Rights and duties of principal and agent
Rights and duties of principal and agent

Legal Rights and Duties of Agent and Principal

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Imagine that you are a regular customer at a grocery store in the nearby market, and there are 4 people at the store, one being the business owner and three helpers. One fine day, the owner was absent and one of the helpers was there when you bought a few goods and paid a previous debt. The next time when you visited the store, you were reminded by the owner to pay the previous debt, which you had already paid but the owner was clueless about, since the helper did not convey the same and had already left the job. Now, what is the scenario? Are you at fault for not making the payment to the owner directly? But didn’t the helper act as an agent of the owner on all previous occasions? Weird situation….right? Explore the rights and duties of agent and principal to understand where the helper skipped on performing his legal duties, and what are the rights of the owner being the principal to deal with the situation. 

Rights and Duties of Principal and Agent as per Law

Rights and Duties of Agent

While an agent is duty bound to act in accordance with the directions of the principal, there are certain duties which the agent needs to take care of. In addition, the agent enjoys certain rights as well in terms of the contract of agency, as discussed below. 

Rights of Agent against Principal

  • Remuneration – The relationship between principal and agent is based on an agreement to do the tasks in return for consideration. An agent is entitled to receive his/her salary from the principal for the work done. 
  • Reimbursement – Since the agents act on behalf of their principals, the circumstances may sometimes require the agent to make transactions. In such cases, the right of agent against principal includes reimbursement of the expenses so made.
  • Lien of Goods – Agents having goods/securities/properties of the principal in possession has the right to lien over them, as against the pending remuneration or any other expenses incurred. An agent also has the right to stop goods in transit as part of a lien.
  • Indemnification – An agent has the right to be indemnified for all the charges/expenses/liabilities incurred during the course of agency. 
  • Information – Being an agent to a principal, he/she may need proper instructions or information in order to execute the duties entrusted. Such information may be in the form of documents/records/or any other form held by the principal.
  • Termination of Agency – If the Principal breaches the agency agreement, or agent has valid reasons, he/she may seek termination of agency following the agreement and the applicable laws. 

Duties of an Agent to his Principal

  • Act within Authority – The role of an agent is defined and he/she has to act in accordance with the same. If the agent acts beyond what is required or decided, the principal has the right to delineate himself/herself from the act of agent, making such agent liable. Thus, it is important for an agent to strictly act based on the role he/she is entrusted with. 
  • Loyalty – Being an agent, it is a duty to act in the best interests of the principal. An agent is entrusted with the specific business to make sure that the agent acts for the principal and does not engage in ill practices for personal benefit.
  • Duty of Care – To perform their job efficiently, agents must exercise reasonable duty of care and diligence while carrying out their duties. They should act the best of their ability to achieve the goals assigned to them by the principal.
  • Disclosure of Information – While carrying out transactions on behalf of the principal, agents may absorb a lot of information which the principal may be entitled to know. Thus, it is the duty of the agent to disclose all crucial information which the principal should know in the best interest of the agency. 
  • Accountability – Acting for the principal, agents are accountable for their actions. They should keep handy certain records of transactions and maintain transparency in their actions.
  • Confidentiality – Being a business or transacting with a third party, there are several confidential aspects which may not be known to others. Thus, it is the duty of agent to maintain confidentiality of information or trade secrets as and when required, unless the principal authorises its disclosure or the circumstances required by law. 
  • Non-Compete – While acting on behalf of the principal, an agent transacts with several people. In case an agent terminates the agency and starts his/her business, such an agent cannot compete with the principal to use the previous contacts. Non-compete clauses are common in employment contracts these days. 
  • No Secret-Profits – While there may be several chances for an agent to make wrongful profits while transacting for the principal, it is the duty of the agent to avoid any secret profits or trading while acting in agency.

Rights and Duties of principal

Given below are the rights of a principal towards the agent, and the duties which a principal owes towards the agent.

Duties of a Principal

  • To Compensate – When a principal hires an agent to act on his/her behalf and carry out certain business, such an understanding is usually based in return of consideration decided. The agent is entitled to compensation for the tasks done for the principal in continuation of the agency agreement. 
  • Indemnifying the Agent – In case an agent has to spend anything while acting for the principal in extraordinary circumstances, or faces any losses in the course of agency, the agent is entitled to be indemnified by the principal.
  • Good Faith – Just the way an agent is supposed to act in the best interest of his/her agent, the condition applies to the principal as well. A principal should act in good faith and not engage in unfair practices which could have some negative impact over the agent.
  • Cooperation – Agency is a team consisting of principal and agent. While agent needs to act as per instructions received from the principal, it is the duty of principal to cooperate with the needs and requirements of the agent to efficiently carry out the tasks entrusted by the principal. 
  • Honesty – A principal should be honest with the agent for any expectations, instructions or disclosing relevant information which could affect the agent. Transparency in the relationship between principal and agent is crucial for agency.

Rights of Principal

  • Performance – Since the agent is entrusted with certain tasks by the principal in return for remuneration, it is the principal’s right to get the tasks performed by the agent. If the agent fails to perform in accordance with the agency agreement, the principal can sue him/her. 
  • Information – A principal has the right to seek information pertaining to transactions and all connected aspects performed by the agent during the agency. The principal cannot be kept in dark for the tasks entrusted to the agent. 
  • Termination – If the terms of the agreement allow, or there is a breach of contract by the agent, the principal has the right to seek termination of agency. The same has to be in compliance with the applicable laws. 
  • Damages – The relationship established through an agency works on the principle of vicarious liability, which means that the principal shall be liable for the acts of agents. However, that is for everything done within the authorised capacity as an agent. Anything done beyond that is the agent’s liability. In case the principal suffers any losses due to negligence or misconduct on part of the agent, the principal can seek damages for the same.
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