contract
Image Source: https://rb.gy/9o6r0p

This article has been written by Aayushi Bhatti, Chinmay Harsh Karn, Dipendra Singh Tomar, Gajjala Ramesh Bhavani, and Sambhav Purohit of Alliance University. 

Introduction 

It is very common nowadays to delegate all or some of authority to another person or to make another person our representative. If we talk about agency in very means, delegating some of authority or power to another person and him as our representative. 

The topic agency is a vital and integral part of the Indian Contract Act. Nowadays it’s very common to delegate all or some of authority to another person. From big to small business agreements, deals, normal agreements, or any transactions the role of agent or agency holds considerable weightage. Section 182 of the Indian Contract Act defines the term Agent and principal, as per which, Agent is the person appointed by another person to represent in dealings or any kind of professional work with a third party. The principal is the person who appoints the agent to represent him. So the meaning of the terms agent and principal is simple but the work carries a lot of risks also. To deal with the problem that arises between the Agent and the Principal the Indian Contract Act gave some rights and duties to the agent and principal. The duties of the agent become the right of the principal. 

The paper covers the following rights and duties of the Agent:

Rights under the Indian Contract Act

  1. Right of Retainer (Section 217).
  2. Right to Remuneration (Section 219 & 220).
  3. Right of Lien (Section 221).
  4. Right to Indemnity (Section 222 & 223).
  5. Right to Compensation (Section 225).

Duties under the Indian Contract Act.

  1. Duty to avoid conflict of interest (Section 215 & 216).
  2. Duty to maintain accounts (Section 213).
  3. Duty of reasonable care and skills (Section 214).
  4. Duty not to delegate his duties (Section 190 195).
  5. Duty to follow instructions or customs (Section 211). 
  6. Duty to remit sums (Section 218).

The paper deals with all the rights and duties of the agent in deals. The paper also discusses various case laws to justify each section of rights and duties. The paper covers all the aspects to justify the title of the research paper.

Agency 

Section 182 of the Indian Contract Act defines the term Agent and principal, as per which, Agent is the person appointed by another person to represent in dealings or any kind of professional work with a third party. The principal is the person who appoints the agent to represent him. So the meaning of the terms agent and principal is simple but the work carries a lot of risks also.

Rights of agent 

Rights of retainer

Agency is a very important topic of the Indian contract Act and Agent is an important aspect of the same. Indian Contract Act gives certain rights and places some obligations/duties for the agent. 

As per Section 217 of the Indian Contract Act.

“Agent’s right of retainer out of sums received on principal’s account. —An agent may retain, out of any sums received on account of the principal in the business of the agency, all money due to himself in respect of advances made or expenses properly incurred by him in conducting such business, and also such remuneration as may be payable to him for acting as an agent.”

In simple terms, if we define section 217 it means the agent has the right to hold or retain the money accrue to an agent in due course of conducting a business act as guided by the principal. The agent can retain money to clear the dues of the remunerations also.

The Condition of this act says, the expenses incurred to an agent for which he is retaining money must be arising in course of business-related work and as guided by the principal. 

Leiboak Syndicate v. Finlay Fleming & Company 

This case is considered as the case for the evolution of the right of retainer. In this case, the first time the court held that the agent has the right to retain the money or goods as a retainer. It was also held that the agent is liable to answer all the questions of the principal including why the explanation of money or goods the agent holds S. if the agent satisfies with his claim to retain the goods or money of the principal, he can hold or retain the goods or money until all claims/dues satisfy. 

Hammonds v. Barclay

In another case, it was held that the person had the right to retain the goods or money of another person until his claims were fulfilled. This case is related to a possession lien. The priority is given to a person to claim his/her dues. So, the agent has the right to become the retainer of the goods or money of the principal which arises from his work as an agent. An agent can claim or clear dues from the retained goods or money. 

Rights of remuneration

Receiving the remuneration from the principal is one of the rights of the agent. Section 219 of the Indian Contract Act, 1872 states that the agent is entitled to get remuneration from the principal for the conduct of business. An agent must get the remuneration as agreed by the principal and the agent at the time of making the contract. For instance, if there is no agreement between the principal and agent for specific remuneration, then reasonable remuneration should be given to the agent for the services rendered by him. The agent can get the remuneration if the services provided by him are involuntary or gratuitous. However, the agent will be able to get the remuneration only if he completes the assigned work. When the right to decide the remuneration is left at the discretion of the principal, then also the reasonableness would be applicable. To know when the agent’s act will be complete, the particular terms and conditions of that contract should be checked.

For example, if an agent was appointed to get the orders for publishing advertisements in the newspapers. Then he will be entitled to get the remuneration after securing the orders as he had done his assigned work.

Section 220 of the Indian Contract Act, 1872 states that the agent is not entitled to remuneration for the misconduct of the business. It means that the agent will lose his right to claim remuneration if an agent is found guilty of the fraud or breach. Along with this, he will be liable to the principal for the compensation of loss or harm caused due to the breach of the duty.

Khursheed Alam v. Asa Ram

In this case, the plaintiff was Khursheed Alam and the defendant was Asa Ram. 

The plaintiff was a broker of the defendant. The defendant appointed him to sell property, which was located in Lahore, to any buyers and agreed to pay commission for that work. The defendant told the plaintiff to search for another buyer for the other land. Meanwhile, the plaintiff had sold his property to his brother. The defendant refused to pay the commission to the broker as the defendant thought that the land was purchased by the plaintiff himself.

The issue that was raised in this case was about the reasonable payment that needs to be given by the principal to the agent. The court held that the agent would get proper compensation as this case doesn’t have a written contract. Also, the buyer of the land was the plaintiff’s sibling but not the plaintiff. So, the plaintiff i.e. broker would get the remuneration or payment for his services.

Green v. Bartlett

In this case, the plaintiff was appointed by the defendant for the sale of the property. To find out the buyer, an auction was organised by the plaintiff. However, the plaintiff was failed to find a customer. But one person who attended that auction approached the plaintiff and got the details of the principal from him. He bought the property without the intervention of the plaintiff.

The issue, in this case, was whether the plaintiff is entitled to get a commission for his action even though he wasn’t present at the time of sale negotiation. It was held that the plaintiff would get a commission for his efforts which led to the sale of the property directly by the principal. So, the principal is entitled to give commission to the agent as per the agreement.

Right of lien 

The term lien has been described in the case of Houghton v. Mathewas as the right of a man to retain certain goods that he possesses, belonging to another, until certain demands of the person who possesses the goods are not satisfied. Section 221 of the Indian Contract Act provides for the right of lien that an agent has on the principal’s property. 

The section provides that, an agent is well within his rights to retain the movable or immovable property of the principle until he is compensated or accounted for his services relating to the property that he was provided with. The movable and the immovable property might include- goods, paper, house, etc. Services here encompass commission, disbursements, and services relating to the property that he had been provided with by the principal. 

There are some conditions that the agent must fulfill to avail the right of lien. The conditions are as follows-

  1. The compensation of money that the agent seeks should be lawfully owed to him by the principal. This money is owed to the agent in the form of commission earned, disbursements made, and the services that were rendered in the implementation of the business of the agency. 
  2. The property that the agent holds (movable or immovable) should belong to the principal. Furthermore, the property should have been received by the agent in his official capacity and during the course of his business as an agent. 
  3. If the property is under the agent’s watch or he has been dealing with it, it is considered to be sufficiently in the agent’s possession. 
  4. In the cases where the property has been handed to the agent under special purposes, it does not come under the purview of the right of lien. This principle has been laid down in the case of Williams v Millington.
  5. The way in which the agent gets possession of the property of the principal should be lawful. In a case where the mode of achieving possession is fraud or misrepresentation, there can be no right of lien.      
  6. The right of lien that has been provided to agents through Section 221 of the Indian Contract act, corresponds to a particular lien only. Particular lien grants the right to a retainer only on goods that have been not compensated for. It does not grant the right to retain all goods. 

The right of lien is an important right that has been granted to agents in order to protect their interests. However, it is not absolute. The exercise has some caveats and restrictions. In the event of a breach of these restrictions and caveats, the protection that the right provides is lost.  An agent could lose his right of lien in the following ways-

  1. The right to lie arises under the precondition of possession. Once possession of the property is lost, the right to lien remains infructuous. The agent loses possession of the property of the principal as soon as he delivers his property or instructs a carrier to deliver it to him. 
  2. Right of lien stands infructuous in the event of the agent waiving off the right. The said waiver might arise as a result of an agreement implicit or explicit. It could also be waived off through conduct inconsistent with the right. 
  3. Section 221 of the Indian Contract Act provides that the right of lien exists only if the contract of agency does not have a clause to the contrary. If the agent after taking due consideration decides to enter into an agreement with the principal to exclude the right of lien it stands infructuous. 

Right to indemnity 

Section 222 Right of indemnification for lawful acts: The principal is sure to indemnify the agent against all consequences of lawful acts wiped out the exercise of his authority.

EXAMPLE: Ram of Bangalore appoints Shyam of Chennai because he wanted to sell his merchandise. Because of this  Shyam started delivering contracts to various parties for selling merchandise. But Ram due to some family issues fails to send the rights of merchandise to Shyam. Due to this Shaym faced various litigations for not performing the act which he was liable to perform in the contract (selling of merchandise). After this Ram assured Shyam that he will be paying the whole amount which Shyam incurred for the purpose of litigation.

In the relevant case of Kishan Lal v. Bhanwar Lal, the plaintiff was an agent both at Jodhpur and Indore within the name of “Kanmal Surajwal and Kanmal Kishwnmal” respectively and thus the defendant entered into several contracts for the acquisition and sale through the plaintiff firm at Indore. The transaction proved unprofitable to the defendant and except a little profit of Rs 103 annas and every one of the rest transaction led to loss and loss aggregated to the sum of Rs 21423, plaintiff paid the number to 3rd party on behalf of defendant and plaintiff receive altogether sum of Rs 11457 which defendant paid from time to time. So, the defendant now is liable to pay RS 9861. The plaintiff doesn’t file the suit related to the business but he asked for the reimbursement of all the expenses and the losses that he had incurred while working as an agent for the defendant.  This suit wasn’t related to the sale and buy of bullion, it had been suited by an agent claiming for losses and expenses incurred by him on behalf of the defendant.

The judgment which was passed in the above-mentioned case held that the agent is applicable for receiving compensation of his expenses and losses which he incurred during the business for which he was appointed by the principal.

Section 223: Right of indemnification against acts done in good faith included under section- 222. Where the agent acts in good faith on the instruction of the principal, an agent is entitled to indemnification of any loss or damage from the principal. 

EXAMPLE: Suman appoints Rama for the selling of some goods, here Rama worked as an agent for Suman. Rama sold those goods to Tej on the behalf of Suman but after7 days of sale Tej came to know that those goods don’t belong to Suman. Here in this case if a third party sue for this act, Rama is liable to pay compensation, reimbursement, and indemnification for such deed which she performs in good faith.

Right to compensation

Subject to the contract terms with the Agency, an Agent may claim compensation, whether general or particular, for damages above pay. The ‘immediate and proximate’ consequences of the breach of the contract create widespread damage. Usually, compensation may be provided for loss or harm, which may be connected directly or nearly to the contract breach. One way of determining damages is to differentiate the contract price from the market price the day before the contract infringement, plus reasonable expenses incurred due to the breach plus court costs. Special damages or consequences will arise in the event of extraordinary circumstances. Such effects may only be granted if the persons infringing have the specific circumstances predicted or expressly known to them.

The Act states that, according to the terms of the Agency contract, the Agent must be paid by the Principal under the following circumstances:

  1. Section 222 of the Act states that: “The employer of the agent should compensate the agent in the exercise of his powers in respect of the legal proceedings of the agent.”
  2. Under Article 223 of the Act: — ‘When a person is acting by an employer, and this is being done in good faith by the Agent, the employer is liable to pay the Agent for the consequences of the act, even if it infringes the rights of third parties.’ Article 222 of the Act provides that, in exercising the authority bestowed upon it, an employer is obliged to pay an agent for the consequences of any legal acts carried out by such an Agent. Following this clause, there is an Indian Law Agreement between the Principal and the Agent in respect of which the Principal must make up for the damages and consequences of the lawful behavior of the Agent while using his powers. For instance, if an Agent is permitted to contract for the delivery of goods or is not prohibited from concluding such contracts on his behalf, the Agent shall, when concluding such contracts, have the right to indemnify for any personal liability related to any contract for the purchase of such goods. His right to act on this remuneration must not be delayed when he fulfills his duty to seek compensation. 
  3. The Agent must show that the Agent has experienced a loss and that the loss is essential. In addition, to claim compensation under this clause, the Agent’s behavior needs to be lawful. Indian courts held that an agent is entitled to indemnification even for transactions that are unlawful but not conducted illegally. The Indian courts have held that even if amounts paid by the Agent were not legally required the Principal must reimburse him. Article 223 of the Act provides that a person acting in good faith by the Agent even without knowledge being illegal must be paid for the consequences of any unlawful conduct that is not criminal. This provision enables an agent to demand damages for suitable faith activities that infringe on other parties’ rights. The right to remuneration permits an agent to receive his commission and all of his expenses incurred on behalf of the Principal. The Supreme Court of India decided that the Agent’s right to remuneration from its principle is entirely a collateral matter in the primary contract concluded by the Agent on behalf of the Principal and that it is not affected by anything which renders the main contract unenforceable.

Duties of agent 

Agent duty to avoid conflict of interest 

The conflict between duty and interest of the principal. Agent duty to avoid conflict between his duty and the interest of the principal. The agent is not allowed to carry any work which resulted in any kind of conflict between his duty and the interest of the principal. Section 215 and 216 of the Indian Contract Act deals with the present disused situation 

Section 215 of the Indian Contract Act, deals with – “Right of principal when an agent deals, on his account, in the business of agency without principal’s consent”. As per this section, if the agent enters into any kind of transaction on his account without obtaining the consent of the principal or without giving full information or plays any dishonest act, the principal has the right to repudiate the transaction. The principal can repudiate the transaction if find any dishonest act against him or cheating by an agent. 

  • Illustration: Ram is the principal and directs his agent Shyam to sell his property. Shyam, the agent, purchases Ram’s property for himself in the name of Raven. In this situation, if Ram, the principal finds any kind of cheating or dishonest act by Shayam against him. The principal can repudiate the transaction. 

Boulton Bros & Co. Ltd v New Victoria Mills Co. Ltd: In this case, the agent fails to share some of the crucial business information with the principal, because the agent enters into a deal with the third party for that information. In this case, the court held that if the agent does not do his work honestly and comes in conflict of his interest over his duty. The principal has all the right to rescind the transaction that gained benefit between the agent and the third party. 

  • A similar situation arises in the case of De Busche v Alt, in this case also the court allowed to repudiate the transaction. As the act of his agent is dishonest and fraudulent. As the agent did not disclose all the important material before the principal. And it led to the benefit of the third party and the agent. The principal rescinds the transaction. 

As we have discussed, the principal has the right to rescind the transaction of the agent when the act of the agent is dishonest or gives an advantage to the agent and the third party. And there is another right given to the principal, in the situation of conflict between agent duty and his interest

Section 216 of the India Contract Act: “Principal’s right to benefit gained by agent dealing on his account in business of agency”- As per this section, when the dishonest act of the agent gives an advantage to the agent and the third party, the principal has the right to claim the part of advantage with arising from his transaction. So, this section says, if the principal doesn’t repudiate the transaction which involves the dishonest act of the agent. The principal is entitled to claim the part from the transaction. 

So, in very simple terms if we define section 216, it says the agent is not allowed to make a secret profit and if it arises from the dishonest act of the agent. The principal is also entitled to claim the part from the profit of the agent.

 Jaiswal Coal Co. v Fatehganj Co-op MKTG Society: In the present case, during the course of the employment, the agent while performing his duty gains some profit by fraudulent means. In the present case, the court held that if the agent does not perform his duty honestly and gain some profit by changing the true nature of the information or through any of his dishonest acts, the principal is within his right to recover all the gains from the agent, that agent gains from the transaction. 

In the case of Harris (L.S.) Trustees Ltd. v. Power Packaging Services Ltd, the court held that if the agent transfers any kind of confidential information to any third party for his profit/gain. The principal has the right to terminate the transaction and the right to recover all the gains from the transaction. The agent is bound to comply with the orders of the principal. Its agent duty is to avoid the conflict of interest between his duty and for his interest. 

Duty to maintain accounts

The duty to maintain accounts has been provided under Section 213 of the Indian Contract Act. The provision provides that an agent ought to render proper accounts to his principal on demand. It was laid down in the case of S. Paul & Co. v State of Tripura that the maintaining of accounts is necessary in order to properly perform other duties of an agent like- duty to remit sums to the principal. This duty of maintaining accounts lies only on the agent, not on the principal. However, the courts have granted agents the equitable right of demanding accounts in special circumstances. The term special circumstances include a scenario where all accounts are in the possession of the principal. 

The case of Yasuda Fire and Marine Insurance Co v Orion Marine Insurance Underwriting Agency Ltd. delved deep into the question of the source of the agent’s duty to maintain accounts. The court in the said case held that the duty of providing proper accounts and inspection to the principal finds its origin in the agency relationship and does not depend on the said relationship being created by the contract of the agency. The obligation exists along with the contract of the agency. The duty of providing inspection into the accounts is not excluded in the preceding obligation it qualifies as an implied duty within its purview. 

The duty of providing access to inspect the accounts does not get terminated after the termination of the contract of the agency. It is due to the fact that such termination could lead to extreme inconvenience and potentially damaging for the principal. It is not as if obligations do not survive after the termination of contracts. For instance, an agreement for arbitration outlasts the termination of its mother contract.

Agent’s duty to take reasonable care

Section 212 sets forth the level of care and competence that an agent requires.

  1. Common law mandates an agent to do his duty with appropriate caution and competence. Agents that do not comply with this criterion are prima facie negligent.
  2. In general, an agent in a particular profession, business, or vocation who carries out his job with the anticipated degree of care and competence of a decent, average member of a related profession, trade, or calling fulfills the required level.

The Agent is obliged to exercise reasonable diligence and use his Principal’s skills and compensate his Principal for the immediate consequences of his carelessness, his desire for skill or misbehavior, but not for losses or damages indirectly or remotely resulting from such neglect or wrongdoing. If there is any loss due to the care or competence of the Agent, the Principal must reimburse the Agent for the loss. An agent is responsible for direct repercussions to his Principal. For instance, if an agent cannot transfer money to the Principal in a timely fashion, he may be held responsible for the funds and interest lost, but not if that is why the Principal becomes bankrupt.

In Wheeler v. Keppel, a representative chose to sell a home. He got an offer which he immediately conveyed to his director. The latter tentatively accepted it “under contract.” The Agent was then given a better offer that he was unable to pass on to the Principal. The first offer was finally accepted, unaware of the second. The Agent was responsible for the loss of the principle in terms of the price difference. 

The case of Pannalal Jankidas v Mohanlal defined “direct effects” where an agent, who was ordered to insure specific items, could not do so. The items were lost at the docks after an explosion. Even though the Agent had sought out a fire insurance policy, as usual, the loss would not have been covered since the fire would have been a foreseeable danger owing to the explosion. However, the Bombay Government passed an order under which it assumed half the losses for uninsured products. The Principal thus only had half of what he would have if the items were insured. The Agent argued that the damage was too far since the passage of the order could not be expected. But the majority concluded that the loss was the direct consequence of the Agent’s carelessness. A compensated agent should, under comparable circumstances, operate with care, expertise, and attention usually done by agents. They paid agents who show that they have a competence level more significant than the usual may be held to a commensurate higher degree of performance. Likewise, if a principal and Agent stipulate that the Agent must have and practice more or less than usual care and expertise, an agent’s obligation may alter.

Agent’s duty under contract law

Section 212 of the Indian Contract Act states that an agent must do business with such skill and care in an agency contract, usually followed by individuals involved in comparable firms. His actions should be implemented efficiently and diligently. If he does not do so, his Principal is accountable for the direct consequences of his misbehavior, lack of skill, or misbehavior. However, it cannot be held indirectly or distantly liable for damage or loss from carelessness, lack of competence, or misconduct. Moreover, if the Agent complies with the requirements in the kind of business in which it is engaged, he is not liable for paying the principal.

Evidently, the level of skill, care, and skill with where an agent undertakes his duty relates, relying not only on the nature of the changes to be made but on all circumstances, such as instruction, commercial use, and customs accompanied by that business, how previous transactions have been formed and how far they are being carried out.

If thus, the transaction requires experience and knowledge, the Agent effectively commits to exercise the knowledge and abilities of an expert if there is no other goal on his side. On the other hand, if the Agent somehow doesn’t claim to be an expert and knows that fact, nevertheless considers it appropriate. The Agent shall not be liable or liable to use the expert’s ability and knowledge if the Agent does not reach a more exceptional standard on which the Agent has grounds for relying.

In section 212, an agent is obliged to use due care in difficulty contacting the Principal and trying to get his instructions. If a loss occurs due to his conduct, the Agent is liable for the Principal as determined by Jayabharthi Corp v Sv P.N. Rajasekhara Nadar.

Agent’s duty under English law

The English law also continues the same line and says that an agent must offer care and competence depending on their profession. An insurance agent, for example, must ensure that the usually necessary safeguards to protect the concept were included in the policy. A land officer must also be thoroughly educated about the land laws and check the renter’s solvency. The English law also says that an individual who works as an agent should have sufficient legal knowledge to safeguard the Principal’s interests in the course of the Agency.

Under US law, if an agent is appointed, he implicitly undertakes to use reasonable expertise, care, and care in the execution of the Agency. In general, a certain degree of knowledge, care, and attention is required if an agent is paid for the services, it offers and is adequate for others with a similar capacity and prudence to engage in similar transactions.

Duty not to delegate his duties

Section 190 says about when an agent cannot delegate which means an agent cannot give his work to someone else. An agent cannot lawfully employ someone for his work. The work is solely given to him and he cannot appoint to do his work. Only in some ordinary situations when an agent says that a sub-agent is required that only he can appoint. 

The widespread rule is that an agent won’t delegate his authority or responsibility in complete or in component besides with the authority and consent of the essential. Owing to the reality that a business enterprise settlement is aware of the essential and the agent and that authority is generally given to the agent personally, as a consequence of his trustworthiness, talent, or experience, the agent is beneath a responsibility to the essential now no longer to delegate his responsibilities beneath the business enterprise settlement to some other person, however, to exercise the authority in person. Hence, an agent has generally no implied authority to appoint deputies or sub-marketers to perform his responsibilities. Where an agent isn’t legal to delegate, the act of a “sub-agent” appointed via way of means of the agent will now no longer be binding at the essential. The agent who so delegates his authority is likewise in breach of the responsibility now no longer to delegate and is prone to catch up on any loss which the essential might also additionally go through in outcome of the agent’s failure to exercising his authority in person.

In the case between John Mc Cain and Co. V. Pow, it had been led down that unless authorised by the principal-agent as no right to appoint a subagent and delegate the responsibility of his powers which must be accomplished by the agent. during this case another thing which was laid down was that no implied authority might be pleaded. During this case, the claim of commission presented by the sub-agent wasn’t accepted as consistent with the contract of agency appoint of a subagent isn’t valid.

These are the subsequent criteria during which duties are often delegated by an agent:

  1. Nature of labour There are some circumstances in reference to work that make it mandatory for an agent to appoint a sub-agent. we will understand this idea by reading the subsequent illustration:
    There is a banker in Delhi who is sure to auction the land in Chandigarh. he’s working as an agent, but thanks to the distance he was alleged to appoint a sub-agent for the accomplishment of labour. This made it mandatory for an agent to appoint a sub-agent.
    It was held within the case between Surinder Singh V. Hardial Singh & others which was held in Hon’ble Punjab supreme court.
  2. The principal may allow his agent to appoint a sub-agent. So during this situation agent can appoint a sub-agent because the principal may ratify his agent’s unlawful delegation.
    The above principle means a delegate cannot further delegate. Therefore, an agent cannot appoint a sub-agent. However, there are subsequent exceptions to the present principle:
  • When the principal allows delegation.
  • Where it’s the custom or usage of trade to delegate.
  • When delegation is important for correct and efficient performance.
  • Where it becomes essential thanks to some emergency
  • When the principal knows that the agent’s intention is to delegate.
  • Where the work is ministerial.

Duty to follow instructions or customs

Basically, in a contract of Agency, an agent is appointed by the principal to act on behalf of his/her interest. So, the agent is obliged to fulfill the tasks or works assigned with due diligence and intelligence. A fiduciary relationship exists between the principal and the agent in a contract of agency. Thus, the agent needs to act in such a way that it leads to the greatest advantage of the principal. There are certain duties of an agent. One of the main duties of an agent is to follow- the instructions given by the principal or the customs of the area of business. The said duty is specified in Section 211 of the Indian Contract Act, 1872. The agent must perform or regulate the activities according to the instructions or directions of the principal only. The agent is bound to conduct the business in such a way that it does not go beyond the authority of the principal. But if the agent does not act according to the principal’s instructions, then the agent will be absolutely liable for any loss or harm caused due to his disobedience. The agent should make that loss as good to the principal.   Whenever the instructions given by the principal are not clear, in such a way that it conveys two meanings or ways, then the agent won’t be liable to the principal. The principal cannot argue against the agent that he should have understood the instruction in another way than what the agent actually understood.  But when the instructions are absent, business customs should be followed by the agent. This means that the agent is supposed to follow the customs which are present in the other businesses of the place where the agent carries out such businesses. This is applicable because an agent should perform the acts under the control of the principal for the principal’s benefit. That’s the reason to follow the directions of the principal to conduct the agency business.  If the agent does not follow the prevailing customs in absence of instructions from the principal, then also, the agent would be liable for the loss or harm resulting from that act. However, there are some exceptions for the agent to not follow the instructions or customs of the principal. An agent need not follow the orders of the principal which are illegal and immoral. For example, an accountant is not obliged to follow his client’s directions if they are unethical as per the rules of his profession. A gratuitous agent need not follow the principal’s directions to work as an agent under the principal.

Case laws: Lilley vs. Doubleday: The plaintiff, in this case, was Lilley and the defendant was Doubleday. Doubleday was Lilley’s agent.

The plaintiff had instructed the defendant, the agent, to store the goods at a particular warehouse. The plaintiff had insured all the goods that were handed over to the defendant. However, the defendant stored the part of the goods according to the instruction of the goods at a different warehouse which was also safe. The other part of the goods which were kept at different warehouses was destroyed because of the fire. Also, the plaintiff lost the insurance benefit due to the change in place of storage. In this process, there was no negligence by the defendant.

Should the defendant pay for the value of destroyed goods? (Case citation: (1881)7 Q.B.D. 510 It was held that the defendant was liable to pay for the value of goods because the defendant didn’t follow the instructions of the plaintiff and kept the goods at a different place without Lilley’s consent. Even though the defendant had not committed negligence, the failure to follow instructions caused the loss and breached the contract. So, the defendant was absolutely liable to pay the plaintiff.

Pannalal Jankidas vs. Mohanlal and Anr.

In this case, the plaintiff had kept the goods in the Godown in Bombay with a pending receipt of a permit from the defendants. Before the dispatching of goods, the goods were destroyed due to the big explosion in Bombay Harbour. All the goods were uninsured. The plaintiff received compensation for the 50% of damages for the uninsured goods according to the Bombay Explosion (compensation) Ordinance, 1944. The agents claimed that they had the right to be indemnified by the defendant for the recovery of the remaining 50% of the goods. The defendants claimed that the plaintiffs had taken the amount for insuring the goods. So, the defendants argued that the plaintiffs had to pay the damages caused because of their negligence and breach of duty.

The issue, in this case, was: what damages are plaintiffs liable to pay to the defendants for failure to insure the goods which were destroyed?

The Supreme Court held that the party in breach should make compensation according to the direct consequences resulting from the breach but not according to the indirect consequences. It has given this judgment based on the principle of Restitutio in Integrum. So, the counter-claim given by the defendants to the plaintiff was dismissed. It was held that the agent was liable to compensate.

Duty to remit sums 

According to this Duty under Section 218 Agent is bound to pay all the sums that are received him/her on the behalf of or Principal.

For Example-

A appoints B as an Agent for him, for the purpose of selling the extra inventories that are kept inside the shop. As in the process of accomplishing the given task, the agent was bound to sell the goods costing 25000 but during the deals, the agent was provided by the customers a sum of Rs 30000 so in this case, the Agent is entitled to pay a sum of Rs 30000 including the initial amount of Rs 25000. So, A is entitled to receive a sum of Rs 30000.

In the case between Sri Konathala Venkata Raman VS State of Andhra Pradesh which was decided on 24 October 1968 in the Hon’ble Court of Andhra Pradesh, it was held that Konathala the agent who was enjoying a profit of 10000 that was received by the agent on the principal needs to be repaid by him to the principal.

In another case of Shivram Govind Darshane vs Viswanath Govind Darshane which was held on 28 September 1955 in the above case a sum of Rs 10800 was distributed among the 108 persons of the village in the plaintiff’s account Rs 600 were there but the respondent worked here as an agent and received plaintiff’s sum and it was held in the courtroom that the respondent is now liable to pay a sum of Rs 600 to the principle as a way of the sum received by an agent on the behalf of Principle.

Conclusion

The contract of agency is a contract that the principal, as well as the agent, mutually enter into with their respective consent. The principal through the use of the contract of agency grants powers to an agent to act on his behalf and under his control. Both the parties to the contract share a fiduciary relationship and the actions of the agent bind the principal. The agent as a result of the contract of the agency has a lot of rights and duties placed upon his shoulders. 

The fiduciary relationship works in a way that an agent is liable to indemnify his principal for the losses or damages arising due to his acts and in turn the principal owes contractual duties to his agent. There are several rights and duties that an agent has. Some of the rights are- right to remuneration, right to indemnity, right of retainer, right to lien, and right to compensation. Furthermore, the duties include- duty to follow instructions or customs, duty not to delegate his duties, duty to avoid conflict of interest, duty to maintain accounts, and duty of reasonable care and skills. 

References


Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.

LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:

Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.

LEAVE A REPLY

Please enter your comment!
Please enter your name here