Table of content

Chapter one: Introduction……………………………………………………….1

1.1. Meaning of principal and agent
Chapter two: Relationship ……………………………………………………….2-3
2.1. Relationship of principal and agent
Chapter three: rights and duties…………………………………………………4-6
3.1. Rights of principal
3.2. Duties of principal
3.3. Rights of agent
3.4. Duties of agent
Chapter four: conclusion ……………………………………………………….7
 Chapter one: introduction
1.1 Meaning of principle and agent
A principal is a person or entity who grants authority to another person (the

agent) to act on their behalf. The principal may have the power to control or direct the

agent's actions within the scope of the authority given. The principal is ultimately

responsible for the actions taken by the agent, as long as those actions are within the scope

of the agent's authority. The principal's interests and objectives guide the agent's actions,

and the agent must act in the principal's best interest. For example a company (the

principal) may hire a manager (the agent) to negotiate contracts with suppliers. The

company directs the manager on what terms to negotiate, but the manager carries out the

negotiations with third parties.

An agent is a person or entity who is authorized to act on behalf of another (the

principal) in dealings with third parties. The agent has the legal power to create legal

relationships between the principal and third parties within the scope of the authority

granted. The agent must act in accordance with the principal’s instructions, exercise

reasonable care, and act loyally in the principal's best interests. The agent has a fiduciary

duty to the principal, meaning the agent must act in good faith and with honesty. For

example a real estate agent who represents a property seller is the agent. The real estate

agent negotiates with potential buyers on behalf of the seller (the principal), following the

seller’s instructions regarding price, terms, and other conditions.

In summary, the principal is the party who delegates authority and has control over

the agent's actions, while the agent is the party who performs tasks on behalf of the

principal and in their best interest, often engaging with third part

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 Chapter two: Relationship

2.1 Relationship of principle and agent

In contract law, the relationship between a principal and an agent is important for

many business and personal transactions. The principal-agent relationship can be set up in

different ways. The most common way is when the principal expressly gives the agent

permission to act on their behalf. This can be done in writing or orally. Sometimes, the

agency relationship is implied based on the actions or behaviors of the parties. For example,

if one person regularly helps another with tasks or decisions, they might be seen as an

agent, even without a formal agreement. An agency relationship can also be created by

ratification, where the principal agrees to the actions of someone who acted like an agent

without permission.

The key feature of the relationship is that the agent has the authority to create legal

agreements and contracts on behalf of the principal. This means that anything the agent

does within the limits of their authority can legally bind the principal to the deal. If the

agent goes beyond their authority, the principal may not be responsible for those actions

unless the principal agrees to them later (known as ratifying the actions). This ensures that

agents cannot act recklessly or without limits, but it also protects people who rely on the

agent to do business in good faith.

Both the principal and the agent have rights and responsibilities. The principal has

the right to control what the agent does. The principal can give instructions on how tasks

should be done and expects the agent to follow them. The principal also has the duty to pay

the agent for their work and cover any costs the agent might face while acting on the

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principal's behalf. Additionally, the principal must provide the agent with the necessary

tools or information to do their job effectively.

On the other hand, the agent also has rights and duties. One of the most important

duties is the duty of loyalty. This means the agent must always act in the best interest of

the principal and should not use their position to benefit themselves. The agent must also

follow the principal’s instructions (the duty of obedience), act with care and skill (the duty

of care), and keep the principal informed of any important information (the duty of

disclosure). Agents must also account for any money or property they handle for the

principal, ensuring the principal knows exactly what has been done.

An important part of this relationship is that the agent has a fiduciary duty to the

principal. This means the agent must always act with honesty, fairness, and in the best

interests of the principal. If the agent breaks this trust, they could be held responsible for

any harm caused. Similarly, the principal must act fairly toward the agent and not interfere

with the agent's ability to carry out their work.

The relationship ends in several ways. It can end when the job is finished, when the

principal decides to revoke the agent’s authority, or when the agent no longer wants to

continue. The relationship also ends if either the principal or the agent dies or becomes

unable to continue. When the agency ends, the agent must return any property or money

they’ve been handling, and the principal must settle any outstanding payments for the

agent’s work.

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 Chapter three: rights and duties

Rights and duties of principle and agent

In a principal-agent relationship, both the principal and the agent have specific

rights and duties toward each other. These rights and duties ensure that the relationship

works smoothly and that both parties act fairly.

3.1 Rights of the Principal

1. Right to Control: The principal has the right to control what the agent does and how

they do it. The principal can give instructions and the agent must follow them, as

long as they are within the agent’s authority.

2. Right to Be Informed: The principal has the right to be kept informed about what

the agent is doing. The agent should tell the principal about any important

information related to the task or business dealings.

3. Right to Compel Performance: If the agent doesn’t do what they were hired to do,

the principal can demand that the agent completes the job. If the agent refuses, the

principal can take legal action against them.

4. Right to Ratify: If the agent does something without permission, the principal has

the right to approve (ratify) or reject those actions. If the principal approves, it

becomes as if the agent had permission all along.

3.2 Duties of the Principal

1. Duty to Compensate the Agent: The principal must pay the agent for the work they

do, according to what was agreed upon. If no payment was discussed, the principal

still has to pay a reasonable amount for the agent's services.

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 2. Duty to Cooperate: The principal must help the agent carry out their work. This

might include providing necessary information, tools, or support to ensure the agent

can do their job.

3. Duty to Indemnify: If the agent faces any losses or problems while doing their job

(as long as they were acting within their authority), the principal must cover those

costs. This is called indemnification.

4. Duty to Act in Good Faith: The principal must treat the agent honestly and fairly.

The principal should not do anything that harms the agent or makes their work more

difficult than necessary.

3.3 Rights of the Agent

1. Right to Compensation: The agent has the right to be paid for their work. If the

principal doesn’t pay, the agent can ask for their fair share based on the agreement

or what is reasonable for the work done.

2. Right to Reimbursement: If the agent spends their own money to do their job (like

paying for travel expenses or supplies), the principal must pay them back for those

costs.

3. Right to Be Protected: If the agent faces legal problems or losses while doing their

job within the agreed scope of authority, the agent has the right to be protected and

compensated by the principal.

3.4 Duties of the Agent

1. Duty of Loyalty: The agent must always act in the best interests of the principal.

This means the agent shouldn’t do anything that benefits them personally at the

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 expense of the principal’s interests. For example, they should not take advantage of

business opportunities that belong to the principal.

2. Duty of Obedience: The agent must follow the principal’s instructions as long as

they are legal and within the agent's authority. If the agent goes against the

principal’s instructions, they can be held responsible for any problems that arise.

3. Duty of Care: The agent must act carefully and responsibly. They should do the job

with the same level of skill and attention that a reasonable person would show in

the same situation. If the agent acts negligently and causes harm, they can be held

liable.

4. Duty of Disclosure: The agent must keep the principal informed about everything

that is relevant to the work. If there are risks, important changes, or updates, the

agent must tell the principal immediately.

5. Duty to Account: The agent must keep accurate records of all transactions and

money they handle on behalf of the principal. This includes any profits they make

or any expenses they incur while carrying out their duties.

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 Chapter four: conclusion

4.1 Conclusion

In conclusion, the relationship between a principal and an agent is a vital part of

contract law, and it forms the foundation for many business and personal transactions. The

principal is the party that grants authority to the agent to act on their behalf, while the agent

carries out tasks in the principal’s best interests. Both parties have rights and duties that

ensure the relationship runs smoothly and fairly.

The principal has the right to control the agent’s actions, be informed about the

agent's progress, and enforce performance, but also has the duty to compensate, cooperate,

and act in good faith. On the other hand, the agent has the right to be paid for their work,

reimbursed for any expenses, and protected when carrying out tasks within the agreed

authority. However, the agent also has important duties, such as loyalty, obedience, care,

and the duty to keep the principal informed.

This relationship is based on trust, responsibility, and mutual cooperation. When

both parties understand and fulfill their rights and duties, they can work together effectively

to achieve their goals. Whether in business dealings, personal arrangements, or legal

transactions, the principal-agent relationship plays a key role in ensuring that both parties

act fairly, responsibly, and with respect to each other's interests.