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Rights and Duties of an Agent Towards the Principal and Termination of Contract of Agency

Rights and Duties of an Agent Towards the Principal and Termination of Contract of Agency

Introduction

In a contract of agency, an agent is appointed by the principal to act on his behalf and bring him into legal relationships with third parties.
The relationship between the agent and principal is based on trust, good faith, and legal responsibility.

The Indian Contract Act, 1872, especially Sections 182 to 238, deals with agency law.
In this assignment, we will discuss:

  • The Rights of an Agent

  • The Duties of an Agent

  • The ways in which the Agency can be terminated

Part 1: Rights of an Agent Towards the Principal

An agent is entitled to certain rights while performing his duties. These rights are given by law to ensure the agent can perform his job properly and fairly.

The major rights of an agent are:

1. Right to Remuneration

  • Explanation:
    An agent has the right to receive the agreed remuneration or commission for the services rendered.

  • Important Points:

    • If no specific amount is fixed, the agent is entitled to reasonable remuneration.

    • The agent can sue the principal if remuneration is not paid.

  • Example:
    A real estate agent is entitled to his commission after he successfully sells a property.

2. Right to Retain Money

  • Explanation:
    An agent has the right to retain the money received on behalf of the principal to recover:

    • Advances paid by the agent

    • Lawful expenses incurred

    • His remuneration

  • Example:
    If an agent collects ₹1,00,000 for the principal and has spent ₹10,000 on official expenses, he can retain ₹10,000 before giving the rest.

3. Right of Lien

  • Explanation:
    An agent has a right to retain the principal’s goods, papers, or property till the principal pays him his lawful dues.

  • Note:
    This right cannot be exercised if there is a contract to the contrary.

4. Right to Indemnification

  • Explanation:
    The agent has the right to be indemnified (compensated) for losses or damages suffered while acting lawfully on behalf of the principal.

  • Example:
    If an agent incurs a loss while acting within his authority, the principal must compensate him.

5. Right to Compensation for Injury

  • Explanation:
    If the agent suffers due to the principal’s negligence, he has the right to claim compensation.

  • Example:
    If a principal fails to inform the agent about a known danger, and the agent gets hurt while working, the principal must pay compensation.

Part 2: Duties of an Agent Towards the Principal

While the agent enjoys certain rights, he also has important duties towards the principal. These duties ensure the protection of the principal’s interest.

The main duties are:

1. Duty to Follow Instructions

  • Explanation:
    The agent must strictly follow the lawful instructions given by the principal.

  • If no instructions are given, he should act according to the custom of the business.

  • Example:
    If a principal asks the agent to buy goods of a specific brand, the agent must not buy a different brand.

2. Duty to Perform with Reasonable Care and Skill

  • Explanation:
    The agent must carry out his work with reasonable skill, care, and diligence.

  • Note:
    If the agent claims to have special skills, he is expected to exercise that higher level of skill.

3. Duty to Render Proper Accounts

  • Explanation:
    The agent must maintain proper accounts of all financial transactions and must provide them to the principal whenever asked.

  • Example:
    If an agent receives money from third parties, he must maintain clear records.

4. Duty to Communicate

  • Explanation:
    In case of difficulty, the agent must communicate with the principal and seek instructions.

  • Example:
    If a sudden market change affects the principal’s goods, the agent must inform the principal immediately.

5. Duty to Act in Good Faith

  • Explanation:
    The agent must act honestly and loyally. He should not make any secret profit.

  • Example:
    An agent cannot sell the principal’s goods at a lower price and secretly buy them for himself.

6. Duty Not to Deal on His Own Account

  • Explanation:
    An agent must not deal with the subject matter of the agency in his own name without the principal’s consent.

  • Example:
    An agent cannot sell the principal’s goods to himself unless the principal knows and agrees.

7. Duty Not to Make Secret Profit

  • Explanation:
    If an agent makes any secret profit, he must hand it over to the principal.

  • Example:
    If an agent takes a bribe, it belongs to the principal.

Part 3: Termination of Contract of Agency

The contract of agency can come to an end in various ways.
The Indian Contract Act provides different modes for the termination of agency.

The agency can be terminated:

  • By the Act of the Parties

  • By Operation of Law

Let's discuss them in detail:

A. Termination by the Act of the Parties

1. By Agreement

  • Explanation:
    The principal and agent can mutually agree to end the agency at any time.

  • Example:
    Both principal and agent agree in writing to end their contract.

2. By Revocation by the Principal

  • Explanation:
    The principal can revoke (cancel) the authority of the agent before it is exercised.

  • Important Points:

    • Revocation must happen before the authority is exercised for binding contracts.

    • If the agency is for a fixed term, and it is revoked before that term, compensation may be payable.

3. By Renunciation by the Agent

  • Explanation:
    An agent may himself choose to terminate the agency by giving up his authority.

  • Important Points:

    • If the agency is for a fixed period, and the agent renounces without a valid reason, he must compensate the principal.

B. Termination by Operation of Law

1. Completion of Business

  • Explanation:
    Once the specific task for which the agent was appointed is completed, the agency ends automatically.

  • Example:
    An agent appointed to sell a particular car completes the sale — the agency ends.

2. Expiry of Time

  • Explanation:
    If the agency was created for a fixed period, it automatically terminates at the end of that period.

  • Example:
    An agent appointed for six months will cease to be an agent after six months.

3. Death of Principal or Agent

  • Explanation:
    The agency terminates immediately upon the death of either the principal or the agent.

  • Note:
    If the agent does not know about the death, acts done in good faith may still bind the principal’s estate.

4. Insanity of Principal or Agent

  • Explanation:
    If either party becomes of unsound mind, the agency automatically ends.

  • Example:
    If the principal is declared insane by a court, the agent's authority ends.

5. Insolvency of Principal

  • Explanation:
    If the principal becomes bankrupt or insolvent, the agency relationship ends.

  • Example:
    A company declares bankruptcy; all its agencies terminate.

6. Destruction of Subject Matter

  • Explanation:
    If the object or subject matter for which the agency was created is destroyed, the agency ends.

  • Example:
    If an agent was appointed to sell a car, but the car is destroyed in an accident, the agency ends.

7. Principal Becomes an Enemy

  • Explanation:
    If the principal and agent belong to countries that go to war, the agency relationship ends.

  • Example:
    If an Indian principal has a British agent and India goes to war with Britain, the agency is terminated.

Conclusion

The relationship between a principal and agent is one of trust, loyalty, and legal responsibility.
An agent has certain rights like the right to remuneration, lien, and indemnity.
At the same time, he has important duties such as obeying instructions, acting honestly, maintaining accounts, and avoiding conflict of interest.

An agency can be terminated either by mutual agreement, revocation, renunciation, or due to operation of law like death, insanity, insolvency, etc.

Thus, a proper understanding of the rights, duties, and termination rules of agency helps both parties avoid disputes and protects their legal interests.


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