The relation between a Principal and an Agent is entirely contractual one. But termination of such relationship without the knowledge of the agent may not render the act invalid which has been done after the recession of contract. Explain and evaluate the statements in the parlance of law of contract, 1872.

1) Introduction

We enter into contract day after day. A contract is an agreement enforceable by law. A contract is basically an agreement voluntarily entered by two or more parties with an intention of creating a legal obligation. Contract can be oral or written. From the definition of contract, we can say that this is an accepted proposal.

The law of agency is an area of law dealing with a contractual relationship between an agent and principal to create a legal relationship with a third party. The relationship of principal and agent is usually created by mutual consent.

A contract is an agreement enforceable by law where every promise and every set of promises forming the consideration for each other. According to Salmond, “A contract is an agreement creating and defining obligations between the parties”. A contract intends to formalize between two or more parties in relation to a particular subject.

In the question, it emphasized the relationship between principal and agent. In an agency relationship, the law of agency allows one person to employ another to do his acts. Sell his goods; acquire property on his behalf as if employer were present and acting in person. The principal may authorize the agent to perform a variety of task or may restrict the agent to specific function.

A principal is any person who has the legal capacity to perform an act. And an agent is any individual capable of understand the act to be undertaken. Section 2(h) of Indian Contract law 1872 entitles that, every contract is enforceable by law. Section 2(e) defines that, every promise and every set of promise will be forming consideration for each other. Section 2(d) says, when a person to whom the proposal is made significance his assent there to the proposal is said to be accepted.

In the law of contract, the principal, agent and third party are essential. The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. An owner of business frequently relies on an employee or another person to conduct a business. In the case of corporation, since corporation is made up by legal person, it can only act through human agents. And the principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency.

The third party in agency is very important. Third party may be relying on the representation by a person who recognizes himself as an agent for another. This process is not every time cost effective to confirm whether someone who is performing the act for another person, actually has the authority to do this. If it is subsequently found that the supposed agent fakes or did not have proper authority, the agent will generally be held liable.

An agent is defined by the section as a person employed to do any act for another or to represent another in dealings with third person. In other words, an agent is person who acts in place of another. The person for whom or on whose behalf acts is called the principal.

2) The key concept of Agency:

2.1 Define Agency

A contract made by an agent and principal is consider being an agency. The central idea of agency is, this is a mediator (agent) who negotiates a contract between the person whom he re-present (principal) and another person (the third party), in that way creating a mutual relationship between them in which the agent is not personally involved. The relationship of principal and agent is usually created by mutual consent. The consent need not to be official nor expressed in a written document. It is usually an express agreement even if informal.

2.2 The Basic of the Agency relationship:

An agency relationship is created between two parties when one party (agent) approval to present another party (principal). A principal-agent relationship is fiduciary that means, this relation is fully based on trust. Basically all employees who deal with third parties are considered as agents. A contract to be made by a proper agent on behalf of a principal is considered as an agency. In this contract the principal allows an agent to perform his duties. But the acts must be legal and the agency relationship is usually entered into by both the formal and informal agreement.[1]

The principal and agent relationship is that, the agent will perform for and on behalf of the principal. The agent presuppose an obligation of loyalty to the principal that agent will pursue the principal’s instruction and will neither intentionally or unintentionally act offensively in the performance of the act. An agent cannot take personal advantage of the business opportunity that the agency position uncovers a Principal repose trust and confidence in the agent. These obligation bring both forth a fiduciary relationship of trust and confidence between the Principal and the Agent. The agent believe an commitment of loyalty to the principal that he will follow the principal’s guidelines and will neither intentionally or unintentionally act against his instructions and will not do any illegal acts. He is also bound not to take advantage of the business. In return, the principal keep trust and faith in his agent. These commitments bring a proper fiduciary relationship of trust and confidence between the principal and agent.

2.3 Law of contract 1872:

Indian Contract Act 1872 is the main source of law regulating contracts. It determines the circumstances in which promises made by the parties to a contract which will be legally binding on them. All of us enter into a number of contracts everyday intentionally or unintentionally. Each contract creates some right and duties the contracting parties. Indian contract deals with the enforcement of these rights and duties upon the parties.

2.4 Formation of agency:

Any person, who have the age of majority and have a proper and sound mind, may employee as agent.
Between the principal and the third party, anyone can be an agent. But he cannot be a minor and of unsound mind.
No consideration is necessary to create an agency.
It is not necessary that any contract be entered in to it. It is sufficient if a person acts on behalf of another and is accepted.

2.5 Creation of Agency:

A contract or creation of agency may be created by—

Expressed agreement: An agency can be created by expressed agreement. The agreement may be either oral or written. It is usually in many cases to appoint agents by executing a formal power of attorney.
Implied agreement: An agency agreement may be create under implied agreement in certain circumstances from the conduct of the parties or the relationship between them.
By Ratification: Agency of ratification means the subsequent adoption and acceptance of an act originally done without instructions or authority.

3) Agent:

Agent means any person employed to do acts of another or to re-present another person to third party. According to the Law of Contract 1872, an agent is a person, who is going to re-present another person in any type of dealings with third party. Agent is bound to follow the instruction of his principal to conduct a business. And if principal is absence, agent has to maintain the guideline of his principal when doing business with third party. An agent is bound to render proper accounts to his principal and has duty irrespective of any contract to that effect to make vouchers by which items of expenditures are supported as part of the contract to render proper account to the principal on his demand. Agent has the responsibility to try best to contact with his principal in the time of difficulties and to follow his instructions. An agent must work hard for the benefits of his principal, not for the benefits of himself or for the third party. Agent has to follow all the lawful instruction and guidelines from his principal. He also has to give all the notifications that come to agent to concern him about the subject of the agency.

3.1 Duties of the Agent:

When an agent agrees to perform services for his principal for reward there is a contract between them. But even if the agent undertakes his duties without reward, he has a contractual obligation to his principal. The agent’s duties are listed below—

a) Performance: The agent, who agrees to act as agent for reward, has a contractual obligation to perform his agreed task.

b) Skill: a paid agent undertakes to maintain the standard of skill and care to be expected of a person in his work.

c) Personal qualities: an agent is selected because of his personal qualifications and qualities and owes a duty to perform his task himself and not to delegate it to another.

d) Accountability: an agent must both provides full information to his principal of his agency transaction and account to him.

e) Any benefit: agent must be handed over to the principal unless he agrees that the agent may retain it.

4) Principal:

Principal is such a person, for whom the agent is employed or the act is done or who is so re-presented. He is the person who has the legal authority to do the act. Here having authority means the person should not be incense or in certain circumstances a minor. Principal has some duties on his agents. These duties are given below.

4.1 Duties of principal:

To identify the consequences of all lawful acts of agent
Give compensation against agent’s injury
To pay the agent the compensation or other remuneration agreed

5) The Third Party;

The third party is the person or body who is served by the relationship of agency between the principal and agent. The principal has some duties and liabilities on third party. At first principal have to appoint a authorized agent. And the agent must have the power arising from the agency and not fully dependent on the authority.[2] Unless the principal was un disclosed the third party is liable to the principal on the terms and rules of agreement made with the agent. There is a clear evidence that either the agent or the principal know about that the third party have not entered into the agreement if they known of the principal’s association.

6) Recession of Agency:

An agency is terminated by the principal revoking his authority or by the agent renouncing the business of the agency being completed, or by either the principal or agent dying or becoming of unsound mind, or by principal being adjudicated an insolvent under the provisions of any act for the time in force for the relief of insolvent debtors.

The relationship of principal and agent can only be terminated by the act or the agreement of parties to the agency or by the operation of law. An agency when shown to existed, it will be presumed to have continued and in the absence of anything to show the termination, unless such a length of time has beyond as destroys the presumption”

6.1 How can agency relationship be terminated?

There are various ways to terminate an agency relationship. Once the relationship is terminated, the agent no longer has authority to work for the principal. The principal is required to inform third parties that deal with the agent about the termination of the agency relationship.

6.2 The ways of the Recession of agency relationship are:

a) By revocation by the principal

b) On the expiry of fixed period of time

c) On the performance of the specific purpose

d) In the event of insanity or death of the principal or agent

e) On destruction of the subject-matter of agency

f) In the event of the insolvency of the principal

g) By renunciation of agency by the agent

In the agency relationship, principal appoint agent to make contract on behalf of him. So the contract of the principal with the third party can be recessed in many ways. They are:

Fraud and Misrepresentation:

Fraud and miss-representation are basically the fake statements which are used to make a contract. This must be related with past or present important facts. In this situation, the contract made with the third party can be terminated.

Mistake;

Mistake occurred if any of the parties believes that, any fact in the contract is not true or false. Law never executes negligence. So in this case because of the mistake the contract can be terminated.[3]

Duress :

Duress means force or threat. This happens when any of the party forces to make the contract. If any contract is made under the force or threat, the contract can be recessed.

Lack of Consideration:

In a contract, consideration is important. Lack of consideration means when the contract was made, there was a promise but after that either party does not do that. In this case the contract can be terminated.

Impossible of Performance:

This happens when there is something in the contract which is impossible. Here the contract can be cancelled.

Rescission;

This may happen when both parties have the right to cancel the contract. Which means the contract will be in such a position where it was before entering into the contract.

Where the third party takes a right to enforce a term of the contract, there will be a remedy available to principal to take an action for the recession of the contract. In that situation, the basic rule of law of contract will be applied to the third party’s right of action

Although agency can be terminated by will, law specifies that a notice should be send to the affected party or who is going to terminated. But the expressed notice is not always necessary if the real or actual party knows. To bring to an end of the agency relationship, no formal written notice or document is needed to send to the third party. The actual notice is enough for the third party.

7. Findings:

Basically recession means the cancellation of contract. That means, a contract which is being recessed will be taken as a contract as it was never existed. If there is any misunderstanding between the parties, the contract can be terminated. But in the process of recession, the third party can also make a new contract with the principal or can cancel the whole contract. Although there are many ways of remedies of the recession of the contract, like- recession, notation and satisfaction, after the recession of the contract, the entire agreement with the principal will be terminated between the principal and the third party.

In the case of the agency, a principal appoint an agent to perform business acts on behalf of him. Here the principal is bound to inform the agent everything about the agreement or contract. On the other hand, the agent also bound to let the principal know about every step of the contract. So basically both the principal and agent are working together for the benefit of third party. So, if there is any type of contract between the principal and the third party and an agent is being appointed to act, in that case only the principal has to inform the agent about each and every steps of the contract. But if the contract is made between the principal and the third party recesses, then there is no bindings to the principal to inform every steps of the contract to the agent. In these circumstances, the principal has the legal right even to cancel the relationship between himself and the agent. This is because; principal has appointed the agent to serve the third party on behalf of him. And if the actual contract between the principal and the third party has never exists, only then there is no value of the agency relationship between the principal and the agent and there is no obligation on principal to continue the agency relationship. So the principal can easily terminate or cancel after the recession of the contract without the knowledge of the agent.

8. Conclusion:

Contract is an agreement between two parties and it is enforceable by law. When any party agrees to enter into a contract, it is their duty to fulfill their contractual duties. Agency is also a part of contract. It is dome between the principal, agent and third party. Here principal have to inform agent everything of the contract and agent is bound to follow the instruction of the principal and work to make him benefited. This agency relationship is specialized area of contract law. But there are some rules or condition to follow. Otherwise the relationship will be recessed. After the recession, the principal does not work for the third party. That means as the agent works on behalf of the principal, now he is also not working for the third party. So there is no necessity of agency relationship after the recession of the contract.

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