Agency Service: Characteristics of Agency Services, Mutual Trust, Consideration, Liability, Qualification and Duties of an Agent (For CBSE, ICSE, IAS, NET, NRA 2022)

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Characteristics of Agency Services

After studying the relationship between an agent and principal, let us now learn about the main characteristics of an agency. These are given as below:

Characteristics of Agency Services

Mutual Trust

To maintain any relationship, good faith and trust is essential. Hence, the basis of a good agency is mutual trust and faith between the agent and principal. The principal should have full faith on the agent and, the agent in turn, should not betray that trust. Both, the principal and the agent should be responsible, honest and trustworthy.


Unlike other contracts, it is not necessary to have a clause for consideration in the contract of agency. But, on completion of the work, remuneration is paid under the terms of the contract for the service provided. It is usually in the form of commission on the value of business done.


The main characteristic of the relations between the principal and the agent is that the principal is liable for each lawful activity performed by the agent. Agent is not personally liable for anything. Even if an agent takes wrong decision due to ignorance which results in loss, the principal is liable for that loss, not the agent.


A capable adult person may appoint any other person as an agent. No qualification is prescribed for an agent. A minor can make the principal liable for his legal activities but he himself is not liable.

Duties, Rights and Liabilities of an Agent

You have learnt that an agent acts on the instructions of the principal and the principal is liable for the acts of an agent. You should also know about the duties and rights and liabilities of an agent. Suppose you want to buy a house and have taken the services of the property agent in this matter, the property agent must know what are his duties, rights and liabilities in this case in order to perform this function properly and help you to the best of his ability. The duties, rights and liabilities of an agent are given below.

Duties of an Agent

Duties of an Agent

Duty to Follow Principal՚s Directions

It is the duty of the agent to act in accordance with the order and directions of the principal. In the absence of clear-cut directions, the agent should follow the prevalent trade practices. If the agent does not act according to the directions of the principal, he has to compensate the principal for the losses, if any, incurred by him on this account. For example, if the principal directs the agent to insure the goods, but the agent forgets to do so and the goods are destroyed by fire, the agent will have to compensate the principal for his loss.

Duty to Act with Reasonable Diligence and Skill

The agent is supposed to carry out the work of principal with due diligence. If some work is not done efficiently and with reasonable diligence, and the principal suffers the loss, then the agent may have to compensate for the loss. For example, if an agent sells goods on behalf of principal to a third party without enquiring his financial status, and the third party is not able to pay, then the agent will have to compensate for that by paying from his own pocket.

Duty to Render Correct Accounts

It is the duty of the agent to render correct accounts of all the transactions to the principal from time to time or whenever asked for.

Duty to Communicate

It is the duty of the agent, in case of difficulty, to make all possible efforts to communicate with his principal and seek his instructions, before taking any steps during emergency or difficulty.

Duty Not to Delegate Authority

No agent can appoint a sub-agent to complete the work assigned by the principal. But, under certain circumstances, sub-agents can also be appointed. There may be a case of emergency, on when the work is clerical, or according to prevalent practices, a sub agent can be appointed. The nature of business may also necessitate appointment of sub-agents. For example, travel agents of Indian Airlines carry on business through their sub-agents in different areas.

Duty Not to Misuse Authority

It is the duty of the agent not to misuse the information obtained by him from his principal and from other sources and he should not try to make any personal gain. For example, purchasing goods of his principal at low prices himself and earning profits is not permitted.

Duty to Deduct His Dues

It is the duty of the agent to deduct expenses incurred and his commission from the total sale proceeds and pay the balance to the principal immediately.

Duty Not to Deal in His Own Name

It is the duty of the agent to ensure that he/she does not act in his/her own name and make personal gain out of the agency work. If an agent does some such work and earns profit out of it, it is his duty to submit its account to the principal. For example, if the agent sells 5 sacks of his own sugar along with 50 sacks of his principal and earns personal gains, he is supposed to render full accounts to his principal.

Duty to Protect the Interest of His Principal

In case of untimely death, bankruptcy or insanity of the principal, it is the duty of the agent to safeguard the interest of the principal. The agent should take all reasonable steps for the protection and preservation of the interests entrusted to him.

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