Rights, Duties and Responsibilities of an Agent to his Principal

Section 182 of the contract act defines, “An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is represented, is called the principal”.

The function of an agent is essentially to bring about contractual relations between the principal and third parties. An agent has certain rights, duties and liabilities towards the principal and third parties depending upon the nature of business. These rights, duties and liabilities can be generated as:-

Rights of an Agent

i) Right to Receive Remuneration – The agent is entitled to receive an agreed remuneration or reasonable remuneration unless otherwise agreed upon. An agent has a right to claim his remuneration on completion of his work, even if the contract never materializes on account of breach. But, if an agent is found guilty of misconduct or fraud, etc. he has no right over remuneration. In addition, he is entitled or liable to compensate the principal for any such loss.

ii) Right of Retainer: An agent has the right to retain any sum, received by him on behalf of his principal from the third parties, which may fall due as part of his remuneration, or advances or expenses incurred in the general conduct of business.

iii) Right of Lien: An agent has the right to retain any movable or immovable property, papers or goods of the principal received by him, until the amount of commission due to him is received. This kind of  a lien is a ‘Particular lien’ which will end as soon as the possession is cost. However, by a special contract such a lien can be extended to a ‘General Lien’.

iv) Right to be Indemnified Against Consequences of Lawful Acts: An agent has also the right to be indemnified against the consequences of all lawful acts done by him in exercise of authority conferred upon him. This right of the agent is obvious for the simple reason that an agent is a representative of his principal.

v) Right to be Indemnified Against Consequences of Acts Done in Good Faith: An agent has the right to be indemnified against all acts done by him in utmost good faith ,where one person employs another to do an act and the agent does the act in good faith, the employer or principal is liable to indemnify the agent.

Eg.: A employs B to sell the goods in A’s possession B sells the goods unaware of the fact that C is the actual owner of the goods. C sues B for the recovery of the value of goods. In this case B has a right to be indemnified by A and to rum burse the  expenses incurred by B is the liability of A.

vi) Right to Compensation: The agent has a right to be compensated for injuries sustained by him due to the principals neglect or want of skill. However, the principal is not liable for any compensation for the injuries caused by the own neglect of the agent.

vii) Right of Stopping of Goods in Transit: An agent has a right to stop the goods in transit if:-

a) He has bought goods either with his own money or by incurring a personal liability for the price on behalf of the principal,

b) The principal has become insolvent of/and

c) When an agent, e.g. del Credere agent is personally liable to his principal to his principal for the price of the goods sold, he can exercise the unpaid seller’s right and stop the goods in transit on the unsolvency of the buyer.

viii) Agent’s Right To do All Lawful Things: A person who is appointed as an agent has the right to do all lawful things which fall under the usual course of business.

ix) Right in Emergency: An agent has a right to do all such acts which could protect his principal from loss in case of emergency as would have been done in his own case, in a similar situation.

x) Right to Appoint Sub-Agent & Substitute Agent: An original agent has a right appointed would be responsible to the original agent, except in case of fraud, etc. Where an agent has an express or implied authority he may name another person as  substitute agent to act for his principal.

xi) Right  to Renounce His Agency: An agent is in full right to renounce his agency by giving a reasonable notice to  his principal.

xii) Right to Receive Compensation for Remature Revocation: If there is an express or implied conduct on the part of the agency that the agency would continue for a specified period and if there is previous revocation without any reasonable cause, the agent would have a right to compensation in such a case.

Duties and Responsibilities of an Agent

i) Duty of Follow Principal’s Directions of Customs: The first and the foremost duty of an agent is to act within the scope of authority conferred upon him and act according to the directions given by his principal. In the absence of any such instructions the agent should work according to the customs prevailing in the agency. If he acts otherwise he is liable to make good the loss caused by him.

ii) Duty to Carry Out Work With Reasonable Skill & Diligence: The agent must conduct the business with reasonable skill and diligence unless otherwise specified i.e. if the principal has notice of want of skill. In general the agent is expected to work in the manner as he would do in his own name.

iii) Duty to Render Accounts: It is the duty of the agent to maintain proper accounts of his principal’s property and render it to him on demanded, or periodically if so agreed upon.

iv) Duty to Communicate: It is the duty of the agent to communicate to the principal with full diligence any difficulty that may arise from time to time. He should obtain proper instructions from the principals, before taking any steps in facing the difficulty. But, if due to certain reasons he is unable to communicate the difficulty, he has full authority to take all reasonable steps to prevent loss.

v) Duty Not to deal on his On Account: It is the duty of the agent not to buy from or sell goods to the principal in his own account, which he is actually asked to sell or buy on his principal’s behalf, without obtaining prior consent of his principal, all material facts being disclosed.

vi) Duty not to make any profit out of his Agency Except his Remuneration: An agent stands in a fiducidary relation to his principal and therefore he must not make any secret profits from the agency. He is authorized only to a fixed remuneration or commission as the case may be. If the principal gets the notice of any such secret profit he can either recover the amount of profit from the agent, refuse to pay his remuneration, terminate the agency without prior notice, file a suit against his agent or can even repudiate the contract entered by his agent with the third party.

vii) Duty on Termination of Agency by Principal’s death or Insanity:  When an agency is terminated due to the death or insanity of his principal, it is the duty of the agent to take all steps to protect and preserve all the  interests entrusted to him.

viii) Duty not to delegate His Authority: It is the duty of an agent not to do his work i.e. to perform the work which he has expressly or impliedly undertaken to perform personally except  of specifically agreed upon.

ix) Duty  not to use the Information Obtained in the course of the Agency Against his Principal: It is  the duty of the agent not to use the information obtained in the course of business against his principal. If he does so, he must compensate the loss incurred by his principal.

x) Duty to Pay Sums Received for the Principal: It is the duty of the agent to pay all such sums to his principal which he may have received for him. He has the right to deduct any amount which may be outstanding in this account like remuneration, etc.

xi) Duty not to set up an Advance Adverse Title: When an agent receives goods from his principal or other sources, on behalf of the principal, it is the duty of the agent not to set up on adverse title i.e. his own title or title of third parties to it. If he does so, he can be held liable.

xii) Duty in Naming an Agent for his Principal: Selecting an agent for his principal, an agent is bound to put in same amount of discretion, as he would do in his own case, under similar circumstances.

Liabilities of an Agent

i) Liabilities in Respect of Damages and Misconduct:  In case of breach of contract by an agent, he is liable to pay damages. If he is found guilty of misconduct, the principal can hold back his  remuneration for that part of business which he has mis-conducted.

ii) Personal Liability of an Agent where Fixed by Trade Custom or Usage: If the trade custom or  usage in business specifies the personal liability of an agent, then hill be held personally liable for his misconducts, until unless specified.

iii) When an Agent Expressly Agrees to be Liable: When the contract expressly specifies that the agent shall be held personally liable in  case of breach of contract, then he can be held liable personally.

iv) Liability for his wrongful Acts: An agent is held liable personally when he acts beyond his authority or commits fraud or misrepresentation.

v) Liability for the Acts of Sub-agents: When an agent appoints a sub-agent, without having the authority to do so, hill be liable for all acts of the sub agent, both to the principal and the third party.

About Abey Francis

Abey Francis is the founder of MBAKnol - A Blog about Management Theories and Practices - and he's always happy to share his passion for innovative management practices. You can found him on Google+ and Facebook. If you’d like to reach him, send him an email to: [email protected]
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