RIGHTS AND DUTIES OF A PRINCIPAL IN A CONTRACT OF

AGENCY

Law of Contract-II (4.5)

Submitted by

SUBHAM DAS
SM0117051
2nd year, IV semester
B.A.LL.B (Hons.)

Faculty in Charge

Mrs. DAISY CHANGMAI

National Law University and Judicial Academy, Assam

 TABLE OF CONTENT
CHAPTER 1 ..............................................................................................................................3
INTRODUCTION .....................................................................................................................3
1.1 RESEARCH PROBLEM: .........................................................................................................3
1.2 LITERATURE REVIEW: .........................................................................................................3
1.3 SCOPE AND OBJECTIVE: ......................................................................................................4
1.4 RESEARCH METHODOLOGY: ................................................................................................4
CHAPTER 2 ..............................................................................................................................5
PRINCIPLES OF A CONTRACT OF AGENCY ...................................................................5
2.1 DIFFERENCE BETWEEN AN AGENT AND A SERVANT..............................................................5
2.2 NATURE OF AUTHORITY OF AGENT .....................................................................................5
2.3 ESSENTIAL FEATURES OF AGENCY .......................................................................................7
CHAPTER 3 ..............................................................................................................................9
RIGHTS OF THE PRINCIPAL ...............................................................................................9
3.1 THE AGENT’S DUTY TO THE PRINCIPAL OR THE RIGHTS OF THE PRINCIPAL ....9
3.2 REMEDIES OF THE PRINCIPAL................................................................................... 11
CHAPTER 4 ............................................................................................................................ 13
DUTIES OF A PRINCIPAL ................................................................................................... 13
4.1 DUTY TO COMPENSATE ..................................................................................................... 13
4.2 DUTY OF REIMBURSEMENT AND INDEMNITY ...................................................................... 13
4.3 REMEDIES OF THE AGENT.................................................................................................. 14
CHAPTER 5 ............................................................................................................................ 15
TERMINATION OF AGENCY ............................................................................................. 15
AGENCY MAY BE TERMINATED IN ANY OF THE FOLLOWING WAYS: ................ 15
5.1. BY ACT OF PARTIES: ......................................................................................................... 15
5.2. BY OPERATION OF LAW:................................................................................................... 16
5.3. OTHER MODES OF TERMINATION OF AGENCY:.................................................................... 18
CONCLUSION ....................................................................................................................... 19
BIBLIOGRAPHY ................................................................................................................... 21

2
 CHAPTER 1

INTRODUCTION
Agency is a special type of contract. The concept of agency was developed as one cannot
possibly do every transaction himself. Hence, he should have opportunity or facility to transact
business through others like an agent. Principles of contract of agency- (a) Expecting matters of a
personal nature, what a person can do himself, he can also do it through agent (e.g. a person
cannot marry through an agent, as it is a matter of personal nature). (b) A person acting through
an agent is acting himself, i.e. act of agent is act of principal. Since agency is a contract, all usual
requirements of a valid contract are applicable to agency contract also except to the extent
excluded in the Act. One important distinction is that as per Sec. 185, no consideration is
necessary to create an agency.

Who may employee an agent- Any person who is of the age of majority according to the law to
which he is subject, and who is of sound mind, may employee an agent (Sec. 183). Thus any
person competent to contract can appoint an agent.

Who may be an agent- As between the principal and third person any person can become an
agent, but no person who is not of the age of majority and of sound mind can become an agent,
so as to be responsible to his principal according to the provisions in that behalf herein contained
(Sec. 184). The significance is that a principal can appoint a minor or person of unsound mind as
agent. In such case, the principal is responsible to third parties.

1.1 Research Problem:

The research paper aims to give a proper understanding of the duties and rights of a principal in a
contract of agency. The concept of agency was developed as one cannot possibly do every
transaction himself. Because of these agencies were formed, this paper will look into the rights
and duties of a principal in a contract of agency.

1.2 Literature Review:

1. SINGH, AVTAR. (DR.), “INDIAN CONTRACT ACT”, ED.9TH, (2005), AND “LAW OF
CONTRACT & SPECIFIC RELIEF”, ED.11TH, (2013), EASTERN BOOK COMPANY,
LUCKNOW,

3
This popular book, now in its fifth edition, deals with the Contract Act, 1862 and the Specific
Relief Act, 1963. The present work provides a summary version in a combined manner of all the
statutory provisions and judicial pronouncements on them. The presentation has been shaped as a
text material. During the period between the present and preceding editions, there have been no
statutory changes. New trends in the subjects have emerged only through judicial

2. POLLOCK & MULLA, “INDIAN CONTRACT AND SPECIFIC RELIEF ACTS: WITH A
COMMENTARY, CRITICAL AND EXPLANATORY”, ED.9TH, (1972), BY JEEVAN LAL
KAPUR & N. M. TRIPATHI, BOMBAY.

This updated edition covers the latest case law and legislative amendments till date as well as the
current developments in the law relating to contracts in India. All notable decisions of the
Supreme Court and various High Courts and the changes made by the various Amending Acts
have been incorporated at appropriate places in the book. In addition, it contains provisions of
relevant sections of other statutes.

1.3 Scope and Objective:

The scope and objectives of the following paper are:

• Principles of a contract of agency

• Rights of the principal in a contract of agency.
• Duties of the principal in a contract of agency.
• Termination or determination of agency.

1.4 Research Methodology:

In this research work, the Doctrinal Method of Explanatory Research Design is employed for an
in-depth study and understanding of the rights and duties of a principal in a contract of agency.

Explanatory Research Design: This method is employed in order to understand, analyze

and study and understanding of the rights and duties of a principal in a contract of agency.

Secondary sources such as books, articles and journals have been used for the collection of
information for the research work.

4
 CHAPTER 2

PRINCIPLES OF A CONTRACT OF AGENCY

Contracts of agency are based on two important principles, namely:

a) Whatever a person can do personally shall also be allowed to be done through an agent
except in case of contracts involving personal services such as painting, marriage,
singing, etc.
b) He who does not act through a duly authorized agent does it by himself, i.e., the act of the
agent are considered the acts of the principal (Sec. 226).

2.1 Difference between an Agent and a Servant

1) Scope of authority: An agent can create a contractual relationship between the principal
and third parties. But a servant cannot create contractual relationship between its
employer and third parties.
2) Remuneration: An agent receives commission for his services. A servant is generally
paid wages or salary.
3) On whose behalf: An agent may work for several principals at the same time. A servant
can serve only one master at a time.
4) Control: An agent is not subject to direct control and supervision of the principal. He is
often discretion. But a servant acts under the direct control and supervision of his master
and must follow all his reasonable order.
5) Liability of principal: The principal is liable for all the wrongful acts of his agent which
are within the “scope of his authority.” But the master is bound by the wrongful acts of
his servant if done in the course of servant’s employment.

2.2 Nature of Authority of Agent

According to Sec. 226, the contracts entered into through an agent, and obligation arising from
an act done by an agent, may be enforced in the same manner, and will have the same legal
consequences as if the contracts had been entered into and the acts done by the principal in the

5
person. In other words, the principal is liable for the acts of the agent in the same manner as if he
himself has done those acts.1

The authority of the agent to bind the principal may be of the following types:

1) Actual or real authority: It is the authority conferred by the principal on the agent. It
may be expressed or implied (Sec. 186).

Example: A of London employed B of Mumbai to recover a debt due. B may adopt any
legal process that may be necessary for the purpose of recovering the debt and may give a
valid discharge for the same. (Illustration (a) Sec.188).

In terms of Sec. 188, an agent has the authority to do every lawful thing which is necessary
to do the act. He can do every lawful thing for the purpose.

2) Ostensible or apparent authority: It is the authority of an agent which appears to others.

When an agent is employed to do a particular business, those dealing with him can
presume that he has the authority to all such acts as are necessary, or incidental to such
business. This authority may coincide with actual authority and may even exceed it.

Example: The kerala high court has held in Valappad Cooperative Society Ltd. vs.
Srinivasa Iyer AIR 1964 Ker. 176, that a person authorized to carry on the business of a
cooperative society must be deemed to have the authority to purchase goods on credit not
withstanding that the society had advanced high enough money for the purpose.

Section 237 incorporates the principle of the ostensible authority which covers cases where
agent has acted without authority of the principal.

3) Agent’s Authority in an emergency: According to Sec. 189, an agent has authority in an

emergency to do all such acts, for the purpose of protecting his principal from loss as
would be done by a person of ordinary prudence, in his own case ,under similar
circumstances.

1
Singh, Avtar. (Dr.), “Indian Contract Act”, ed.9th, (2005), and “Law of Contract & Specific Relief”, ed.11th,
(2013), Eastern Book Company, Lucknow

6
 Example: An agent for sale may have the goods repaired if it be necessary. (Illustration 9
a) to Sec. 189)

2.3 Essential features of agency

Agency has certain essential features. They are as follows:

1) Agency implies that one person (i.e. an agent) brings two other persons (i.e. a principal
and a third person) into contractual relationship. 2

That means an agent is a connecting link between the principal and the third person.

2) An agent is not a mere a connecting link between the principal and the third party. He
also creates a legal relationship between the principal and the third party.

That is he makes the principal answerable to the third party for his acts and also entitles
the principal to all the benefits accruing from his acts.

3) An agency can be established to do any act which the principal could do lawfully.

That means an agency can be established only for lawful acts. If an agency is established
for an unlawful act it cannot be enforced by law.

4) Agency can be created only for those acts which can be delegated by a person to another.
3

That means agency cannot be created for acts which must be done by a person himself
and cannot be delegated to an agent say painting, marrying, singing.

2
Singh, Avtar. (Dr.), “Indian Contract Act”, ed.9th, (2005), and “Law of Contract & Specific Relief”, ed.11th,
(2013), Eastern Book Company, Lucknow
3
ibid

7
 5) The agency relationship may be established by a contract between the principal and the
agent which may be written or oral, or may be established by implications, as in the case
of husband and wife, master and servant etc.4
6) Though a valid contract requires that both the contracting parties must be competent to
contract, for a contract of agency, it is enough if only the principal is competent to
contract.

The agent need not be competent to contract. In other words an agent may be
incompetent to contract, say a minor, lunatic, idiot etc.

7) There should be the intention on the part of the agent to act on behalf of the principal. 5

As such, if a person intends to act on behalf of another an agency arises even if the
contract between the parties provides that there is no such relationship. On the other hand
if a person intends to act on his own behalf and not on behalf of another there cannot
arise any agency, even if the person contends that he is an agent

8) No consideration is necessary to create an agency. 6

The fact that the principal has agreed to be represented by the agent is a sufficient
detriment to the principal to support the contract the contract of agency. Though no
consideration is necessary to support a contract of agency, an agent may be paid for. That
means an agent may be paid for his services.

9) An agent is appointed with specific instructions and is authorized to act within the scope
of the instructions (i.e. the authority). 7

As such the agents within the scope of his authority are regarded as the acts of the
principal and such acts bind the principal as if the principal has done them himself.

4
Singh, Avtar. (Dr.), “Indian Contract Act”, ed.9th, (2005), and “Law of Contract & Specific Relief”, ed.11th,
(2013), Eastern Book Company, Lucknow
5
ibid
6
Bangia, R.K. (Dr.), “Law of Contract & Specific Relief with Special emphasis on Law of Tender”, 1994(1), reprint
2015.
7
ibid

8
 CHAPTER 3

RIGHTS OF THE PRINCIPAL

The rights of the principal are maintained by the agent, it is the duty of the agent which gives the
principal his rights. Therefore to understand the rights of the principal we need to understand the
duties of the agent in a contract of agency. As the duty of the agent is the right of the principal.

3.1 THE AGENT’S DUTY TO THE PRINCIPAL OR THE RIGHTS OF

THE PRINCIPAL
Since most agency relationships are established by contract, the agent’s duties/obligations largely
are defined by the terms of the contract but additional duties generally are established by agency
law, unless the contract specifically excludes or modifies them. These duties arise from the trust
and confidence that forms the foundation of an agency relationship and are termed fiduciary
duties. They are owed by the agent to his/her principal. Fiduciary duties can arise even if the
agent is not compensated (i.e. a gratuitous agent). Under most circumstances, the gratuitous
agent is not required to act for the principal but is required to perform when he/she causes the
principal to reasonably rely on the agent and refrains from undertaking a particular act as a result
of that reliance. Section 211 to 221, of the Indian Contract Act, deals with the duties of the agent
toward the principal in a contract of agency.

The following are duties of the agent:

3.1.1 Loyalty (211)

A duty of loyalty occurs because the agency relationship exists for the benefit of the principal
and the agent must endeavor to use his/her best efforts to advance and support the principal’s
interests. Thus, the agent must avoid frustrating the principal’s interests and undertaking
activities that conflict with the interests of the principal. Generally, the agent is forbidden to
"deal with himself" when conducting the affairs of his/her principal. For example, selling the
principal’s property to himself/herself or undertaking transactions (on behalf of the principal
with his/her relatives or businesses in which he/she has an interest) represent potential conflicts

9
of interests and require the informed consent of the principal after all relevant facts have been
disclosed. 8

The agent also is forbidden to compete with the principal; for example by bidding against the
principal or by soliciting the customers of the principal for his/her own business (while still
employed). Further, the agent is forbidden to act on another’s behalf in a transaction with the
principal unless both of the principals consent to the agent’s dual role. In some situations the
agent is a middleman whose role is to form associations between parties but is not required to
advise the parties or negotiate for them.

Finally, the agent has a duty not to disclose or use confidential information (the requirement of
confidentiality) that is obtained during the agency relationship. Such information might include
business plans, detail of financial health, discoveries pertaining to technology or natural
resources, customer files, etc. Unless there is an agreement to the contrary, upon the termination
of the relationship an agent has the right to compete with the principal and may use general
knowledge and skill acquired during the relationship. The agent does NOT have the right to use
or disclose confidential information.

3.1.2 Duty to Obey Instructions (Sec. 211)

Because the agent is required to act for the principal’s benefit and under his/her control, the
agent must obey all reasonable instructions. However, an instruction which requires an illegal or
unethical act (such as misrepresenting the quality of the principal’s property) does not need to be
obeyed; an agent is obligated to seek clarification when the principal’s instructions are
ambiguous, unclear, or otherwise misleading. While it is the agent’s duty to seek clarification
about the instructions, if there is any doubt the agent can use his/her judgment if the principal
cannot be reached.

Under some conditions, the reasonable judgment of the agent also can be used to justify the
agent following a course of action that contradicts the principal’s instructions particularly when
following the instructions would cause greater injury to the principal. 9

8
Bangia, R.K. (Dr.), “Law of Contract & Specific Relief with Special emphasis on Law of Tender”, 1994(1), reprint
2015.
9
A. C .Moitra , “ LAW OF CONTRACT AND SPECIFIC RELIEF ACT, 6th ed, 2012

10
3.1.3 Duty to Act with Skill and Care (Sec. 212)
An agent is required to perform his/her duties with the same level of skill and care as a similarly
situated (geographically) person performing the same (or similar) activities. Generally a
gratuitous agent will be held to a lower standard than a paid agent. This may not be true for a
professional services contract/agency relationship, where the same standard is usually required.
A higher standard also is required if the agent has represented to the principal that he/she
possesses a higher standard of skill and that this was a factor in the formation of the relationship.
The standard or degree of care can be increased or decreased by contractual agreement and the
agent may even warrant (expressly or impliedly) that his/her performance will be satisfactory to
the principal. If a warranty (either express or implied) is not provided, then the principal assumes
the risk of failure.10

3.1.4 Duty to Notify (Sec. 214)

One of the responsibilities of the agent is to promptly notify the principal of important matters
that pertain to or reasonably might be associated with the subject matter of the principal’s
business; a responsibility that is exacerbated by the fact that the agent’s knowledge can be
imputed to the principal. There is no duty to notify when the information is either privileged or
confidential with respect to another party. 11

3.1.5 Duty to Account (Sec. 213, 215)

As the agent of the principal and unless otherwise agreed, the agent must conduct all moneys,
property, or incidental benefits received during the course of the agency relationship, to the
principal’s account. Incidental benefits include profits or bribes that arise from the agent’s breach
of loyalty to the principal, gifts from third parties etc., tips, entertainment and so on. In addition,
the agent is required to keep accurate records of the principal’s business transactions and to make
them available to the principal. The principal’s funds/assets must be kept separate (not
commingled) from the agent’s accounts.12

3.2 REMEDIES OF THE PRINCIPAL

If the agent breaches a duty, either established in the contract or a fiduciary duty described
above, the following remedies may be available to the principal:
10
Singh, Avtar. (Dr.), “Indian Contract Act”, ed.9th, (2005), and “Law of Contract & Specific Relief”, ed.11th,
(2013), Eastern Book Company, Lucknow
11
ibid
12
ibid

11
• If the relationship was created by contract, the principal may recover damages for breach of
contract.
• Injunctive relief may be obtained if the agent discloses, or threatens to disclose confidential
information or appropriates (or threatens to appropriate) the property of the principal.
• The agency contract may be rescinded if the agent represents two principals with the potential
for conflicting interests without disclosing relevant facts.
• If money or properties are retained by the agent when they are due to the principal, the agent is
liable for the full amount of unjust enrichment.
• Various tort actions also can provide relief, allowing recovery for negligent actions (such as
failing to notify the principal or follow instructions) or misappropriating the principal’s
property (conversion) by theft, transfer, or destruction.

12
 CHAPTER 4

DUTIES OF A PRINCIPAL
Agency law establishes that the principal has several duties to the agent, most of which can be
modified or eliminated by agreement between the parties. Section 222 to 225 deals with the
duties of the principal. The main duties of the principal according to the Indian Contract Act are:

4.1 Duty to Compensate

Generally, the compensation due to the agent is established in the contract. However, when there
is no provision, the circumstances surrounding the agency relationship determines the level of
compensation. At such times, compensation will be based on the market value or customary
price of the services provided by the agent. In the absence of a contractual provision, the
principal may not be liable for acts that are not requested or consented to. If the agent has
materially breached the contract or committed a serious violation of the fiduciary duty, then the
principal generally will not be obliged to compensate the agent.
Under some conditions, the agent’s compensation may be contingent on achieving a specified
result (e.g. some attorneys work on a contingent fee basis, as do real estate agents). Generally,
the agent is only entitled to compensation if the result is achieved within a specified period of
time (regardless of whether the principal benefits from the agent's efforts), or a reasonable period
of time if no period is specified. Compensation on a contingent fee basis generally is independent
of the expenditures of the agent and the principal must cooperate with, and not frustrate the
agent's activities, otherwise compensation is due regardless of the failure to achieve the specified
result.13

4.2 Duty of Reimbursement and Indemnity

Unless the agent is retained on a contingent fee basis, or otherwise agreed, an agent is entitled to
reimbursement of expenditures incurred on behalf of a principal. Such expenditures should be
the result of a direct request by the principal or reasonably should be inferred from the services
requested by the principal.

13
Singh, Avtar. (Dr.), “Indian Contract Act”, ed.9th, (2005), and “Law of Contract & Specific Relief”, ed.11th,
(2013), Eastern Book Company, Lucknow

13
A related duty is that of indemnity. Under agency law, a principal impliedly promises to
indemnify the agent for any losses that are incurred while the agent is undertaking activities that
are authorized by the principal. These losses are usually legal liabilities that arise when the agent
becomes liable on a contract undertaken for the principal (but not including liabilities for actions
that the agent knew, or should have known were illegal). 14

4.3 Remedies of the Agent

Generally, the principal's breach of duties is contractual and the remedies available for contract
disputes are available except for specific performance (which might exacerbate the problems in
the relationship between principal and agent).15

14
Singh, Avtar. (Dr.), “Indian Contract Act”, ed.9th, (2005), and “Law of Contract & Specific Relief”, ed.11th,
(2013), Eastern Book Company, Lucknow
15
ibid

14
 CHAPTER 5

TERMINATION OF AGENCY

Agency may be terminated in any of the following ways:

5.1. By act of parties:

(Sec. 201) Agency may be terminated by act of the parties in any of the following ways:

5.1.1. By Mutual Agreement: Agency may be terminated by the parties by an agreement at any
time by mutual consent. An agency may be terminated by the terms of the original agency
agreement or by a subsequent agreement acceptable to both the principal and the agent.
Termination may be predetermined by the passing of a specified period of time or by the
completion of certain designated tasks. 16

5.1.2. By Breach of one of the parties: Should either the principal or the agent breach the
agency agreement by renunciation of future obligation or by failure to perform as agreed in the
contract, the agency will have been terminated. The party creating the breach, as in all other
types of contracts will be liable to the other for damages. 17

Example: Suppose an engineer – designer in the employ of Data Processing Corporation quit the
job without obtaining a company release. The corporation could hold the engineer liable for any
damages suffered by his breach of the employment contract.

5.1.3. By Revocation of the agency by the Principal: Contracts of agency containing no terms
as to duration are said to exist at will. The principal has the right to revoke the agency agreement

16
Pollock & Mulla, “Indian Contract and Specific Relief Acts: with a commentary, critical and explanatory”, ed.9th,
(1972), by Jeevan Lal Kapur & N. M. Tripathi, Bombay.
17
Singh, Avtar. (Dr.), “Indian Contract Act”, ed.9th, (2005), and “Law of Contract & Specific Relief”, ed.11th,
(2013), Eastern Book Company, Lucknow

15
and discharge the agent for incompetence, disloyalty, or similar shortcomings. If the principle
exercises his right of revocation, he must pay the agent what is due him under the agreement. 18

Example: An extra salesman was employed by Data Processing Corporation to help out during
the showing off new equipment that was being released to the trade. When the salesman’s
services were no longer needed, Data Processing revoked the agency by notifying the salesman
that he was no longer needed and paid him for his services. As no duration was mentioned in the
original contract agreement, the agency was said to exist as well.

5.1.4. By completion of performance: When the business for which the agency was constituted
is completed or performed, the agency is terminated.19

Example: when an agent is appointed to sell a house is sold.

5.2. By operation of Law:

Agency agreements may be terminated for reasons beyond the control of either the principal or
the agent. In such cases termination is said to result from operation of law.

5.2.1. Death: With the exception of an agency coupled with an interest, the death of either party
terminates the agency immediately. Notice to a third party is not necessary, as the law assumes
notice to all at the time of death. 20

5.2.2. Illness: An agency relation is terminated if the Agent is too ill to perform his duties. Under
ordinary circumstances, the illness of the principal has no effect upon the operation or the
termination of the agency. 21

5.2.3. Insanity: The insanity of either the principal or the agent terminates the agency. If the
principal becomes insane, however, and the agent makes a valid agreement with a third party

18
ibid
19
Singh, Avtar. (Dr.), “Indian Contract Act”, ed.9th, (2005), and “Law of Contract & Specific Relief”, ed.11th,
(2013), Eastern Book Company, Lucknow
20
ibid
21
ibid

16
who has no knowledge of the insanity, the contract will be allowed to stand. In this way, insanity
differs from death as a terminating factor.22

5.2.4. Bankruptcy: The bankruptcy of either party terminates the agency. In case of bankruptcy
of the principal, the agency is terminated because title to the principal’s property is vested in a
trustee for the benefit of his creditors.23

5.2.5. Impossibility of Performance: The destruction of the subject matter or the imprisonment
of the agent makes performance impossible. Therefore, the agent is terminated. 24

Example: Burke was hired by Data Processing Corporation to make a series of photographs of a
new computer which had been recently been completed for overseas shipment. Before Burke
could take the pictures, he was arrested as a suspect involving a capital crime. Failure to secure
bail resulted in Burke’s imprisonment. Impossibility of performance owing to Burke’s
imprisonment will terminate the agent agreement.

5.2.6. War: A contract of agency is inoperative in time of war if the agent or the principal is an
enemy alien.25

Example: Data Processing Corporation engaged an electronic engineer who had entered the
United States as a displaced person from a European country. Hostilities broke out between the
United States and the country of which he was a citizen. Because the engineer was an enemy
alien and in a position to aid the enemy through work being done by his employer, he is subject
to dismissal. The revocation of the agency agreement by Data Processing cannot be used by the
engineer as a cause of action for breach of contract.

22
ibid
23
Pollock & Mulla, “Indian Contract and Specific Relief Acts: with a commentary, critical and explanatory”, ed.9th,
(1972), by Jeevan Lal Kapur & N. M. Tripathi, Bombay.
24
R. L. Meena , “ LAW OF CONTRACT “ , 2008

25
Bangia, R.K. (Dr.), “Law of Contract & Specific Relief with Special emphasis on Law of Tender”,

17
5.3. Other modes of termination of agency:

5.3.1. By efflux of time: Where an agency is for a fixed period of time, it is terminated on the
expiry of time whether the purpose for which the agency is constituted is accomplished or not.

5.3.2. By destruction of the subject matter: when the subject matter of the agency is destroyed,
the agency is terminated.

5.3.3. By incapacity of principal or agent: where a principal or a agent possesses any

disqualification essential to a contract, agency is terminated.

5.3.4. Principal or agent becoming an alien enemy: where the principal or the agent belongs to
different countries and they become alien enemies, the agency is terminated.

5.3.5. By object of agency becoming unlawful: when by the happening of an event which
renders agency or its object unlawful, the agency is terminated.26

26
Bangia, R.K. (Dr.), “Law of Contract & Specific Relief with Special emphasis on Law of Tender”,

18
 CONCLUSION
An agency is the creation of a contract entered into by mutual consent between a principal and an
agent. By agency, a principal grants authority to an agent to act on behalf of and under the
control of the principal. The relation between a principal and an agent is fiduciary and an agent’s
actions bind the principal. The law of agency thus governs the legal relationship in which an
agent deals with a third party for his/her principal.

An agent owes certain duties towards his/her principal and a principal owes certain duties
towards his/her agent. The scope of an agent’s duty to the principal is determined by the terms
of the agreement between the parties and extent of the authority conferred and the obligations of
loyalty to the interests of the principal.

An agent’s primary duties are to act on behalf of and be subject to the control of the principal;
act within the scope of authority or power delegated by the principal; discharge his/her duties
with appropriate care and diligence; and avoid conflict between his/her personal interests

Other duties of an agent include: not to acquire any material benefit from a third party in
connection with transactions conducted or through the use of his/her positions as an agent; to act
with the care, competence, and diligence normally exercised by agents in similar circumstances;
to take action only within the scope of the his/her actual authority; to comply with all lawful
instructions received from the principal and persons designated by the principal concerning
agent’s actions on behalf of the principal; to act reasonably and to refrain from conduct that is
likely to damage the principal’s enterprise; An agent is liable to a principal when he/she acts
without actual authority, but with apparent authority. An agent is liable to indemnify a principal
for loss or damage resulting from his/her act.

A principal owes certain contractual duties to his/her agent. Correlative with the duties of an
agent to serve a principal loyally and obediently, a principal’s primary duties to his/her agent
include: To compensate the agent as agreed and to indemnify and protect the agent against
claims, liabilities, and expenses incurred in discharging the duties assigned by the principal.

Because of the fiduciary relationship, a principal owes his/her agent a duty of good faith and fair
dealing. However, a principal can be relieved of contractual obligations by an agent’s prior
breach of contract.
19
A principal has a duty to act in accordance with the express and implied terms of any contract
between a principal and an agent. When an agent acts within the scope of actual authority, the
principal is liable to indemnify the agent for payments made during the course of the relationship
irrespective of whether the expenditure was expressly authorized or merely necessary in
promoting the principal’s business.

20
 BIBLIOGRAPHY
BOOKS:

1. Singh, Avtar. (Dr.), “Indian Contract Act”, ed.9th, (2005), and “Law of Contract & Specific
Relief”, ed.11th, (2013), Eastern Book Company, Lucknow

2. Pollock & Mulla, “Indian Contract and Specific Relief Acts: with a commentary, critical and
explanatory”, ed.9th, (1972), by Jeevan Lal Kapur & N. M. Tripathi, Bombay.

3. Bangia, R.K. (Dr.), “Law of Contract & Specific Relief with Special emphasis on Law of
Tender”, 1994(1), reprint 2015.

4. S.S. Srivastava , LAW OF CONTRACT I&II , 4th ed. 2011, pp 296-329

5. A. C .Moitra , “ LAW OF CONTRACT AND SPECIFIC RELIEF ACT, 6th ed, 2012

6. R. L. Meena , “ LAW OF CONTRACT “ , 2008

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