengthened.