Relationship Between Principal and Agent
Relationship Between Principal and Agent
1. Definition of Agency
Agency is a fiduciary relationship where one person (the agent) is authorized to act on behalf of another (the principal) to create legal relations with third parties.
This relationship arises from a contract or agreement, express or implied.
The Indian Contract Act, 1872 (Sections 182 to 238) governs the law of agency in India.
2. Nature of Relationship
The agent acts as a representative of the principal.
The principal is bound by the acts of the agent, provided the agent acts within the scope of authority.
It is a fiduciary relationship, implying trust and confidence between principal and agent.
The agent must act in good faith, with diligence and loyalty toward the principal.
3. Creation of Agency
Agency can be created by:
Express agreement (written or oral)
Implied agreement (from conduct or circumstances)
Necessity
Ratification (principal later approves agent’s unauthorized act)
Estoppel (principal’s conduct prevents denying agency)
4. Duties of Agent to Principal
Obedience: Follow lawful instructions.
Diligence and Skill: Perform duties with reasonable care.
Good Faith: Act in principal’s best interest, avoid conflict of interest.
Accounting: Keep accounts and provide information.
Not make secret profit: Disclose all profits made through agency.
5. Duties of Principal to Agent
Payment of agreed remuneration
Indemnification: Principal must indemnify agent for lawful acts done in agency (Section 222, Indian Contract Act)
Provide necessary information and assistance
6. Authority of Agent
Actual Authority: Express or implied powers given by principal.
Apparent Authority: Authority that third parties reasonably believe agent has.
The principal is bound by acts within authority of the agent.
7. Termination of Agency
By agreement
By revocation of authority by principal
By renunciation by agent
By death or insanity of either party
By completion of purpose
By operation of law (e.g., insolvency)
8. Relevant Case Law
a) Adamson v. Jarvis (1827) 4 Bing 66
An agent acting under principal's authority, even if principal has no title, is entitled to indemnity if acting in good faith.
Principal is liable to compensate agent for losses caused by instructions.
b) Principal and Agent — Agency by Estoppel
If a principal holds out a person as agent, he cannot deny agency to third parties relying on this representation.
This protects third parties acting in good faith.
c) M.C. Chockalingam v. M. Amirthalingam (1953 AIR Mad 108)
Indian case emphasizing agent’s duty of loyalty and acting within authority.
9. Significance
The relationship allows principals to conduct business through agents efficiently.
It allocates rights, duties, and liabilities between parties clearly.
Protects third parties who contract with agents in good faith.
10. Summary Table
| Aspect | Explanation |
|---|---|
| Parties | Principal and Agent |
| Basis | Consent to act on principal’s behalf |
| Authority | Express, implied, apparent |
| Duties of Agent | Obedience, good faith, diligence, no secret profits |
| Duties of Principal | Payment, indemnity, assistance |
| Termination | Mutual consent, revocation, death, insanity, completion |
11. Conclusion
The relationship between principal and agent is foundational in commercial and legal transactions. It is based on trust, authority, and representation, enabling the principal to act through the agent legally.
The law safeguards the interests of all parties—principal, agent, and third parties—by clearly defining rights, duties, and liabilities, supported by established case law and statutory provisions.
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