Agreement is basically made to work properly for both the parties. Discuss the relationship of Principal & Agent which is controlled under Law of the Contract

Agreement is basically made to work properly for both the parties. Discuss the relationship of Principal & Agent which is controlled under Law of the Contract

Introduction

The arrangement takes places when one person or party acts on behalf of another party. Agreement is basically made to work properly for both the parties. When the agent is an expert at making the necessary decisions, but doesn’t work well when the interests of the principal and agent differ substantially. In general, a contract is used to specify the terms of a principal-agent relationship. The relation of principal and agent can only be terminated by the act or agreement of the parties to the agency or by operation of law. .”[1]An agency, when shown to have existed, will be presumed to have continued, in the absence of anything to show its termination, unless such a length of time has elapsed as destroys the presumption”

Definition of a Principal

Any person who has the legal capacity such as –they are not insane or mentally disordered,( or in certain circumstances a minor) to perform an act may be a principal and empower an agent to carry out that act. Persons, corporations, partnerships, not-for-profit organizations, and government agencies may all be principals and appoint agents.

Definition of an Agent

Any individual capable of comprehending the act to be undertaken is qualified to serve as an agent.

The purpose of this relationship called Agency

A contract to be made between two parties where one is an agent and another is considered as principle, where the agent on behalf of a principal is considered to be the contract of the principal and not that of the agent. It allows the principal to authorize somebody to carry out his/her duties, either for a specific purpose (i.e., purchasing a house) or generally (i.e., to conduct many transactions). The agency relationship is usually entered into by informal agreement, but also can occur by formal agreement. According to the law of contract the contract can be in both written and oral form but in certain cases, the agency relationship must be specified in writing.

Moreover the acts must be legal or valid. For example principal is not allowed to hire agent to kill someone or to deal with some illegal business such as drug supply.

Basic of the Agency relationship

Inherent in the Principal-Agent relationship is the understanding that the agent will act for and on behalf of the principal. The agent assumes an obligation of loyalty to the principal that he/she will follow the principal’s instructions and will neither intentionally nor negligently act improperly in the performance of the act. “2 An agent is hired to work on the wish or for the help of the principle so he/she cannot take personal advantage of the business opportunities the agency position uncovers. A principal, in turn, reposes trust and confidence in the agent. These obligations bring forth a fiduciary relationship of trust and confidence between Principle and Agent. In this relationship a hug number of trust and faith need to build up between both the parties.

Some obligations of the Agent to the Principal

An agent must obey reasonable instructions and information given by the Principle. The Agent must not do acts that have not been expressed or authorized by the Principle. The Agent should have reasonable, adequate care, skill and efficiency in performing the duties. Most importantly, the Agent must be loyal to the Principle. The A must refrain from putting herself in a position that would ordinarily encourage a conflict between the agent’s own interests and those of the principal (note: one might reflect on the role of certain Enron executives on “outside” limited partnerships that did business with Enron in the early 2000s). The Agent must keep the Principal informed as to all facts that materially affect the agency relationship.

Rescission of contract

The Principal can terminate an Agent’s authority or power at any time without giving any notice. If there is any reason for what the principle is not considering the agent trustworthy or the loyalty of the agent is doubtful which leads the contract between the Agent and Principal to be broken down, it is not reasonable to allow the Principal to remain at risk in any transactions that the Agent might conclude during a period of notice.

The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another called the principal, to create a legal relationship with another party known as third party. It may be referred to as the relationship between a principal and an agent whereby the principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. The agent is required to negotiate on behalf of the principal or bring him and third parties into contractual relationship.

The common law principle in operation is usually represented in the Latin phrase, interests qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her ownand it is a parallel concept to vicarious liability and strict liability in which one person is held liable in criminal law or tort for the acts or omissions of another.

In India, section 182 of the Contract Act 1872defines Agent as “a person employed to do any act for another or to represent another in dealings with third persons.

As per sections 201 to 210 of the Indian Contract Act 1872, an agency may come to an end in a variety of ways:

Withdrawal by the agent

However, the principal cannot revoke an agency coupled with interest to the prejudice of such interest. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e.g., where the goods are consigned by an upcountry constituent to a commission agent for sale, with poor to recoup himself from the sale proceeds, the advances made by him to the principal against the security of the

Rescission of contract

The Principal can terminate an Agent’s authority or power at any time without giving any notice. If there is any reason for what the principle is not considering the agent trustworthy or the loyalty of the agent is doubtful which leads the contract between the Agent and Principal to be broken down, it is not reasonable to allow the Principal to remain at risk in any transactions that the Agent might conclude during a period of notice.

The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another called the principal, to create a legal relationship with another party known as third party. It may be referred to as the relationship between a principal and an agent whereby the principal, expressly or impliedly, authorizes the agent to work under his control and on his behalf. The agent is required to negotiate on behalf of the principal or bring him and third parties into contractual relationship.

The common law principle in operation is usually represented in the Latin phrase, interests qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her ownand it is a parallel concept to vicarious liability and strict liability in which one person is held liable in criminal law or tort for the acts or omissions of another.

In India, section 182 of the Contract Act 1872defines Agent as “a person employed to do any act for another or to represent another in dealings with third persons.

As per sections 201 to 210 of the Indian Contract Act 1872, an agency may come to an end in a variety of ways:

Withdrawal by the agent

However, the principal cannot revoke an agency coupled with interest to the prejudice of such interest. An agency is coupled with interest when the agent himself has an interest in the subject-matter of the agency, e.g., where the goods are consigned by an upcountry constituent to a commission agent for sale, with poor to recoup himself from the sale proceeds, the advances made by him to the principal against the security of the

Recession by Act of the Parties

An agency relationship may be terminated by act of parties in a number of ways, including those discussed here. 4’

  • Lapse of Time. An agency agreement may specify the time period during which the agency relationship will exist. If so, the agency ends when that time expires. If not definite time is stated, then the agency continues for a reasonable time and can be terminated at will by either party. What constitutes a reasonable time depends on the circumstances and the nature of the agency relationship.
  • Purpose Achieved. An agent fan be employed to accomplish a particular objective, such as the purchase of stock for a cattle rancher. In that situation, the agency automatically ends after the cattle have been purchased. If more than one agent is employed to accomplish the same purpose, such as the sale of real estate, the first agent to complete the sale automatically terminates the agency relationship for all the others.
  • Occurrence of a Specific Event. An agency can be created to terminate on the happening of a certain event.
  • Mutual Agreement. Recall from basic contract law that parties can rescind (cancel) a contract by mutually agreeing to terminate the contractual relationship. The same holds true in agency law, regardless of whether the agency contract is in writing or whether it is for a specific duration. Agreement to terminate effectively relieves each of the rights, duties, and powers inherent in the relationship.
  • Termination by One Party. As a general rule, either party can terminate the agency relationship. The agents act is said to be renunciation of authority. The principals act is a revocation of authority. Although both parties may have the power to terminate because agency is consensual relationship, and thus neither party can be compelled to continue in the relationship they may not possess the right to terminate and may therefore be liable for breach of contract.

Wrongful Recession.

Wrongful termination can subject the canceling party to a suit for damages. Even in an agency at will (that is, an agency that either party may terminate at any time), the principal who wishes to terminate must give the agent reasonable notice that is, at least sufficient notice to allow the agent to recoup his or her expenses and, in some situations, to make a normal profit.

· Agency Coupled with an Interest. A special rule applies in an agency coupled with an interest. This type of agency is not an agency in the usual sense because it is created for the agents benefit instead of for the principal’s benefit. An agency coupled with an interest should not be confused with a situation in which the agent merely derives proceeds or profits from the sale of the subject matter. For example, an agent who merely receives a commission from the sale of real property does not have a beneficial interest in the property itself. These agency relationships are revocable by the principal, subject to any express contractual arrangements between the principal and the agent.

  • Notice of rescission. When an agency has been terminated by act of the parties, it is the principal’s duty to inform any third parties who know of the existence of the agency that is has been terminated (although notice of the termination may be given by others.)

· Agents Authority Continues until Notified. An agent’s authority continues until the agent receives some notice of termination. As previously mentioned, notice to third parties follows the general rule that an agents apparent authority continues until the third party receives notice (from any source of information) that the authority has been terminated. The principal is expected to notify directly any third party who the principal knows has dealt with the agent. For third parties who have heard about the agency but have not dealt with the agent, constructive notice is sufficient.

From of Notice

No particular form is required for notice of termination of the principal-agent relationship to be effective. The principal can actually notify the agent, or the agent can learn of the termination through some other means. If the agents authority is

· it must be revoked in writing, and the writing must be shown to all people who saw the original writing that established the agency relationship. Sometimes, a written authorization (such as a power of attorney) contains an expiration date. If the authorization has expired that will be sufficient notice of termination.

Recession by Operation of Law

Certain events will terminate agency authority automatically because their occurrence makes it impossible for the agent to perform or improbable that the principal would continue to want to performance. We look at these events here. Note that when an agency terminates by operation of law, there is not duty to notify third persons unless the agents authority is coupled with an interest.

  • Death or Insanity. The general rule is that the death of insanity of either the principal or the agent automatically and immediately terminates an ordinary agency relationship. Knowledge of the death or insanity is not required. Agent’s transactions that occur after the death of the principal are not binding on the principal’s estate.
  • Impossibility. When the specific subject matter of an agency is destroyed or lost, the agency terminates. Similarly, when it is impossible for the agent to perform the agency lawfully because of war or a change in the law, the agency terminates.
  • Changed Circumstances. When an event occurs that has such an unusual effect on the subject matter of the agency that the agent can reasonably infer that the principal will not want the agency to continue, the agency terminates.
  • Bankruptcy. If either the principal or the agent petitions for bankruptcy, the agency is usually terminated. In certain circumstances, as when the agent’s financial status is irrelevant to the purpose of the agency, the agency relationship may continue. Insolvency (defined as the inability to pay debts when they become due or when liabilities exceed assets), as distinguished from bankruptcy, does not necessarily terminate the relationship.

· War. When the principal’s country and the agent’s country are at war with each other, the agency is terminated. In this situation, the agency is automatically suspended or terminated because there is no way to enforce the legal rights and obligations of the parties.

Conclusion:

An agent’s authority can be terminated at any time. If the trust between the agent and principal has broken down, it is not reasonable to allow the principal to remain at risk in any transactions that the agent might conclude during a period of notice.

Bibliography

Pandia – Principles of Mercantile Law, 8th edition, by Ramkrishna R. Vyas.

LS Sealy and RJA Hooley, Commercial Law: Text, Cases and Materials (4th edn OUP 2009)

‘The Demise of Watteau v Fenwick: Sign-O-Lite Ltd v Metropolitan Life Insurance Co’ (1991) 70 Canadian Bar Review 329

Sappington, David E.M., “Incentives in Principal–Agent Relationships”, Journal of Economic Perspectives 5:2 (Spring 1991), 45-66

Stiglitz, Joseph E. (1987). “Principal and agent, The New Palgrave: A Dictionary of Economics, v. 3, pp. 966-71.

Rees, R., 1985. The Theory of Principal and Agent—Part I. Bulletin of Economic Research, 37(1), 3-26

Rees, R., 1985. The Theory of Principal and Agent—Part II. Bulletin of Economic Research, 37(2), 75-97

Ballentine’s Law Dictionary, p. 563 (2001)

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