PRINCIPAL AND AGENT RELATION

This article focused to highlight the relationships between Principal and Agent under Contract of Agency

 

1. INTRODUCTION:

 

When one party gives some authority to the other, allowing the latter to act on behalf of the first party in a more or less independent manner, the connection is referred to as an agency. Agency can be express or implied. The Indian Contract Act, 1872's Chapter X covers the laws pertaining to agency. Principal and agent relationships often involve three parties: the principal, the agent, and a third party.

 

2. AGENT:

 

The Indian Contract Act, 1872 defines an ‘Agent’ under Section 182, as a person employed to do any act for another or to represent another in dealing with third persons.

 

The Indian Contract Act 1872 provides who can appoint an agent Under Section 183. As per section 183, any person who has attained the age of majority and has a sound mind can appoint an agent.

 

Further the Act states who can be an agent under Section 184. As per Section 184 of the Act, the person who has attained the age of majority and has a sound mind can become an agent.

 

2.1. SUB-AGENTS:

 

An agent may occasionally assign another person to carry out the work the that the principal has given him. In general, an agent cannot assign a duty that he is supposed to carry out himself to another person, unless he is pushed to do so due to exigent circumstances. Section 191 of the Indian Contract Act, 1872 defines a sub-agent to be a person employed by and acting under the control of the original agent in the business of the agency.

 

The rule is contained in the maxim ‘Delegates non potest delegare’ which means that an agent to whom some authority has been delegated cannot further delegate that authority to another person.    

3. PRINCIPAL:

 

According to Section 182, The person for whom such act is done, or who is so represented, is called the “principal”.

 

4. CREATION OF AGENCY

 

An agency can be created by the following ways;

i. An Agency can be created by the direct appointment. Direct appointment is the typical method of establishing an agency. An agency is formed between two people when one person, either orally or in writing, appoints the other as his agent.

ii. An agency is can be created by implication when an agent is not expressly appointed but his appointment can be inferred from the circumstances.

iii. An agency can be created in case of necessity. Without being specifically authorised as an agent, one person may act on behalf of another in an emergency to protect the person from any loss or injury.

iv. Further, an agency can be created by estoppel. An agency by estoppel is established when one person acts in a way that leads a third party to believe that he is acting as someone else's authorised agent.

v. An agency can be created by ratification between the two, when an act of a person, who acted as another person’s agent (on his behalf) without his knowledge is later ratified by that person.

 

5. RIGHTS OF AN AGENT

 

Followings are the various rights of an agent as conferred by the Act;   

i. Right to remuneration: An agent’s remuneration does not become due to him until the completion of the act assigned to him. (Section 219)

ii. Right to retain sum: An agent has the right to retain all money due to himself in respect of advances made or expenses properly incurred by him in conducting the business. (Section 217 & 218)

iii. Right of Lien on Principal’s property: The agent has entitled to retains hold any movable or immovable property of the principal until his due is paid to him. (Section 221)

iv. Right to be Indemnified: The agent has the right to be indemnified against consequence of all the lawful acts in the course of conducting principals business.

v. Right to Compensation: The Agent has the right to be compensate in respect of injury caused to the agent by the principal’s neglect or want of skill

 

6. AGENT’S DUTIES TO PRINCIPAL:

 

Followings are the duties of an Agent towards his Principal,

   

i. An agent must carry out the Principal's business in accordance with the Principal's instructions.

ii. An agent is required to conduct the business with the same level of skill that a person in his position would typically possess.

iii. An agent is required to provide the Principal with access to the pertinent accounts as and when the Principal demands.

iv. Any difficulty that an agent encounters while conducting the Principal's business must be communicated with him.

v. The Principal may revoke the agreement between them if any material fact has been concealed or if the business is not conducted as directed.

vi. The Principal may claim from the agent any benefit he may have achieved through doing so, if the agent carried out the business in his own manner rather than the directions of the Principal.

 

7. PRINCIPAL’S DUTIES TO AGENT

 

The Act confers a number of rights on an agent and imposes some corresponding duties on principal. They are as follows: -

  

i. Indemnify the Agent: As per Section 222 of the Act, the employer is bound to indemnify the agent against any consequence of all lawful acts done such agent. Further, as per Section 223, when the agent employs another to do an act in good faith, the principal is liable to indemnify agent against the consequence of that act irrespectively that the act causes injury to rights of third person. But as per Section 224 when agent commits any criminal offence at the instances of principal cannot claim the indemnity though the principal has expressly or impliedly promise to indemnify him.

ii. Remuneration: Principal has a duty to pay remuneration to his agent as payable to him and recover all dues to the agent and expenses incurred by agent in conducting principal’s business. (Section 217)

iii. Compensate the agent for damages: The principal must make compensation to his agent in respect of injury caused to the agent by the principal’s neglect or want of skill. (Section 225)

iv. Misrepresentations or fraud by agent: Principal shall be made liable for the misrepresentations and frauds committed by the agent, but the act must be done by the agent in the course of their business for their principals. And if the act done by the agent in matters which do not fall within their authority, endow by principal, will not bind principal for the act of agent. (Section 238)

 

8. RIGHTS OF PRINCIPAL:

i. Repudiation of contract by principal: 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. (Section 215)

ii. Principal’s right to claim benefit: if an agent without the knowledge of the 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. (Section 216)

iii. Agent’s accounts: An agent is bound to render proper accounts to his principal on demand. (Sec 213)

Ratification of agents act: where acts are done by one person on behalf of another but without his knowledge or authority, he may elect to ratify or disown such acts. (Section 196)

iv. Revocation of agent’s authority: the principal may revoke the authority given to his agent by giving a reasonable notice of revocation at any time before the authority has been exercised. (Section 203)

v. Claim loss or profit of the business: the principal is entitled to compensation for any loss sustained by him or to any profits accrued where the agent acts contrary to the directions given by the principal; or where loss is caused due to agent’s neglect, want of skill, or misconduct. (Sections 211 & 212)

 

9. CONCLUSION:

 

An agency is formed when one person transfers control to another, designating them to carry out one or more specific tasks in a given field of endeavour. When a principal-agent relationship is established, both parties are given obligations and rights.