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RIGHTS AND DUTIES OF AGENT AND PRINCIPAL

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This article is written by Jeevana H Reddy of Alliance University, an intern under Legal Vidhiya

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

DUTIES OF THE AGENT

RIGHTS OF THE PRINCIPAL

DUTIES OF THE PRINCIPAL

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.

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

  1. AVATAR SINGH, CONTRACT AND SPECIFIC RELIEF, (Eastern Book Company 2022).
  2. R.K. BANGIA, INDIAN CONTRACT ACT, (Allahabad Law Agency 2016).
  3. Aishwarya Chakraborty, Rights and Duties of Agent and Principal, Legal Vidhiya (Sep. 18, 2023), https://legalvidhiya.com/rights-and-duties-of-agent-and-principal/.
  4. 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.

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