RELATIONS BETWEEN PRINCIPAL AND AGENT

FAHIMUDDIN AHMED KHAN B.A.LLB (H) 2nd SEM

INTRODUCTION
The relationship between Agent and Principal is primarily contractual in nature and is governed by the terms of contract entered into between them ("Agency Contract"). The law of agency derives its statutory base from Chapter X of the Indian Contract Act, 1872 ("Act"), which provides the framework of rules and regulations that govern formation and performance of any contract including the Agency Contract. Section 182 of the Act defines Agent as person employed to do any act for another or to represent another in dealings with third person. Any person, who is of the age of majority according to the law to which he is subject, and who is of sound mind, can employ an Agent. As between Principal and third person a person may become an Agent, so as to be responsible to his Principal according to the provisions contained in the Act. No consideration is necessary to create an agency. The authority of an Agent may be express or implied. An authority is said to be express when it is given by words, spoken or written. An authority is said to be implied when it is to be inferred from the circumstances of the case and things spoken or written or in the ordinary course of dealing may account for the circumstances of the case. An Agent having an authority to do an act has authority to do every lawful thing, which is necessary in order to do such act. The Agent in doing that act must neither do anything that is illegal, not beyond the limits of his own authority, nor beyond the powers of his Principal. An Agent has authority in an emergency to do all such acts for the purpose of protecting his Principal from loss as would be done by a person of ordinary prudence, in his own case under similar circumstance. Several types of commercial agents have been recognized under Indian law, which includes inter alia brokers, auctioneers, del credere agents, persons entrusted with money for obtaining sales and insurance agents

DUTIES OF AGENT
Duties of agent are as follows:1) Duty to follow principals direction (Section 211) 2) Duty to show proper skill and care (Section 212) 3) Duty to render proper accounts (Section 213) 4) Duty to communicate with principal (Section 214) 5) Duty not to deal on his own account (Section 215 & 216) a) Repudiation of contract by principal when agent deals on his own account b) Principals right to claim benefit when agent acting on his own account 6) Duty to pay sum received for principal (Section 217 &218) Now we will understand these sections in detail with some illustrations and case laws. 1) Duty to follow principals direction (Section 211) 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 be sustained, he must make it good to his principal, and, if any profit accrues, he must account for it. Illustrations (a) A, an agent engaged in carrying on for B a business, in which it is the custom to invest from time to time, at interest, the moneys which may be in hand, on its to make such investments. A must make good to B the interest usually obtained by such investments.

(b) B, a broker in whose business it is not the custom to sell on credit, sells goods of A on credit to C, whose credit at the time was very high. C, before payment, becomes insolvent. B must make good the loss to A. Illustration (b) tells us that when an agent does not act according to the principals directions or the customs, as the case may be, he will be liable for the loss caused to the principal even though the same could not have been anticipated at the time of doing the act. In the case of Lilley v. Doubleday, (1881) 7 Q.B.D. 510, the defendant, having agreed to store the plaintiffs good in his own repository, stored some of them in other warehouse. Those goods were destroyed by fire without any negligence on the part of the defendant. The defendant was held liable for the loss. Similarly, when an agent is instructed not to settle it for 10,000 but the agent settles it for 100, the agent is guilty of breach of duty.

2) Duty to show proper skill and care (Section 212) 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 his 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. Illustrations (a) A, a merchant in Calcutta, has an agent, B, in London, to whom a sum of money is paid on As account, with orders to remit. B retains the money for a considerable time. A, in consequence of not receiving the money, becomes insolvent. B is liable for the money and interest, from the day on which it ought to have been paid, according to the usual rate, and for any further direct lossas, e.g., by variation of rate of exchangebut not further.

(b) A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit, without making the 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. In Link International v. Mandya National Paper Mills Ltd., AIR 2005 Sc 1417 , there was a contract for purchase of suction press roll machine from foreign company Appellant had acted as agent between respondent and Foreign Company. Instead of full machine, only shell of the machine was supplied. Suit for damages was filed. Finding was recorded by court below that appellant facilitated playing fraud upon respondent as they kept respondent in dark though they were aware that only shell was being supplied. Nothing had been shown to conclude that finding was correct. The Apex Court held the appellant would be liable for loss caused to respondent irrespective of the fact whether contract was entered into by appellant on behalf of foreign or it was a direct contract.

3) Duty to render proper accounts (Section 213) An agent is bound to render proper accounts to his principal on demand. Another duty of the agent is to render proper accounts to his principal on demand. This means that he should maintain proper accounts of the sums belonging to the principal which are in his hands, he should not misutilize and misappropriate them, and on demand from the principal, he should render true accounts to his principal. It may be noted that according to section 213, the agent is bound to render true accounts to his principal on demand. There is no provision in the Act enabling an agent to require the principal to render accounts or filing a suit for that purpose. In Narandas v. Papammal, A.I.R. 1967 S.C. 333, it has been held by Supreme Court that although there is no statutory right under which an agent can sue his principal for the rendition of accounts, but he has an equitable right for that under special circumstances. Such circumstances may be : (1) where all

accounts are in possession of the principal and the agent does not posses accounts to enable him to determine his claim against the principal for commission, or (2) where his remuneration depends on the extent of dealings which are known to him but the accounts which are available only with the principal. 4) Duty to communicate with principal (Section 214) According to Section 214, it is the duty of an agent, in case of difficulty to use all reasonable diligence in communicating with his principal, and seeking to obtain his instructions. 5) Duty not to deal on his own account (Sections 215 & 216) An agent is under a duty not to deal on his own account in the business of agency, unless the principal consents thereto. If in any transaction, an agent deals on his own account without the principals prior consent, the principle has the following two rights: I. Repudiation of contract by principal when agent deals on his own account.( Section 215) 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. Illustrations (a) A directs B to sell As 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 that the sale has been disadvantageous to him.

(b) A directs B to sell As estate. B, on looking over the estate before selling it, 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, 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. II. Principals right to claim benefit when agent acting on his own account. (Section 216) If an agent, without the knowledge of his principal, deals in the business 6f 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. Illustration A directs B, his agent, to buy a certain house for him. B tells A it cannot be bought, and buys the house for himself. A may, on discovering that B has bought the house, compel him to sell it to A at the price he gave for it An agent cannot take any personal gain out of the transaction of agency, nor can he make secret profits while acting as agent. In Turnbull v. Garden, (1869) Ch. D. 286, an agent purchased goods for his principal obtaining some discount on the transaction. He tried to charge the principal with full price of the goods. It was held that the principal was not bound to pay to agent more amount than the agent had actually paid while purchasing the article. 6) Duty to pay sums received for principal (Section 217 & 218) Another duty of the agent is to pay to his principal all sums received by him on principals account. Before making such payment s to his principal, the agent is, however, entitled to make such deductions out of the same as are lawfully due to him. (Section 218)

According to Section 217, an agent may retain, out of any sums received on account of the principal in the business of the agency, properly incurred by him in conducting such business and also such remuneration as may be payable to him for acting as agent.

RIGHTS OF AGENT AND DUTIES OF PRINCIPAL

The Act confers a number of rights on an agent, and imposes some corresponding duties on the principal. They are as follows: 1. Right to remuneration (Section 219) 2. Right to retain sums (Section 217 and 218) 3. Right of lien on principals property (Section 221) 4. Right to be indemnified (Section 222-224) 5. Right to compensation (Section 225) Now we will understand these sections in detail with some illustration and case laws. 1) Right to Remuneration (Section 219) In the absence of any special contract, payment for the performance of any act is not due to the agent until the completion of such act; but an agent may detain moneys received by him on account of goods sold, although the whole of the goods consigned to him for sale may not have been sold, or although the sale may not be actually complete According to the above stated provision, an agents remuneration does not become due to him until the completion of the act assigned to him. This rule is subject to any special contract between the principal and the agent. If the parties have agreed that the agent will be entitled to commission when he finds a purchaser, who is ready and willing to purchase the property, the agent becomes entitled to the commission on doing that. In Saraswati Devi v. Motilal, A.I.R. 1982 Raj. 108, Motilal, the plaintiff who was an estate agent, had been engaged by the defendant, Smt. Saraswati Devi and her husband, to find a purchaser for certain property. The plaintiff found a costumer, who was willing to pay Rs.1,27,000 for the property and who also

paid an advance of Rs. 30,000. Subsequently, the defendant refused to sell the property to that customer. The plaintiff bought an action against the defendant to recover Rs. 2,500 as remuneration for finding the customer. It was held that according to the nature of this agreement, the remuneration was payable to the plaintiff when he found the purchaser who was ready, willing and able to purchase the property and since he had done that, he was entitled to the commission. Although as a general rule, an agent cannot claim his remuneration unless he has the act assigned to him, the rule does not apply when the agent is to sell the goods. In such a case, according to Section 219, the agent has a right to detain his principals money received by him on accounts of goods sold in order to recover his remuneration, although the wole of the goods consigned to him for sale may not be actually complete. Generally, the sale of goods by an agent may be a continuous process. The law, therefore, entitles him to remuneration on the basis of work done, from time to time. No remuneration for the business misconducted (Section 220) An agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconducted. Illustrations (a) A employs B to recover 1,00,000 rupees from C, and to lay it out on good security, B recovers the 1,00,000 rupees and lays out 90,000 rupees on good security, but lays out 10,000 rupees on security which he ought to have known to be bad, whereby A loses 2,000 rupees. B is entitled to remuneration for recovering the 1,00,000 rupees and for investing the 90,000 rupees. He is not entitled to any remuneration for investing the 10,000 rupees, and he must make good the 2,000 rupees to B. (b)A employs B to recover 1,000 rupees from C. Through Bs misconduct the money is not recovered. B is entitled to no remuneration for his services, and must make good the loss.

2) Right to retain sums (Section 217 & 218) The agent has a duty to pay to his principal all sums received on principals account. Nut he ahs also a right to 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 agent. Similarly, when an agent sells his principals goods, he may detain money received, for his remuneration on account of the goods sold by him. Such right can be exercised by an advocate also but the lien must be confined to the costs incurred in that particular case. 3) Right of lien on principals property (Section 221) In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other property, whether movable or immovable, of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him. A purchasing agent can exercise lien over the goods purchased for his principal until the amount due to him for such purchases has been paid. Such right is, however, subject to an agreement to the contrary. Moreover, such a right is lost, when the agent parts with the possession of the goods. The position in this regard was thus explained by Hegde, J. in Ram Prasad v. State of M.P.: As a general rule in order to have a lien, an agent must have some possession, custody or control or disposing power in or over the subject matter in which the lien is claimed. The lien does not arise where the possession of the property is acquired by the agent under a contract which expressly or impliedly shows contrary intention, or where it is delivered to him for a particular purpose inconsistent with the existence of lien the/eon. The agent has no lien over the property where it is entrusted to him for a special purpose which is inconsistent with the lien claimed. Further the lien of an agent being a mere right to retain possession of the property subject thereto, is lost by parting with the possession of the goods unless at the time of parting

with them he reserved expressly or impliedly his right of lien or they are obtained from him by fraud or unlawful means 3) Right to be indemnified (Section 222-224) Indemnity for lawful acts (Section 222) The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him.

Illustrations

(a) B, at Singapure, under instructions from A of Calcutta, contracts with C to deliver certain goods to him. A does not send the goods to B, and C sues B for breach of contract. B informs A of the suit, and A authorises him to defend the suit. B defends the suit, and is compelled to pay damages and costs, and incurs expenses. A is liable to B for such damages, costs and expenses.

(b) B, a broker at Calcutta, by the orders of A, a merchant there, contracts with C for the purchase of 10 casks of oil for A. Afterwards A refuses to receive the oil, and C sues B. B informs A, who repudiates the contract altogether. B defends, but unsuccessfully, and has to pay damages and costs and incurs expenses. A is liable to B for such damages, costs and expenses. Indemnity for civil wrongs (Section 223) Where one person employs another to do an act, and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act, though it causes an injury to the rights of third persons

Illustrations (a) A, a decree-holder and entitled to execution of Bs goods requires the officer of the Court to seize certain goods, representing them to be the goods of B. The officer seizes the goods, and is

sued by C, the true owner of the goods. A is liable to indemnify the officer for the sum which he is compelled to pay to C, in consequence of obeying As directions.

(b) B, at the request of A, sells goods in the possession of A, but which A had no right to dispose of. B does not know this, and hands over the proceeds of the sale to A. Afterwards C, the true owner of the goods, sues B and recovers the value of the goods and costs. A is liable to indemnify B for what he has been compelled to pay to C, and for Bs own expenses When an agent commits a tort in the course of doing an act on behalf of the principal, both principal and agent are deemed to be tortfeasors. If the situation so warrants, the agent may be entitled to claim contribution from the principal under the Law Reform (Married Women and Tortfeasors) Act, 1935 of England. The position in this in India is considered to be same as that in England. No indemnity in case of criminal offences (Section 224) Section 224 tells us that, when the agent commits a crime at the instance of the principal, the agent cannot claim indemnity fro the principal against the consequences of the crime, even though the principal has expressly or impliedly promised to indemnify him. Section 224 is as follows: Where one person employs another to do an act which is criminal, the employer is not liable to the agent, either upon an express or an implied promise, to indemnify him against the consequences of that act.

Illustrations (a) A employs B to beat C, and agrees to indemnify him against all consequences of the act. B thereupon beats C, and has to pay damages to C for so doing. A is not liable to indemnify B for those damages. (b) B, the proprietor of a newspaper, publishes, at As request, a libel upon C in the paper, and A agrees to indemnify B against the consequences of the publication, and all costs and damages

of any action in respect thereof. B is sued by C and has to pay damages, and also incurs expenses. A is not liable to B upon the indemnity. 5) Right to compensation for damages due to principals neglect (Section 2 25) The principal must make compensation to his agent in respect of injury 1caused to such agent by the principal's neglect or want of skill.

Illustration A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The scaffolding is unskilfully put up, and B is in consequence hurt. A must make compensation to B.

BIBLIOGRAPHY

Contract-II, R.K. Bangia Vakilno1.com Indianlegalservices.com