Chapter X of the Indian Contract Act, 1872 deals with the laws relating to Agency. It is important to know the law relating to agency because nearly all business transactions worldwide are carried out through agency. All corporations, big or small, carry their work out through agency. Therefore, laws relating to the agency are an important area of Business Law. Relationships relating to principal and agent involve three main parties: The Principal, the Agent, and a Third Party.

An agent does not act on his own behalf but acts on behalf of his principal. He either represents his principal in transactions with third parties or performs an act for the principal. The question as to whether a particular person is an agent can be verified by finding out if his acts bind the principal or not.

DUTIES OF PRINCIPAL   

1. To indemnify the agent:
• against consequences of the lawful act (sec 222): the employer is bound to indemnify his great against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him. It must be noted that the principal is liable only for such damages as are direct and immediate and naturally follow the execution of the agency.
• Against consequences of the acts done in good faith (Sec 223): Where one person employs another to do an act and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act though it causes an injury to the third person.
2. To pay remuneration and dues (sec 217): It is the principal’s duty to pay his agent such remuneration as may be payable to him as an agent, and also all monies due to the agent in respect of advances made or expenses properly incurred by the agent in conducting principal’s business.
3. Compensate the agent for injury caused(Sec 225): 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.
4. Misrepresentations or fraud by agent (sec 238): Misrepresentations made, or frauds committed, by an agent acting in the courses of business for his principal, has the same effect on an agreement made by such agent as if such misrepresentations or fraud had been made or committed by the principal. In order that a principal shall be made liable for the misrepresentations and frauds committed by the agent, such misrepresentations or frauds must be committed by the agent —
1)in the course of the business of his principal; and
2) the act must be within the scope of the agent’s authority.

Duty to act according to directions or custom of trade – Sec. 211 He has to conduct the business of the Principal according to the directions of the Principal. Duty to follow customs, Where the principal has not given any instructions it is the duty of the agent to follow the customs prevailing in the same kind of business at the place where the agent conducts his business.

To act under the terms of the contract:- An agent is obliged to perform each and every term mentioned in the contract towards his principal.
Duty to act with reasonable care and skill/Duty to carry out the work with reasonable care, skill, and diligence:– Sec. 212 An agent is bound to conduct the business he is supposed to conduct with as much skill as a person on his position ordinarily holds. The agent is always bound to act with reasonable care, skill and diligence as he possesses and to make compensation to his principal in respect of direct consequences of his neglect or want of skill or misconduct.
Duty to render account – Sec. 213 An agent is supposed to show the relevant accounts to the Principal as and when the Principal demands. Duty to keep and render separate and correct accounts, An agent must keep the money and property of the principal separate. He must keep true, correct, and proper accounts of all transactions on behalf of his principal and be prepared at all times to produce them to his principal.
Duty not to deal on his own account (sec 215 & 216) Accounting must maintain separate accounts for the principal’s funds & for the agent’s funds, no intermingling is permitted Repudiation of contract by the principal when agent deals on his own
account -sec -215 Principal’s right to claim benefit when agent acting on his own account – sec 216.
Duty to communicate with Principal and to obtain Principal’s instructions – Sec. 214, An agent has the duty to communicate any difficulty whatsoever he may come across while doing the Principal’s business. He is supposed to perform due diligence in this regard. Duty to communicate in cases of difficulty, it will be also the agent’s duty to communicate with the principal and obtain his instructions while carrying the business agency.
Duty to follow instructions/ directions:-(Section 211) The first and foremost duty of an agent is to act strictly within the scope of the authority conferred upon him and to carry out the instructions of the principal. It is the duty of an agent in cases of difficulty, to use all reasonable diligence in communicating with his principal and seeking to obtain his instruction
Duties to disclose all material circumstances and to obtain the Principal’s consent in dealings – Sections 215 & 216
If any material fact has been concealed or the business is not carried out in the manner that the Principal directed, the Principal can repudiate the contract between them. An agent must not use confidential information entrusted to him by his principal for his own benefit or against the principal
Duty to pay sum received for Principal – Sections 217 & 218, If the agent carries out the business in the manner he wanted to perform it, rather than on the directions of the Principal, the Principal may claim from the agent any benefit he may have achieved through doing so. An agent is duty-bound to pay sums received to the principal on his account.
Duty not to make secret profit from agency:-An agent’s duty is to be loyal to his principal. If an agent makes a secret profit from its agency, the principal can demand all the profits from the agent. The agent must not make a secret profit from the extract agency. He must disclose any extra profit that he may make.
Duty to protect and preserve the interest entrusted to him – Section 219 An agent must not allow his interest to conflict with his duty. For example, he must not compete with his principal. Loyalty: actions must be strictly for the benefit of the principal, not in the interest of the agent or a third party
Duty to act with good faith:– An agent must act in good faith while representing the principal. An agent should not have any intention to cause harm to the principal. Obedience: must follow lawful & clearly stated instructions of the principal
Duty not to delegate his authority (Sec. 190), An agent must not delegate his authority to delegate authority agent must have the permission of the principal. As much as possible agent himself performs on behalf of a principal. An agent must not delegate his authority to a sub-agent. This rule is based on the principle ‘Delegatus non protest delegare’. Delegate
cannot further delegate (Section 190). But there are exceptions to this principle.
Not disclose confidential information- Though the agent may have authority from his principal to deal with his accounts, agents are not allowed to disclose or leak the confidential information of the principal. It is the duty of the agent to maintain the privacy and secrecy of such confidential information of the principal.
An agent should not set up an adverse title to the goods which he receives from the principal as an agent. Don’t exceed the authority which is given by the principal.

Principal’s duties to Agent

The Principal has duties towards the Agent:
 The Principal is bound to indemnify the agent against any lawful acts done by him in the exercise of his authority as an agent
 The Principal is bound to indemnify the agent against any act done by him in good faith, even if it ended up violating the rights of third parties.
 The Principal is not liable to the agent if the act that is delegated is criminal in nature. The agent will also in no circumstances be indemnified against criminal acts.
 The Principal must make compensation to his agent if he causes any injury to him because of his own competence or lack of skill.
 Liability of Principal for Agent’s Fraud or Misrepresentation. According to Section 238, The Principal is liable for any fraud or misrepresentation made by his agent during the course of his business, as if the fraud or misrepresentation was done by the Principal himself.
 Reimbursement & indemnification: must reimburse agent that disburses money at principal’s request. Must compensate (indemnify) agent for any costs incurred as a result of the principal’s failure to perform the contract
 Cooperation: must cooperate with & assist an agent in performing his duties Provide safe working conditions. Agent’s Rights & Remedies has a corresponding right for every duty of the principal.
 Liability of Principal to Third Parties For The Acts Of Agent (Sec. 226 to 228) Principal is liable for the acts of the agent, The principal is liable for all the acts of an agent which are lawful and within the scope of the agent’s authority. The contracts entered into by the agent on behalf of the principal have the same legal consequences as if these contracts were
made by the principal himself. When an agent exceeds his authority: Whether the acts done within the authority are separable from the acts done beyond authority. If yes – The principal is not bound for excess acts done by the agent. If no – The principal is not bound by the transaction and the principal can repudiate the whole transaction.

RIGHTS OF PRINCIPAL

1. To repudiate contract (Sec 215): 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.

2. To claim benefit (Sec 216): 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.

3. To ratify or disown agent’s acts (Sec 196): 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.

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

5. To claim loss or profit (Secs 211 & 212): the principal is entitled to compensation for any loss sustained by him or to any profits accrued 1) where the agent acts contrary to the directions given by the principal; or 2) where loss is caused due to agent’s neglect, want of skill, or misconduct.

6. To demand accounts (Sec 213): The principal is entitled to demand proper accounts from the agent.

7. To refuse remuneration when an agent is guilty of misconduct (Sec 220): The principal has a right to refuse remuneration to the agent who is guilty of misconduct in the business of the agency.

Rights of Agent

There is a number of rights that an agent has against his principal and third
parties. These are as follows-
Right to get remuneration, (sec – 219)

If it is provided in the contract of agent has the right to receive reasonable remuneration for his work for the principal.
An agent, when he has wholly carried out the business of the agency has the right to be remunerated for any expenses suffered by him while conducting the business. The agent has a right to retain any sums received on account of the
principal in the business of the agency, all money due to himself in respect of his remuneration, and advances made or expenses properly incurred by him in conducting such business.

Right of Lien-(sec – 221)-

If the agent is not paid lawful charges remunerations or expenses by his principal and of goods of the principal are under his control he can retain the goods until the lawful charges are paid by the principal. This right last till the lawful charges are fully satisfied. Right of Lien on Principal’s property means the agent has the right to hold (keep with himself) any movable or
immovable property of the Principal until his due remuneration is paid to him by the Principal. In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other property.

Right to get indemnity- (sec – 222- 224)

If the principal removes the agent without concrete reason agent has the right to claim compensation from his principal. Therefore, the agent has also the right to continue business performance until nothing is wrong done by an agent. The agent has the right to be indemnified against all the lawful acts done by him during the course of conducting the Principal’s business. Indemnified by a principal in respect of the contract and all losses/liabilities provided the agent acted within his authority.
o Indemnity for civil wrong- (sec 223)
o No indemnity in case of criminal offenses (sec 224)

Right of retainer–(sec – 217 &218)

An agent has the right to retain any remuneration or expenses incurred by him while conducting the Principal’s business.

Right to Compensation– (sec 225)

The Agent has the right to be compensated for any injury or loss suffered by him due to the lack of skill and competency of
the Principal.

Right of stoppage in transit-

Where he has bought goods for his principal by incurring personal liability, he has a right of stoppage in transit against the principal, in respect of the money which he has paid or is liable to pay. Where he is personally liable to the principal for the price of the goods sold, he stands in the position of an unpaid seller towards the buyer and can stop the goods in transit on the insolvency of the buyer.

Delegation

General rule: The general rule is that an agent cannot lawfully employ another act, which he has expressly or impliedly undertaken to perform personally.

Exceptions
 There is a custom or usage of trade to that effect.
 Where the power of the agent to delegate can be inferred from the conduct of both the principal and the agent.
 When the principal is aware of the intention of the agent to appoint a sub-agent the does not object to it.
 When principle permits the appointment of a sub-agent.
 If the nature of the agency is such that the sub-agent is necessary
 The extent of Agents authority
 Lawful Acts
 Emergency Authority
 Ostensible Authority

Liability of principal

Sec 226- for contracts relationship between the principal and the 3rd persons becomes bound towards a third person as if he entered into the contract himself.

• Principal’s liability when agent exceeds authority- principal is not liable.
• Position when the authorized and unauthorized acts are separable sec- 227
• Principal’s liability for notice to the agent – sec 299

• Principal’s liability for agent’s fraud, misrepresentation and torts (sec -238)-do not fall within their authority – it does not affect their principals.

Personal Liability of an Agent

General Rule – No personal liability [Sec.230], In the absence of contract to contrary, an Agent cannot –

• personally, enforce contracts entered into by him, on behalf of his Principal,
• be held personally liable for them. This is because the Agent merely acts on behalf of his Principal. Thus, he enjoys immunity from being personally sued.