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MBA (G):2019-21

LEGAL ASPECTS OF BUSINESS

“Rights and Duties of Principal and Agents,


Termination of Agency”
AGENT AND PRINCIPAL (SEC 182)

Agent and principal are defined under Section 182 of the Indian Contract Act, 1872.
According to the section “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 so represented, is called the principal”

DUTIES AND RIGHTS OF AGENT

Duties of agent:-

An agent owes a number of duties to his principal which vary in degree according to the
nature of agency. These duties are as follows

1. To carry out the work undertaken according to the direction given by the principal.
(Sec 211)
2. To carry out the work with reasonable care, skill and diligence. (Sec 212)
3. To render proper accounts to his principal. (Sec 213)
4. To communicate with the principal in case of difficulty. (Sec 214)
5. Not to deal on his own account. (Sec 215)
6. To pay sums received for the principal. (Sec 218)
7. To protect and preserve the interest of the principal in case of his death or insolvency.
(Sec 209)
8. Not to use information obtained to the course of the agency against the principal
9. Not to make secret profit from agency.
10. Not to set up an adverse title.
11. Not to put himself in a position where interest and duty conflict.
12. Not to delegate authority (Sec 190)

Rights of Agents:-

An agent has the following rights against the principal:

1. Right to retainer (Sec 217)


2. Right to receive remuneration (Sec 219)
3. Right of lien (Sec 221)
4. Right to indemnification (Sec 222)
5. Right to compensation (Sec 225)
6. Right to stoppage in transit (Sec 225)

DUTIES AND RIGHTS OF PRINCIPAL

Duties of Principal:-

1. To indemnify the agent against the consequences of all lawful acts.


2. To indemnify the agent against the consequences of acts done in good faith.
3. To indemnify agent for injury caused by principal’s neglect
4. To pay the agent the commission or other remuneration agreed

Rights of Principal:-

1. To recover damages
2. To obtain an account of secret profits and recover them and resist a claim for
remuneration.
3. To resist agent’s claim for indemnity against liability incurred.

TERMINATION OF AGENCY (SEC 201)

The contract of agency is defined as one where one party-the principal, grants authority to
another party- the agent, to act on behalf of and under the control of the principal to deal with
a third party. An agency relationship is fiduciary in nature. An agency can be created by
express or implied appointment, necessity or estoppel. There are certain duties that the parties
owe each other. Since the relationship of agency is one that is based on trust, there may arise
where this trust no longer subsists and as a result, the agency may have to be terminated.

When Termination takes Effect

Termination of an agency takes its effect when it becomes known to an agent. When the
principal revokes the agency, it comes into effect only when it is known to the agent.
However, in the case of third parties, termination comes into effect only when such
termination of agency comes to their knowledge.
TERMINATION OF AGENCY

BY ACT OF BY OPERATION
THE PARTIES OF LAW

AGREEM REVOCATION BY REVOCATION BY


ENT THE PRINCIPAL THE AGENT

EXPIRY INSOLVENCY OF PERFORMANCE DISOLUTION OF A


OF TIME EITHER PARTY OF CONTRACT COMPANY
TERMINATION OF
DEATH OF DESTRUCTION OF PRINCIPAL SUB AGENT’S
EITHER SUBJECT BECOMING AN AUTHORITY
PARTY MATTER ALIEN ENEMY

BY THE ACT OF PARTIES

An agency may be terminated by the acts of either the principal or the agent as illustrated
below:-

By Agreement:

On the basis that agency relationship is created by agreement between the principal and the
agent, such a relationship can also be brought to an end by mutual agreement between the
parties, either in writing or orally.

Performance By The Agent


If an agent is appointed to accomplish a particular task or for a specific purpose, when the
task is accomplished by the agent or the specific purpose is attained, the agency will
terminate.

Revocation By The Principal

The authority of an agent may be revoked at any time by the principal. Any word or conduct
of the principal inconsistent with the continued exercise of the authority by the agent may
operate as a revocation of the agency.

Revocation’s of the agent’s power by the principal may not automatically discharge the
principal from liability to a third party who is entitled to rely from liability to a third party
who is entitled to rely from liability to a third party who is entitled to rely from liability to a
third party who is entitled to rely on the apparent authority of the agent on grounds of
representation by the principal of previous course of dealing with the agent’s before notice of
revocation is given to the third party. Therefore notice of revocation of an agent’s power
should be given to the third party as soon as possible.

BY OPERATION OF LAW:-

Operation of Law means rights or duties that are cast upon a party by the law, without any act
or agreement on the part of the individual including but not limited to an assignment for the
benefit of creditors, a divorce, or a bankruptcy.

Performance of the Contract

The most obvious mode of putting an end to the agency is to do what the agent has
undertaken to do so.

Expiry of Time

When the agent is appointed for a fixed period of time, the agency comes to an end after the
expiry of that time even if the work is not complete.

Principal Becoming an Alien Enemy

When the agent and the principal are aliens, the contract of agency is valid so long as the
countries of the principals and the agents are at peace.

Dissolution of a Company
When a company, whether principal or agent, is dissolved, the contract of agency with or by
the company automatically comes to an end

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