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9
LEARNING OUTCOMES
1. 2. 3. 4.
By the end of this topic, you should be able to: List the duties of agents and principals; Describe the rights of agents and principals; Discuss the effect of agency contract; and Explain the rules of termination of agency contract.
INTRODUCTION
An agency relationship arises out of an agreement between the principal and the agent. The agreement confers the rights and duties to the principal and agent, whether express or implied. However, if the contract does not specify the rights and duties of the parties, the provisions in Sections 164 to 178 of the Contracts Act, 1950 will be applicable. The provisions in Section 164 to 174 govern the duties of an agent to his principal and the provisions in Section 175 to 178 deals with the principals duties to his agent.
9.1
As far as the duty of an agent to his principal is concerned, the agent is obliged to do the following for the principal: 1. Obey the principals instructions. According to Section 164 of the Contracts Act 1950, "an agent is bound to conduct the business of his principal according to the directions given by the principal....Where the agent acts otherwise, if any
loss sustained, he must make it good to his principal, and if any profit accrues, he must account for it. The provision provides that an agent who fails to carry out his principals instructions will result in breach of contract and consequently, the agent will be liable for any loss sustained by the principal. For example, the principal instructed his agent to purchase certain goods at a certain price. However, the agent purchased at more than the authorised price and as a result, the agent was to be personally liable for the payment of the price of the goods. If the principals order is clearly illegal, the agent has no obligation to obey the order.
In the case of Turpin v. Bilton (1843) 5 Man & G 455, an agent failed to insure his principals ship although he had been ordered to do so. When the ships lost, the court decided that the agent was liable for the losses.
2.
Act according to the customs prevailing if there is no instruction from the principal. According to Section 164 of the Contracts Act 1950, "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 the business. Therefore, the provision requires the agent to act according to the customs which prevail in doing business of the same kind if there is no clear instruction from the principal. Otherwise, he has to make good any loss sustained by the principal.
TOPIC 9