RIGHTS AND DUTIES OF AGENT AND PRINCIPAL

ABSTRACT

The realm of agency law revolves around the intricate interplay between agents and principals, delineating their respective rights and duties within the scope of their relationship. An agent, acting as a representative of the principal, assumes responsibilities and privileges essential for the effective execution of delegated tasks. Conversely, the principal entrusts the agent with authority while retaining certain prerogatives and obligations. Understanding the nuanced balance between the rights bestowed upon agents and the corresponding duties they bear, alongside the reciprocal rights and duties of principals, is fundamental to navigating agency relationships effectively. This article sets the stage for a comprehensive exploration of the rights and duties inherent in the agent-principal dynamic. Through a nuanced examination of the rights and duties involved, and also the article aim to elucidate the complexities of agency law and underscore its significance in facilitating efficient collaboration and safeguarding the interests of both parties.

Keywords

Agent, Principal, Rights, Duties, Agency Law.

INTRODUCTION

The dynamics of agency relationships centres upon a delicate balance of rights and duties shared between agents and principals. Agents, entrusted with the authority to act on behalf of principals, are entitled to several fundamental rights. Foremost among these is the right to compensation for their services, typically outlined in the agency agreement. This compensation serves as acknowledgment of the agent’s efforts and incentivizes diligent performance. Additionally, agents possess the right to reimbursement for reasonable expenses incurred while carrying out their duties, ensuring that financial burdens related to the agency activities are fairly distributed. Furthermore, agents are entitled to indemnification, safeguarding them against losses or liabilities arising from authorized actions within their scope of authority, provided they have acted in good faith.

Conversely, agents are bound by a spectrum of duties designed to uphold the integrity and effectiveness of the agency relationship. These include a duty of loyalty, necessitating that agents prioritize the interests of the principal above their own and refrain from conflicts of interest. Moreover, agents must diligently adhere to lawful instructions from the principal, exercising skill and care in executing tasks to achieve optimal outcomes. Additionally, agents are responsible for maintaining accurate records and providing timely accounting of transactions conducted on behalf of the principal. Lastly, agents are obligated to preserve the confidentiality of sensitive information pertaining to the principal’s affairs, unless disclosure is warranted for the proper execution of their duties or mandated by law.

Principals, in their capacity as the party delegating authority, possess corresponding rights and duties. They have the right to expect competent performance from agents and to be kept informed of significant developments within the agency relationship. Concurrently, principals are duty-bound to compensate, reimburse, and indemnify agents as agreed upon, ensuring equitable treatment and incentivizing continued dedication. These intertwined rights and duties establish a framework for trust, accountability, and effective collaboration within the agency relationship, the same is explained in detail. The law of agency is based on the Latin maxim “qui facit per alium, facit per se,” which means, “He who acts through another is deemed in law to do it himself”.

WHO IS AN AGENT AND PRINCIPAL?

Agent – An agent is a person or entity who is authorized to act on behalf of another party, known as the principal, in carrying out certain tasks or transactions. The agent typically has the authority to enter into contracts, make decisions, or represent the principal in dealings with third parties. The relationship between an agent and a principal is typically established through an agreement, whether express or implied, and the agent is expected to act in the best interests of the principal while exercising the authority granted to them.

The term agent is defined under Section 182 of the Contract Act. An “agent” is a person employed to do any act for another, or to represent another in dealings with third persons.[1]

Principal – A principal is a person, organization, or entity that authorizes another party, known as the agent, to act on their behalf in specific matters or transactions. The principal delegates certain powers or authority to the agent, allowing them to represent the principal and make decisions or enter into contracts on their behalf. The principal retains ultimate responsibility for the actions of the agent and may be bound by the agreements or transactions entered into by the agent within the scope of their authority.

The term principal is defined under Section 182 of the Contract Act as, The person for whom such act is done, or who is so represented, is called the “principal”.[2]

THE RIGHTS AND DUTIES OF AGENT AND PRINCIPAL

RIGHTS OF THE AGENT

Right to Compensation: The agent has the right to receive compensation or remuneration for the services rendered on behalf of the principal, as agreed upon in the agency agreement by the principal.
Right to Reimbursement: The agent is entitled to be reimbursed for any expenses incurred while performing duties on behalf of the principal, provided these expenses were reasonable and within the scope of the agency.
Right to Indemnification: The principal is typically obligated to indemnify the agent against any losses or liabilities incurred during the course of authorized agency activities, as long as the agent acted within the scope of their authority and didn’t engage in misconduct or negligence.
Right to authority: Agents have the right to exercise the authority delegated to them by the principal within the scope of the agency relationship. This includes making decisions and entering into contracts on behalf of the principal.
Right to Communication: Agents have the right to communicate with third parties on behalf of the principal, but they must do so within the bounds of their authority and in accordance with the principal’s instructions.

DUTIES OF THE AGENT

Duty of Loyalty: The agent owes a duty of loyalty to the principal, meaning they must act in the best interests of the principal and avoid any conflicts of interest.
Duty to be Obedient: Agents are expected to obey all lawful instructions given by the principal within the scope of their authority.
Duty to exercise Skill and Care: Agents must exercise reasonable skill, care, and diligence when performing tasks on behalf of the principal.
Duty to maintain Accounts: Agents are obligated to provide accurate and timely accounts of all transactions and activities conducted on behalf of the principal.
Duty to maintain Confidentiality: Agents often have access to confidential information about the principal’s affairs and must maintain the confidentiality of such information, unless disclosure is necessary for the performance of their duties or required by law.
Duty of Disclosure: Agents have a duty to disclose all material facts relevant to the agency relationship to the principal. This ensures transparency and allows the principal to make informed decisions.
Duty of non-usage of Secret Profits: Agents are prohibited from personally benefiting from transactions conducted on behalf of the principal without the principal’s consent. This duty ensures that agents act solely in the principal’s interests.
Duty to maintain Performance Standards: Agents have a duty to perform their assigned tasks with a reasonable standard of care and competence. This ensures that the principal’s interests are protected and that tasks are completed effectively.
Duty to restrain from Conflict of Interest: Agents have a duty to avoid situations where their personal interests conflict with those of the principal. If such a conflict arises, the agent must disclose it to the principal and obtain their consent before proceeding.
Duty of Non-Delegation: Unless expressly authorized by the principal, agents generally cannot delegate their duties to others. They are personally responsible for carrying out the tasks assigned to them.

RIGHTS OF THE PRINCIPAL

Right to Performance: The principal has the right to expect that the agent will perform their duties with reasonable skill, care, and diligence.
Right to Information: The principal is entitled to be kept informed about significant matters relating to the agency relationship and the tasks being performed on their behalf.
Right to Fiduciary Duty: The agent owes the principal a fiduciary duty, which includes acting in the principal’s best interests, avoiding conflicts of interest, and maintaining confidentiality.
Right to Terminate: Principals have the right to terminate the agency relationship at any time, provided they give reasonable notice to the agent. They also have the duty to compensate the agent for any services rendered up to the termination date.
Right to Damages: The principal has the right to pursue damages and reimbursement for their losses in the event that the agent violates their obligations.
Right to Control: Principals have the right to control the actions of the agent to a certain extent. They can specify the scope of the agent’s authority and provide instructions for how tasks should be carried out.
Right to provide Direction and Supervision: Principals have the right to provide direction and supervision to the agent, ensuring that tasks are carried out according to their wishes and standards.
Right of Agent Selection: Principals have the right to choose their agents carefully, selecting individuals who possess the necessary skills, qualifications, and trustworthiness to represent them effectively.
Right to Remedies for Breach: In the event of a breach of duty by the agent, the principal has the right to pursue remedies such as termination of the agency relationship, withholding of compensation, or legal action for damages.

DUTIES OF THE PRINCIPAL

Duty to pay Compensation: The principal has a duty to compensate the agent for their services as agreed upon in the agency agreement.
Duty to Reimbursement: The principal must reimburse the agent for reasonable expenses incurred during the performance of their duties.
Duty of Indemnification: The principal is typically obligated to indemnify the agent against any losses or liabilities incurred during the course of authorized agency activities, provided the agent acted within the scope of their authority and didn’t engage in misconduct or negligence.
Duty of Non-Interference: Principals have a duty not to interfere with the agent’s ability to carry out their assigned tasks, as long as the agent acts within the scope of their authority and in accordance with the agency agreement.
Duty to maintain Good Faith and Fair Dealing: Principals have a duty to act in good faith and deal fairly with the agent. This includes providing necessary resources and support for the agent to fulfill their duties effectively.
Duty of Risk Management: Principals bear the ultimate responsibility for any risks associated with the actions of their agents. They must exercise due diligence in monitoring the agent’s activities and mitigating potential liabilities.

These rights and duties form the framework of the agency relationship, providing clarity and guidance for both agents and principals in their respective roles. By considering these points, agents and principals can develop a more comprehensive understanding of their rights and duties, enabling them to navigate the complexities of the agency relationship with greater confidence and effectiveness.

CASE LAWS

Narandas Morardas Gaziwala and Ors. vs. S.P. Am. Papammal and Ors.[3]

This case deals with the commercial liability of agent. The main issue involved in this case was whether plaintiff i.e. agent is entitled to sue the principal (defendant) for accounts? The court stated that the right of agent to sue principal for accounts is equitable right arising under special circumstances. Further, in the present case the High Court has found that transactions in respect of which plaintiff is entitled to commission are peculiarly within knowledge of defendant and held that, due to peculiar circumstances in this case plaintiff is entitled to sue principal for accounts and the same was upheld by the Supreme Court of India.

Harshad J. Shah and Ors. vs. L.I.C. of India and Ors.[4]

This particular case dealt with an issue whether payment of premium in respect of life insurance policy by insured to general agent of Life Insurance Corporation of India can be regarded as payment to insurer so as to constitute discharge of liability of insured? It was held by the court that the respondent no. 3 in receiving bearer cheque from insured not acting as agent of LIC as there is no express authority to receive premium on behalf of LIC given to respondent no. 3 because of existence of condition expressly prohibiting him from collecting premium on behalf of LIC in appointment letter. Therefore, agents expressly prohibited from collecting any premium on behalf of LIC, LIC cannot be liable on basis of apparent authority under Section 237 i.e., payment made to agent cannot be regarded as payment to insurer.

Carter vs. Boehm[5]

In the case, Mr. Boehm, acting as the principal, arranged the insurance policy with the insurers through an agent or intermediary. The duty of disclosure, as established in this case, applies to both the principal and the agent. If the agent had knowledge of material facts about the ship’s condition, they would have a duty to disclose this information to the insurers on behalf of the principal. Therefore, this case highlights the importance of the agent’s role in ensuring that all material information is disclosed to the insurers, thereby fulfilling the duty of utmost good faith on behalf of the principal. It underscores the principle that agents are obligated to act in the best interests of their principals and to disclose all relevant information to the other party in the contract. Failure to do so may result in legal consequences for both the principal and the agent.

Hely-Hutchinson vs. Bayhead Ltd.[6]

This case established the principle that an agent cannot make a secret profit from their position without the principal’s consent.

Watteau v. Fenwick[7]

This case established the doctrine of undisclosed principal. It held that a principal may be bound by the contracts entered into by an agent even if the agent acts without authority, provided that the third party reasonably believed the agent was authorized by the principal.

Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd.[8]

In this case, the court clarified the circumstances under which a principal can be bound by the actions of an agent. The court held that if a person holds themselves out as having authority, and a third party reasonably believes them to have that authority, the principal may be bound by the agent’s actions.

CONTEMPORARY CHALLENGES IN AGENCY LAW

There are various contemporary challenges in agency law which reflect the evolving nature of business practices, technology, and societal expectations.

Digitalization and E-commerce: As more business transactions move online, defining and regulating agency relationships in e-commerce settings becomes complex. Issues arise concerning the authority of online agents, the scope of their representation, and the application of traditional agency principles to digital platforms and marketplaces.
Data Protection and Privacy: With increasing concerns about data privacy and security, there are challenges in ensuring that agents handle personal data responsibly on behalf of principals. Compliance with data protection regulations such as the GDPR in Europe or CCPA in California adds layers of complexity to agency relationships, especially when agents interact with customer data.
Remote Work and Telecommuting: The rise of remote work arrangements due to global events like the COVID-19 pandemic poses challenges in managing agency relationships in virtual environments. Determining the extent of an agent’s authority, ensuring effective communication, and maintaining accountability become more challenging when agents work remotely.
Platform Economy and Intermediaries: The prevalence of third-party platforms and intermediaries in various industries raises questions about the roles, responsibilities, and liabilities of these intermediaries as agents. Clarifying the legal status of platform-based agents and addressing issues related to control, accountability, and representation on digital platforms are significant challenges.
Fiduciary Duties and Conflicts of Interest: Agents owe fiduciary duties to their principals, including duties of loyalty, care, and disclosure. However, conflicts of interest may arise, particularly in complex business arrangements or when agents represent multiple principals. Balancing the interests of principals and agents while ensuring fair and ethical conduct presents ongoing challenges.
Regulatory Compliance and Enforcement: Compliance with regulatory requirements governing agency relationships, such as consumer protection laws, contract laws, and industry-specific regulations, is essential but challenging. Ensuring that agents act within legal boundaries, particularly in regulated industries like finance or healthcare, requires robust compliance mechanisms and effective enforcement measures.
Cross-border Transactions and Jurisdictional Issues: In an increasingly globalized business environment, agency relationships often have multiple jurisdictions, each with its own legal framework and regulatory requirements. Addressing jurisdictional issues, conflicts of laws, and differences in legal systems presents significant challenges for multinational corporations and their agents.

Addressing these contemporary challenges in agency law requires a combination of legal reforms, regulatory guidance, industry standards, and technological solutions. Legal practitioners, policymakers, businesses, and stakeholders must collaborate to adapt agency law to the changing dynamics of modern commerce and ensure that agency relationships remain fair, transparent, and accountable.

CONCLUSION

In conclusion, the rights and duties of both agents and principals serve as the guiding framework for their interactions and responsibilities within the agency relationship. Agents have the privilege of representing the principal and are entitled to fair compensation, reimbursement, and protection from liabilities. Simultaneously, they are bound by duties of loyalty, obedience, skill, and confidentiality to ensure the principal’s interests are prioritized and protected.

On the other hand, principals have the authority to delegate tasks and expect competent performance from agents. They also have the right to receive accurate information, loyalty, and fiduciary duty from agents. However, principals must fulfill their duties of compensation, reimbursement, and indemnification to ensure agents are adequately supported and protected.

This reciprocal arrangement fosters a symbiotic relationship where both parties work together towards shared objectives while upholding their respective rights and duties. By adhering to these principles, agents and principals can cultivate trust, maintain accountability, and achieve mutual success in the dynamic realm of agency law.

REFERENCES

AVATAR SINGH, CONTRACT AND SPECIFIC RELIEF, (Eastern Book Company 2022).
R.K. BANGIA, INDIAN CONTRACT ACT, (Allahabad Law Agency 2016).
Aishwarya Chakraborty, Rights and Duties of Agent and Principal, Legal Vidhiya (Sep. 18, 2023), https://legalvidhiya.com/rights-and-duties-of-agent-and-principal/.
Dhyan Shah, Concept of Agency In Indian Contract Act – The Complete Concept And Landmark Judgments, LawyersClubIndia (Jul. 05, 2021), https://www.lawyersclubindia.com/articles/concept-of-agency-in-indian-contract-act-the-complete-concept-and-landmark-judgments-14141.asp.

[1] The Indian Contract Act, 1872, § 182, No. 9, Acts of Parliament, 1872 (India).

[2] The Indian Contract Act, 1872, § 182, No. 9, Acts of Parliament, 1872 (India).

[3] Narandas Morardas Gaziwala and Ors. vs. S.P. Am. Papammal and Ors., AIR 1967 SC 333.

[4] Harshad J. Shah and Ors. vs. L.I.C. of India and Ors., AIR 1997 SC 2459.

[5] Carter vs. Boehm (1766) 3 Burr 1905.

[6] Hely-Hutchinson vs. Bayhead Ltd., 1 QB 549.

[7] Watteau vs. Fenwick, 1 QB 346.

[8] Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd., 2 QB 480.

Disclaimer: The materials provided herein are intended solely for informational purposes. Accessing or using the site or the materials does not establish an attorney-client relationship. The information presented on this site is not to be construed as legal or professional advice, and it should not be relied upon for such purposes or used as a substitute for advice from a licensed attorney in your state. Additionally, the viewpoint presented by the author is of a personal nature.