East West University

BUS 361, Section 1

Assignment

Topic: Contract of Agency: Rights and Liabilities of an Agent

Submitted to:

Fariha Abedin
Senior Lecturer, Department of Law

Submitted by:

Ahnab Shahriar Mahin

2017-2-10-152

Department of Business Administration

Date of submission- 14-5-2020

 Contract of Agency: Rights and Liabilities of an Agent

Introduction

Section 182 of the Indian Contract Act defines an agent as, 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 so represented is called the "principal". The relationship between an agent and a
principal arises by appointment or by implication for commercial or contractual dealings. The
contract which creates the relationship between an agent and a principal is called an 'agency'.

Under a contract of agency, the agent is authorised to establish privity of contract between the
principal and a third party. Thus the function of an agent is essentially to bring about contractual
relationship between the principal and third party. After entering into a contract on behalf of the
principal with a third party, the agent ceases to be a party to the contract and the contract binds the
principal and the third party as if they have made it themselves.
Duties of an agent

1. Duty to follow principal's directions or customs (Section 211): the first duty of an agent is,
he should act according to the directions of the principal and act within the scope of his authority.
If he is in default, he must indemnify the principal for the loss, and must account for the profit
accrued, if any. In the absence of instructions, he must act according to the trade custom in the
same kind of business.

2. Duty to carry out the work with reasonable skill and diligence (Section 212): He must
conduct the business of agency with as much skill as is generally possessed by persons engaged in
similar business, unless the principal has notice of want of skill. If, by the nature of profession, an
agent is purported to have special skill, he must exercise that degree of skill ordinarily expected
from the members of the profession.

3. Duty to render accounts (Section 213): it is the duty of an agent to render proper accounts of
his principal' money or property and submit them to him periodically or on demand.

One should generate proper accounting for the principal.

4. Duty to communicate (Section 214): it is the duty of an agent to communicate with his
principal first, in case of any difficulty and obtain his instructions. The authority in emergency
calls only when the agent has tried to communicate with the agent and the principal is unreacha ble.

One cannot take any decision by themselves in case of changing circumstance, he must contact his
principal first.
5. Duty not to deal on his own account (Section 215 and 216): an agent must not deal on his
own account in the business of agency. He must not himself buy or sell goods to his principal that
he is asked to buy or sell on behalf of his principal with the principal's consent.

One cannot perform the act of buying or selling agency’s goods for or to himself.

6. Duty not to make any profit out of his agency except his remuneration (Section 217 and
218): an agent stands at a fiduciary relation to his principal and therefore he must not make any
secret profit out of his agency. He must deliver all monies including illegal gratification, to the
principal. He can however, deduct his remuneration and other lawful expenses spent by him. If his
acts are not bonafide, he will lose his remuneration for misconduct.

One cannot use the agency to make profit for themselves.

7. Duty on termination of agency by principal's death or insanity (Section 209): when an

agency is terminated by the principal dying or becoming of unsound mind, the agent must take on
behalf of the representatives of his late principal, all reasonable steps for the protections and
preservation of the interests entrusted to him.

8. Duty not to delegate authority (Section 190): an agent must not delegate his authority to
another person and perform the obligations himself.

9. Duty of confidentiality: He should not disclose confidential information.

One cannot disclose confidential information to customers or anyone outside the organization.

10. Duty not to choose own interest: His interest should not conflict with his duty.

For example, he cannot do anything for personal gain.

Rights of an agent

1. Right to receive remuneration (Section 219): an agent is entitled to remuneration and other
expenses properly incurred by him in the agency. The remuneration is either agreed or a reasonable
amount if not agreed, unless he agrees to act gratuitously.

An agent is entitled to his remuneration once he has completed his work even though the contract
is never executed on account of breach by either the principal or third party. But if he is guilty of
misconduct, he is not entitled to receive the remuneration.

2. Right of retainer (Section 217): an agent has a right to retain all monies due to himself in
respect of his remuneration and other expenses properly incurred by him for the business, from the
sums or profits received by him on account of the principal.

3. Right of lien (Section 221): an agent is entitled to retain the goods, papers and other property,
movable on immovable, of the principal for his claims, until the amounts due to him for
remuneration and disbursements have been paid to him.

5. Right to be indemnified by the principal for all lawful acts (Section 222): an agent has the
right to be indemnified against consequences of all lawful acts done by him in exercise of the
authority conferred upon him.

For instance,

B at Singapore under instructions from A of Calcutta, contracts with C to deliver goods. A does
not send the goods to B and C sues B breach of contract. B informs A of the suit and A authorizes
him to defend the suit. B defends and is compelled to pay damages etc. A is liable to B for such
damages etc.
Right to be indemnified against consequences of acts done in good faith (Section 223): When an
agent acts in good faith, the employer must indemnify him for the consequence of that act, though
it causes an injury to the rights of third parties.

For instance,

B, at the request of A, sells goods in the possession of A, but which A had no right to dispose of
B does not know this and hands over the sale proceeds to A. afterwards the true owner sues A and
recovers the value of goods and costs. A must indemnify B for what he has paid and for B's own
expenses.

6. Right to compensation (Section 225): The agent is entitled to be indemnified for the injury
caused to him by the principal's neglect or want of skill.

For instance,

A employs B as a brick-layer in building in a house and puts a scaffolding himself unskilfully and
B is in consequence, hurt. A must compensate B.

7. Right of stoppage of goods in transit: an agent has a right to stop the goods in transit to the
principal, if, (i) he has incurred personal expenses to acquire the goods or incurred personal
liability for the price and (ii) the principal has become insolvent.
Termination of Contract of Agency

A contract of agency is terminated in the following ways:

I. Termination by Act of the parties: When the parties by their act brings the agency to an
end.

1. Mutual agreement: an agency like any other contract can be terminated at any time by mutual
agreement between the principal and agent.

2. Revocation by the principal: the principal has the authority to revoke the authority of the agent
by notice, unless the agency is irrevocable. Notice must be given to the agent at any time before
the agent has exercised his authority. In case of a continuous agency, the principal may revoke it
for the future. However, when an agency is created for a fixed period and the principal revokes the
authority before the expiry of time without sufficient cause, the principal is bound to pay
compensation to the agent for losses, if any.

3. Renunciation by the agent: an agent has the authority to terminate agency by renunciation and
cannot be compelled to continue as agent against his will. An agent must give reasonable notice to
the principal otherwise the agent will be liable for compensation to the principal for losses, if any.
However, if the agency is for a fixed period, and the agent renounces without sufficient cause, he
will be liable for compensation.
 II. Termination by operation of law: when an agency automatically come to an end.

1. When the period of agency expires: if an agency is for a fixed period, at the end of that period,
the agency will come to an end even though the business may not have been completed.

2. When the purpose of the agency is accomplished: an agency comes to an end when the
business of agency is accomplished.

3. When the principal or agent dies or becomes of unsound mind: an agency will be
automatically terminated on the death or insanity of the principal or agent.

4. Insolvency of the principal: an agency comes to an end when the principal becomes insolve nt.
It does not affect the agency if the agent becomes insolvent.

5. When the subject matter of the contract is destroyed: when an agency is created to deal with
certain subject matter and the subject matter is destroyed, the agency will come to an end.

6. When the object of the contract becomes unlawful: when the object of an ney is declared by
law as unlawful, the agency will come to an end.

7. Dissolution of a company: when the principal or agent is an incorporated company, the agency
automatically ceases to exist on closure of the company.
8. When the principal or agent becomes alien enemy: if the principal and agent are nationals of
different countries and war breaks down between the two countries, the contract of agency is
automatically terminated.