Relation Between Principal And Agent
The statement that “The Relationship of a Principal and Agent is based on the
fundamental premise of faith and trust” is true because when an agency
relationship i.e. agent- principle relation is made then it fiduciary in nature
where the agent acts on behalf of the principal. Contract of agency provides a
set of norms to govern this relationship set by the principle according to
his/her convenience. To create a contract of agency, mutual assent from both the
agent and the principal is required.
Thus, the contract can be both express and implied. An agent owes a duty of
loyalty, trust and confidentiality to the principal and should always work
according to the norms and rules set up by the principal for the best interests
of his principal and his work.
The agency relationship is more than a contractual one, and the agent's
obligations go beyond the boundary of the contract. The Organization imposes a
higher obligation than merely agreeing with the terms of the contract. It
imposes a fiduciary obligation on it. The legislation infiltrates the
arrangement forming an agency partnership and reverses the general principle
that the parties are free to act in the absence of an agreement. As trustee of
the principal, the agent is in a position of special confidence.
It is his duty to subordinate his self-interest to that of his principal. The
fiduciary duty is laid down by statute. The absence of any provision in the
contract outlining the fiduciary responsibility of the agent does not relieve
him of that obligation. There are many facets to duty.
Duties Of Agent
Agent's duty in conducting principal's business: As Section 211 of the Indian Contract Act states:
Agent’s duty in conducting principal’s business.—An agent is bound to
conduct the business of his principal according to the directions given by
the principal, or in the absence of any such directions 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 if any loss is sustained, he must make it good
to his principal, and if any profit accrues, he must account for it.
According to the instructions provided by the principal, or, in the absence
of any such instruction, according to the norm that exists in doing business
of the same kind at the seat where the agent conducts such business, an
agent is obliged to transmit the business to his principal. If the agent
otherwise acts, if any, the damage must be incurred, he must make it adept
to his principal, and he must pay for it if any benefit accrues but the
damages claimed should be reasonable.
A, an agent engaged in carrying on, for B, a business in which it is
customary, from time to time, to spend, in interest, the money that may be
in hand, in order to make those investments. A must make the interest
normally gained by such investments nice for B
Skill and diligence required from the agent: As Section 212 of the Indian Contract Act states “An agent is bound to
conduct the business of the agency with as much skill as is generally
possessed by persons engaged in similar business unless the principal has
notice of this want of skill. The agent is always bound to act with
reasonable diligence and to use such skill as he possesses, and to make
compensation to his principal in respect of the direct consequences of his
own neglect, want of skill, or misconduct, but not in respect of loss or
damage which are indirectly or remotely caused by such neglect, want of
skill, or misconduct.”
An agent is bound to perform the business of the agency with as much ability
as is usually possessed by individuals engaged in a similar business, unless
the principal has given notice of his lack of skill. The agent is always
obliged to perform with due care and to use the abilities that he possesses,
and to compensate his principal for the direct effects of his own
negligence, but at the same time not for injuries or damages that are
indirectly or remotely induced by such negligence, lack of skill or
The same principle was stated in the case Pannalal Jankidas v. Mohanlal
where the agent failed to perform his duty of protecting goods from
fire and since there was no insurance of goods, only gave of the money was
recovered and the SC held that half of the money will be recovered from the
agent because he had a duty of care to perform but due to his negligence the
goods got destroyed and he is liable to compensate the principal.
Duty to render proper accounts: As Section 213 of the Indian Contract Act states “An agent is bound to
render proper accounts to his principal on demand. —An agent is bound to
render proper accounts to his principal on demand." It is the duty of An
agent to render proper accounts and transaction to his principal on demand
and this duty exists even upon termination of agency as well.
Duty to communicate with principal: As Section 214 of the Indian Contract Act states “It is the duty of an
agent, in cases of difficulty, to use all reasonable diligence in
communicating with his principal, and in seeking to obtain his
instructions “ without any delay, the agent should inform the principal
if the agent cannot carry out the instructions of the Principal.
Not to deal on his own Account: As Section 215 of the Indian Contract Act states “If an agent deals on his
own account in the business of the agency, without first obtaining the
consent of his principal and acquainting him with all material circumstances
which have come to his own knowledge on the subject, the principal may
repudiate the transaction, if the case shows, either that any material fact
has been dishonestly concealed from him by the agent, or that the dealings
of the agent have been disadvantageous to him. “ it is the right of the
principal when agent deals, on his own account, in business of agency
without principal's consent.
Not to make Secret Profits: As Section 216 of the Indian Contract Act states “If an agent, without the
knowledge of his principal, deals in the business of the agency on his own
account instead of on account of his principal, the principal is entitled to
claim from the agent any benefit which may have resulted to him from the
This section deals with the right of Principal to profit received by an
agent working on his own account in the Agency's company. An agent, without
the knowledge of his principal, should not make a hidden profit on his own
in the agency's company. In the case Damodar Das v. Sheoram Das the same
principle was stated, in the case, the agent instead of selling the rice
appellants rice to the third party, he sold it in the market and did not
give the profit to him therefore the court states that the agent is complied
to share the profit.
Duty to pay sums received for principal: As Section 218 of the Indian Contract “Act states Agent’s duty to pay sums
received for principal.—Subject to such deductions, the agent is bound to
pay to his principal all sums received on his account. —Subject to such
deductions, the agent is bound to pay to his principal all sums received on
his account." It is the duty of an agent is to pay to his principal all
sums received on his account.
Not to Disclose Secret: It is the duty of an agent to maintain the secrecy of the business of the
agency and should not reveal the confidential matters of the principle.
Not to set up adverse title: An agent shall not create his own title or title of the third party to the
products which he receives as an agent from the Principal. If he does, he
will be responsible for conversion.
Not to delegate authority: As per Section 190“An agent cannot lawfully employ another to perform acts
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, a sub-agent must be employed.”
An agent does not delegate its authority for actions that it has explicitly
or indirectly undertaken to conduct unless or until the structure of the agency
requires it or permits it or the ordinary customs of trade in a particular
sector enables it to do so.
- Indian Contract Act 1872
- Supra Note 1.
- Pannalal Jankidas v. Mohanlal [(1950) SCR 979]
- Supra Note 1.
- Supra Note 1
- Supra note 1.
- Supra note 1.
- Damodar Das v. Sheoram Das; 1907 ILR 29 All 730
- Supra note 1
- Supra Note 1.
- John McCann & Co. v. Pow [1975 1 All ER 129]