The principal-agent relationship is an
arrangement where one entity lawfully selects another person to act on its
behalf. In a principal-agent relationship, the agent works on behalf of the
principal and should not have the conflict of the interest in carrying out the
act. The relationship between the principal and the agent is called the law of
agency. The rule of agency establishes guidelines for such a relationship.
In this article, we will explain to you the
topics such as:
Who is an agent?
Who is a principal?
How to createan agency?
Types of agency
What are the types of agents?
What are the legal duties of agent and principal?
Rights of an agent
Termination of agency
What is the
meaning of an Agent and a Principal under the Law of Agency?
The Indian Contract Act, 1872 defines an
“Agent” under section 182 as a person who is employed to do any act
for another person or to represent another party in dealing with the third
party whereas the person for whom such act is represented is called the
principal. Therefore, the person who has delegated his or her authority will be
For example Joe
appoints Mary to deal with his bank transactions. In this case, Joe is the Principal, Mary is the Agent and the bank is the third party.
create an Agency under the Law of Agency?
An agency can create in two ways:
Authority: It means an agent has actually been told by the contract that the
agent may act on behalf of the principal.
Agreement: Implied authority is that authority where an agent has by virtue
of being reasonably necessary to carry out his or her express authority.
What are the
types of agents under the Law of Agency?
Here are the types you must know such as:
Sub-Agent is the agent who is appointed by another agent.
General Agent is the one who is employed to transact all the acts which are connected to the particular activity. Example: Manager of the firm.
Universal Agent is one who has an unlimited authority who is authorized to do all such acts which the principal can lawfully do.
Co-Agent is when the agent appoints the other agent to do any act jointly.
Special Agent is one who is authorized to do any act which is given by the principal in some particular transactions.
Substitute Agent is an agent to be appointed by the principal in the absence of the present agent.
Auction Agent is an agent who acts as the seller to the principal.
The broker is an employed agent to purchase and sell the goods on behalf of the principal.
Commission Agent is the one who buys the goods or sells the goods on behalf of the principal on the best possible terms.
What are the
legal duties of agents under the Law of Agency?
Agents are required to act up to the
following duties and standards:
Loyalty: An agent
owes his principal-agent agreement by a general obligation of allegiance. It
stands that the agent must subordinate his or her interests to those of the
principal if they fall within the agency relationship in addition.
Act by the
terms and the conditions of a contract: It is essential to perform following the
words and the requirements provided in the agreement with reference.
competence and diligence: In this, the agent needs to take the proper amount of care and
steps which is required in any difficult situation.
This requires that the agent act in a way that does not injure the critical
endeavor. The agent must take a reasonable attempt to provide the principal
with the relevant facts and the information.
instruction: It is essential to act following the commitment to meet the
principal’s right instruction.
What are the
legal duties of the Principal under the Law of Agency?
The principal also owes agents several
Contract: If the
principal breaches his or her obligations, then the agent can recover based on
the breach of contract claim.
Indemnify: In this
case when the agent unknowingly did any act without his or her knowledge, then
the principal has to guarantee the agent for his or her liability.
Good faith: The
principal must refrain from taking actions that could result in the loss for
the agent when the agent has not done any fault.
What are the
rights of an Agent?
An agent has the following five rights such
An agent can claim the advance payment for his or her services before
completing his or her task.
Right to the
remuneration: Under common law, an agent is only entitling to remuneration for
his or her services as an agent if the term of an agency agreement is provided.
compensation: In this, the agent can claim the compensation when he or she
found being cheated.
The right of
lien on the principal’s property: The right of lien is normally restricted to
a right of possession of the goods. It confers no right on the agent to sell or
charge or otherwise dispose of the same with this similarity.
be indemnified: An agent has a right to indemnified by his or her principal for
all the expenses which caused loss.
How the Agency Get Terminates?
The agency will get terminate in the following situations such as:
Expiry of Time
Contract is Completed
However,the contract establishes a
relationship of the agency which prevalent in business laws for the law of
agency. These can be express or implied. An agency creates when a person
delegates his or her authority to another person. It is when a person appoints
them to do any specific job in the specified areas of work. This topic is
defined under the Indian Contract Act, 1872. The establishment of
principal-agent relationship confers rights and the duties on both parties.
There are many examples of the connection such as insurance agency, advertising
agency, travel agency, factors, etc.
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