Essay on the Rights and Duties of Principal and Agent

Duties of an Agent:

1. To conduct principal’s business according to his directions (Sec. 211):

By far the most important duty of the agent is to carry out the lawful directions of his principal. An agent is bound to conduct the business of his principal, according to the directions given by the principal. If the principal does not give any directions, then the agent has to conduct the business according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, and the principal suffers any loss thereby, he must make good his loss.

Example:

A asks his agent B to sell goods on cash basis. B sells goods on credit and the amount becomes irrecoverable due to the buyer’s insolvency. A must make good the loss.

2. To conduct his business with reasonable skill and diligence (Sec. 212):

An agent is bound to conduct the business of the agency with as much skill as is generally possessed by a person engaged in similar business, unless the principal is aware of the lack of skill of the agent. If the principal suffers any loss caused directly due to the agent’s negligence, the agent must make compensation to his principal. However, an agent is not liable for remote or indirect loss.

Examples:

1. A, an agent for the sale of goods having an authority to sell on credit, sells to B on credit without making proper and usual enquiries as to the solvency of B. B, at the time of such sale, is insolvent. A must make compensation to his principal in respect of any loss thereby sustained.

2. A, an insurance broker employed by B to effect an insurance on a ship, omits to see that the usual clauses are inserted in the policy. In consequence of the omission of the clauses, nothing can be recovered from the insurance company. A is bound to make good the loss to B.

3. To render proper accounts to his principal on demand (Sec. 213): An agent is bound to render proper accounts to his principal on demand.

4. To communicate and obtain instructions in case of difficulty (Sec. 214):

It is the duty of an agent, in case of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.

In an emergency, however, when an agent cannot communicate with his principal, he should take reasonable steps to protect his (principal) interest.

5. Not to deal on his own account (Sec. 215):

In case an agent deals on his own account in the business of the agency, without obtaining prior permission of his principal, the principal may repudiate the transaction. He may repudiate the contract if any material fact has been dishonestly concealed from him by the agent, or if the dealing of the agent has been disadvantageous to him.

Examples:

(1) A directs B to sell A’s estate. B buys the estate for himself in the name of C. A, on discovering that B has bought the estate for himself, may repudiate the sale, if he can show that B has dishonestly concealed any material fact, or if the sale has been disadvantageous to him.

(2) A directs B to sell A’s estate. B, on looking over the estate, finds a mine on the estate which is unknown to A. B informs A that he wishes to buy the estate for himself, but conceals the discovery of the mine, A allows B to buy the estate in ignorance of the existence of the mine. A, on discovering that B knew of the mine at the time he bought the estate, may either repudiate or adopt the sale at his option.

6. Not to make any secret profit (Sec. 216):

An agent has to restore the benefit gained by him to the principal, by dealing on his own account, without the consent of the principal. He must not make any profit beyond his remuneration.

Example:

A directs B, his agent to buy a certain house for him. B tells A that it cannot be purchased and buys the house for himself. A may, on discovering that B has bought the house, compel him to sell it to him (A) at the price B gave for it.

7. To account for the money received for the principal (Sees. 217 and 218):

An agent after deducting all sums due to him in respect of advances made or expenses properly incurred, is bound to pay to his principal, all sums received on his account.

8. Liability for misrepresentation or fraud (Sec. 238):

In case the misrepresentations made or frauds committed by the agent fall outside his authority, the agent is personally liable.

9. Not to delegate authority (Sec. 190):

An agent must perform acts personally which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or from the nature of the agency, sub-agent must be employed.

10. Liability for the acts of the sub-agent (Sees. 192 and 193):

An agent is liable for the acts of the sub-agent. Where appointment of the sub-agent is legally justified, the agent is liable only to the principal. However, in case the appointment is not legally justified, the agent is liable both to the principal and the third party.

11. Agent’s duty in naming a sub-agent:

An agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case in selecting or naming a sub-agent.

12. Not to set up an adverse title:

An agent is duty-bound not to set up an adverse title. An agent must not set up his own title or that of the third party to the goods received from the principal.

13. Not to use information obtained in the course of the agency against the principal:

An agent cannot use any information obtained in the course of agency against the Principal. If the agent uses such information, he can be restrained by means of an injunction order.