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Critical Examination of Duties of an Agent towards the Principal

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

  1. 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.[1]

    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.

    For example:
    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

  2. 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.”[2]

    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 misconduct.

    The same principle was stated in the case Pannalal Jankidas v. Mohanlal [3]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.

  3. 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."[4] 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.

  4. 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 “[5] without any delay, the agent should inform the principal if the agent cannot carry out the instructions of the Principal.

  5. 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. “[6] it is the right of the principal when agent deals, on his own account, in business of agency without principal's consent.

  6. 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 transaction.” [7]

    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[8] 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.

  7. 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."[9] It is the duty of an agent is to pay to his principal all sums received on his account.
  8. 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.

  9. 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.

  10. 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.”[10]
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.[11]

End-Notes:
  1. Indian Contract Act 1872
  2. Supra Note 1.
  3. Pannalal Jankidas v. Mohanlal [(1950) SCR 979]
  4. Supra Note 1.
  5. Supra Note 1
  6. Supra note 1.
  7. Supra note 1.
  8. Damodar Das v. Sheoram Das; 1907 ILR 29 All 730
  9. Supra note 1
  10. Supra Note 1.
  11. John McCann & Co. v. Pow [1975 1 All ER 129]

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