A contract of agency has three fundamental constituents – principal, agent, and third party. It is based on the maxim: Qui facit per alium facit per se, which means, he who acts through another does so for himself.
The agent’s role in the entire process is crucial and relevant in successfully carrying out the business. Even though the agent represents his principal in the business conduct, he plays an important role, as he is the one who has the power to affect the legal relationship between the principal and the third party.
This law note tells you the important rights and duties of an agent in the contract of agency as per the Indian Contract Act.
Agent in Contract of Agency
Section 182 of the Indian Contract Act, 1872 opens by defining who an agent and a principal are.
An agent is a person employed to do any act for another or represent another person in dealings with a third person.
A principal is someone for whom an act is performed or is represented by someone to perform the act.
This article looks at the role of the agent in the contract of agency under two heads – rights of agents and duties of agents.
Rights of Agents
There are the five rights of an agent in a contract of agency:
1. Right to Remuneration
Section 219 of the Indian Contract Act provides agents to keep any sums received on behalf of the principal in a business transaction, as well as advances made or expenses properly incurred in doing business for the principal.
2. Right to Indemnity
Under section 222 of the Indian Contract Act, the principal is obligated to compensate the agent against the consequences of all lawful acts carried out by the agent in the exercise of the authority given to him.
In Sheikh Farid Bakhsh vs Hargulal Singh (1936), the court said that the principal must pay the remuneration as soon as the agent has substantially performed all the tasks they have contracted him to perform.
In a case, A, an agent, seized goods of T, a third party, at the command of P, the principal. Later, it was found that A seized goods illegally on the command of P. The court held that P must indemnify A because he acted in bonafide intention.
3. Right to Compensation
According to section 225 of the Indian Contract Act, it entitles the agent to compensation in the event of any injury or loss he suffers because a principal lacks skill or competency.
4. Right of Retainer
As per sections 217 and 218 of the Indian Contract Act, the agent has a right to keep any sums received on account of the principal in the agency’s business, all money due to him regarding his remuneration, advances made or expenses properly incurred by him in conducting such business.
5. Right of Lien
Lien means a right to keep possession of property belonging to another person until a debt owed by that person is discharged. Section 221 of the Indian Contract Act says that where the agent is not paid lawful charges, remunerations, or expenses by his principal and the goods are under his control. He can keep the goods until the principal pays the lawful charges.
Thus, this right of lien arises:
(i) Only if there is no contract to the contrary;
(ii) Only regarding those properties the agent has lawfully gained possession of;
(iii) Only in the expectation of those properties regarding which some amount is due to the agent.
Duties of Agent
These are the nine duties of an agent in a contract of agency:
1. Duty Not to Delegate His Authority
An agent must not delegate his authority to a sub-agent. Section 190 of the Indian Contract Act is based on the maxim, Delegatus non-protest delegare, which means, a delegate cannot further delegate.
An agent appointed to work on a specific task cannot delegate that task to another because the principal chooses as an agent a particular person. After all, he responds to trust and confidence in such a person.
Imagine going to a good restaurant because you heard their food is great. Now, you don’t want this good restaurant to bring food from another restaurant and serve you. Right?
2. Duty to Protect and Preserve the Interest
Under section 209 of the Indian Contract Act, when the principal’s death or unsoundness causes the termination of the agency, the agent must protect and preserve the interests entrusted to him on behalf of the representative of the deceased principal.
3. Duty to Execute the Mandate
Section 211 of the Indian Contract Act bounds an agent to conduct the business of his principal according to the principal’s directions or in the principal’s absence, according to the custom of trade.
In Pannalal Jankidas vs Mohanlal (1950), the Supreme Court held the agent liable to compensate the principal. Here, the principal told the agent to get the goods insured. The agent charged the premium from the principal but never got the insurance.
4. Duty to Act With Care and Skill
Section 212 of the Indian Contract Act covers another role of the agent. This law requires an agent to conduct agency business with due care and caution.
In Jayabharathi Corporation vs PN Rajesekara Nadar (1991), the court said that where the agent misinforms the principal, and the loss occurs because of his misconduct, he is liable to the principal.
For example, X, an agent for the sale of goods, having authority to sell on credit, sells on credit to Z without making the proper inquiries regarding the solvency of Z. Z, is insolvent at the time of this sale. X must make compensation to his principal regarding any loss sustained.
5. Duty to Render Proper Account
Section 213 of the Indian Contract Act defines the next role. On-demand, the agent should show the relevant accounts to the principal. It also binds the agent to keep the money and property of the principal separate from his own. The agent is responsible for maintaining accurate records of the property he receives as part of his duties and providing those records to the principal on request.
6. Duty to Communicate With the Principal
As per section 214 of the Indian Contract Act, in cases of difficulty, it is the agent’s duty to use all reasonable diligence in communication with his principal and seeking to get his instructions.
7. Duty Not to Deal on His Account
If the principal wishes to deal on his behalf in the agency’s business, the agent must disclose all material circumstances that have come to his knowledge. He must also get consent from the principal. Non-observance of this duty may lead to:
- Under section 215 of the Contract Act, the principal may repudiate the transaction and disclaim all losses.
- Under section 216 of the Contract Act, the principal may claim from the agent any benefit which may have resulted in him from the transaction.
For example, A employed B, a broker, to purchase a house for him. B sold his house to A without disclosing that the house belonged to him. Here, A can end the contract and reject the house.
8. Duty Not to Make a Secret Profit
The relationship between the agent and the principal is of mutual trust and confidence. If an agent makes a secret profit from its agency, the principal can demand all the profits from the agent. As per section 216 of the Indian Contract Act, agents should not make any profit or acquire any benefit in the course of their agency without their principals’ knowledge and consent. Such profit is called secret profit. It is the agent’s responsibility to account to the principal for secret profits.
9. Duty to Pay Sums Received
As per section 218 of the Indian Contract Act, the agent must pay his principal all sums received on his account after retaining all money due to him regarding advances made or expenses properly incurred by him while conducting the business.
In a case, the court said, if an agent is receiving money on behalf of his principal under the void contract, he simply cannot use the illegality to withhold the payment of his principal, which is illegal.
Conclusion
The busyness of everyday life can sometimes make it difficult to do everything yourself, so it becomes necessary to hire people to accomplish our tasks. At this juncture, the contract of agency plays its role. The contract of agency is a contract of fiduciary relationship. It is a contract of trust and confidence between the principal and his agent. The principal is all responsible for the acts done by the agent during the agency’s contract.
Read Next:
1. Chapter X (182-238) – AGENCY – Indian Contract Act
2. Capacity to Contract Under the Indian Contract Act
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