relation of principal and agent contract sem 3

8/11/2019 Relation of Principal and Agent Contract Sem 3

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Project Report on

Jamia Millia Islamia New Delhi

Principle Agent

relationship

Submitted to:

Dr. Eqbal Hussain(Faculty of Law of Contracts)

Submitted By: Idrish MohammedRoll No: 32

Semester: 2nd

Year: 1st

Batch: 2013-2018


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Table of ontents

1) Introduction

2) Chapter 1: Duties of agent

3)

Chapter 2: rights of agent

4) Chapter 3: duties of principle for act done by

agent

5)

Conclusion

6)

References


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INTRODU TION

Agent and principal defined.

An agent is a person employed to do any act for another, or to represent another in

dealings with third person. The person for whom such act is done, or who is so

represented, is called the principal.

The definition of an agent covers a person employed to do any act for another, and the

same applies to its use in ordinary parlance. It does not limit the employment to one by

the principal only. The actual status of the parties must be determined with reference to

all the circumstances, and not merely with reference to the words used. The mere fact that

a person offers advice or writes letters to another in the matters of business does not

establish the relationship of agency. The relation of agency arises whenever a person

called the agent has authority to act on behalf of another called the principal and consents

so to act. The relationship has its genesis in a contract. Qui per alium facit per seipsum

facere videtur; he who does an act through another is deemed in law to do it himself.

Agency is founded on a contract, either express or implied, by which one of the parties

confides to the other the management of some business to be transacted in his name or on

his account and by which the other assumes to do the business and to render an account

of it. The essence of the matter is that the principal authorizes the agent to represent or act

for him in bringing or to aid in bringing the principal into contractual relation with a third

person. Therefore a person does not become an agent on behalf of another merely

because he gives him advice in matters of business. Nor does a mere settlement of the

terms of remuneration constitute a contract of agency unless an authority to act is

conferred and accepted. The essence of agency to sell is the delivery of the goods to a

person who is to sell these, not as his own property but as the property of the principal

who continues to be the owner of the goods and will, therefore, be liable to account for

the sale proceeds. The true relationship of the parties in each case has to be gathered from

the nature of the contract, its terms and conditions, and the terminology used by the

parties is not decisive of the legal relationship.


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By merely giving guarantee for a particular period in regard to carrying out the repairs

one can never say that the title to the goods passed. In all makes which are sold say motor

cars, refrigerators, fans, motor bicycles, there is always guarantee period during which

the manufacturer binds himself to carry out the repairs but all the distributors or all

persons who purchase for resale of such goods can never be considered or termed as

agents, as contemplated by section 182 of the Indian Contract Act.

It is only when a person acts as representative of the other in business negotiations that is

to say, in the creation, modification or termination of contractual obligations between that

other, and the third persons, that he is an agent. The definition of agent given in section

182 is very wide and embraces a servant pure and, simple. The agent carrying out his

undertaking within the scope of his authority binds his principal as the agents acts are

deemed to be those of his principal.

Representative character and derivative authority may be said to be the distinguishing

feature of an agent. Where a person is employed by another as accountant to perform the

duties of receiving money and of maintaining on his behalf the accounts of transactions,

relating thereto, he will be deemed to be the agent of such other person.

Where fraud is committed by responsible officers of a corporate body by knowingly

representing false facts, the corporate body would be held liable for fraud committed by

them.

An agent is not a servant but a servant is generally for some purposes his masters agent,

the extent of the agency depending upon the duties or position of the servant, and in some

cases an independent contractor may also be an agent. According to the definition in

section 182 an agent never acts on his own behalf but always on behalf of another. He

either represents his principal in any transaction or dealing with a third person, or

performs any act for the principal. In either case the act of the agent will be deemed in

law to be not his own but of the principal. The crucial test of the status of an agent is that

his acts bind the principal. The word agent in itself means very little; the facts must

speak for themselves, and if those facts show a state of things different to a simple

arrangement between a principal and agent, the effect of those facts will not be altered


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simply because the language of agency has been used in a loose manner. In determining

legal nature of relationship between the alleged principal and agent the use or omission of

the word agent is not conclusive. The Court must examine the true nature of the

agreement and the subsequent dealings between the parties, and then decide whether it

establishes relationship of agency under the law. Where delivery can be made in a mode

or the option of the sender, the agency through which delivery is made acts as the agent

of the tender whereas if delivery is made by way of dispatch in the mode stipulated or

prescribed by the addressee, the agency through which the article is dispatched acts as the

agent of the addressee. Modern business has given extension to the terms agent and

agency. In many tradesparticularly, for instance, in motor car tradethe so-called

agent is merely a favored and favoring buyer. It is true that in commercial usage,

especially in modern contracts, the expression agent or agency has acquired an

extended meaning; often the so-called agent is merely a buyer who has been given

favorable terms in aparticular area to sell the manufacturers or suppliers goods. The use

of the expression agency in an agreement has therefore no special

importance. Similarly, an agent employed by an insurance company to introduce business

to the insurers in not in any real sense of the word their agent. The question of agency is a

mixed question of fact and law very largely depending on the evidence in the particular

case. Agency need not be created expressly by any written document and can be inferred

from the circumstances and the conduct of the parties. A person merely signing letters

purporting to emanate from military secretary of ex ruler for the Military Secretary is

not acting as agent.

There is a distinction between a person employed to do an act for another and a person

who does an act at the bidding of another. In the first place the act done is not that of the

person employed but of him who employs him. In the second, the act is that of the person

himself. Again in the first case, the person employed is an agent of the employer; in thesecond, he merely acts at the request of another. Then again in the first case, under

section 222 the person is entitled to be indemnified against the consequences of all lawful

acts done by him in the exercise of his authority as an agent in the latter he is entitled to

be indemnified only if there is a contract of indemnity to this effect.


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CHAPTER 1

DUTIES OF AGENT

Mutual rights and duties of principal and agent may be wholly provided for their contract

but the following duties of general nature are imposed by the law upon every agent,

unless they are modified or excluded by special contract:

1 DUTY TO EXCECUTE

The first and the foremost duty every agent is to carry out the mandate of his principal

.He should perform the work which he has been appointed to do .any failure in this

respect would make agent absolutely liable for principals loss. Thus, it has been held in

number of cases that:

The rule of equity is that if an order is sent by principal to a factor to make an insurance,

and he charges his principal as it is made, if he never in fact made that insurance, he is

considered as insurer himself1

2 DUTY TO FOLLOW INSTRUCTION

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, omits to make

such investment. A must make good to B the interest usually obtained by such

investments.

1Tichel v Short (1750) 2 Ves 239


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(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.

This section provides that agent is bound to conduct the business of his principal

according to the direction given by the principal and keep himself within the confines of

authority .in the absence of direction the agent has to follow the custom which prevails in

the business of the same kind and at the same place where the agent conducers the

business. When the agent acts otherwise, if any loss be sustained he must make good to

his principal and if any profit accurse he must account for it.

3 DUTY OF REASONABLE CARE AND SKILL

212. Skill and diligence required from agent. 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.

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.


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(c)A, an insurance-broker employed by B to effect an insurance on a ship, omits to see

that the usual clauses are inserted in the policy. The ship is afterwards lost. In

consequence of the omission of the clauses nothing can be recovered from the

underwriters. A is bound to make good the loss to B.

(d)A, a merchant in England, directs B, his agent at Bombay, who accepts the agency, to

send him 100 bales of cotton by a certain ship. B, having it in his power to send the

cotton, omits to do so. The ship arrives safely in England. Soon after her arrival the price

of cotton rises. B is bound to make good to A the profit which he might have made by the

100 bales of cotton at the time of ship arrived, but not any profit he might have made by

the subsequent rise.

Under section 212 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. The neglect and misconduct of agent

misinforming his principal as to purchase of goods squarely comes within the ambit of

section 212.the standard of care and skill which an agent has to bestow depends on the

nature of his profession. If the principal suffers any loss owing to the agents want of skill

and care, the agent must compensate the principal for such loss. Section 212 limits the

consequences. It provides that the agent must make compensation 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.

In cases of difficulty the agents duty is to use all reasonable diligence in communicating

with his principal, and in seeking to obtain his instruction, if the principal can be

communicated with the reasonable care, before taking steps in facing difficulty or

emergency.

In case of Pannalal Janki v Mohanlal2

2(1950) 1 SCR 979


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An agent having been instructed to insure certain goods failed to insure certain goods

.The goods were lost in explosion at dock. Even if the agents had taken out a fire

insurance policy in usual form it would not have covered the loss of this kind, as fire due

to explosion would have an expected peril. But the Bombay High government passed an

ordinance under which undertook to pay half loss in cases of uninsured goods. Thus the

principal got only half of what he would have got if the goods had been insured.

It was held by majority that loss was the direct result of ag ents negligence. Therefore

agent was held liable.

214. Agents dutyto communicate with principal

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.

The principal is bound by the knowledge of the agent, if it is on material point and such

that the agent was bound to communicate to the principal3. This section makes incumbent

on the agent to use all reasonable diligence in communicating with his principal and

seeking to obtain his instructions in all cases of difficulty. An agent if unauthorized to

pay or sell at best rates cannot defer carrying out the order until he has communicated the

rate of the day to the principal and received his sanction. Where the purchaser raises

dispute regarding quality of goods the Pawnee must treat himself as agent of Pawnee and

act according to this section.

4 DUTY TO AVIOD CONFLICT OF INTEREST

215. Right of principal when agent deals, on his own account, in business of agency without

principals consent.

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

3JAYABHARATHI CORPN V S.V.P.N.S.N AIR 1992 SC 592


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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 ofC. 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.4

If an agent deals on his own account in the business of agency, the principal may

repudiate the transaction if it appears that the dealings of the agent have been

disadvantageous to him, or if the agent has concealed a material fact dishonestly. By the

law of England, however, if an agent, without disclosing the fact that he is the person

dealing himself, deals with the principal, the principal on discovering the fact can have

the transaction set aside. However principal has to prove

(1)A material fact has been dishonestly concealed from him

(2) The dealing of the agent has been disadvantageous

216. Principals right to benefit gained by agent dealing on his own account in

business of agency.

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

4RANGANAYAKAMMA V K.S PRAKASH (2005) AIR Kant HCR 2654


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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.

The general rule is that a person who is dealing with another mans money ought to give

the truest account of what he has done, and ought not to receive anything in the nature of

a present or allowance, without the full knowledge of the principal that he is so

receiving5.An agent cannot, without the knowledge and consent of the principal, be

allowed to make any profit out of the matter of the agency beyond his proper

remuneration as agent. He would be answerable for any present solicited out of the

money paid on behalf of his principal, because it is perfectly obvious that if the creditor

who, received the payment is willing to make a deduction and discount from the sum he

had received: that would be for the benefit of the master who is making the payment and

not for the benefit of the servant, who without consent of his master has no tight to

receive any such profit.The operation of the section in no way depends upon the

principal having suffered in any manner. This is so because the agent holds a fiduciary

position and if he makes some profits in that capacity he should make good the same to

the principal, even if the agent has spent his own money in the transaction. A principal

has inter alia, a right as against the agent who fails in his duty, to obtain an account and

payment of secret and illicit profits which have come to the hands of the agent as an

agent. As Lord Cockburn stated the result of the authorities in Morrison v.

Thompson.6An agent is bound to account to his principal for all profits made by him in

the course of his employment, and is compelled to account in equity. At the same timethere is a duty which we consider a legal duty, incumbent upon him whenever any profits

so made have reached his hands, to pay over the amount as money absolutely belonging

5N. Joachinson v. Meghjee Vallabhdas, 34 Bom 292

6LR 9 QB 480.


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to his employer, unless there is an account remaining to be taken between him and his

employer.7

5 Secret profits made by agent

It is thus a recognized principle of law that an agent is not entitled to make a secret profit

by dealing in the agency on his own account, and if any profit accrues he must account

for it. An agent must never place himself in a position in which it is possible that his own

duty to his principal and his own interests would stand in opposition to each other. The

law is well put in Story on Agency (Para. 207)It may also be stated as generally true

that all profits which are made by the agent in the course of the business of the principal

belong to the latter, Indeed, this doctrine is so firmly established upon principles of public

policy that no agent will be permitted to take beyond a reasonable compensation for his

services any profit incidentally obtained in the execution of his duty, even if sanctioned

by usage. Such a usage has been severely stigmatized as usage of fraud and plunder.

When the profits are made by a violation of duty, it would be obviously unjust to allow

the agent to reap the fruits of his own misconduct, and when the profits are made in the

ordinary course of the business of the agency, it must be presumed that the parties

intended that the principal should have the benefit thereof. If the agent fails to keep

proper accounts or conceals the true nature of the transaction from the principal

fraudulent or receives secret profit the agent is liable to the principal in a suit for

account.7 Where an agent uses a debt due to his principal in order to obtain valuable

property himself, he in fact realizes the debt for and on behalf of his principal and is

liable to account for the same. It is of no consequence that a third person has been joined

as vendee in the sale transaction. Where the plaintiff who agreed to send the defendants

goods to a foreign country for commission arranged to receive a return commission from

the foreign merchant without the defendants knowledge, held that the defendants were

entitled to the return commission.

7Ref. to in Mayen v. Alston, 16 Mad 238, 249.
http://www.manupatrafast.com/ba/comdispcom.aspx?nActCompId=15519&nid=4432#fa1218http://www.manupatrafast.com/ba/comdispcom.aspx?nActCompId=15519&nid=4432#fa1218http://www.manupatrafast.com/ba/comdispcom.aspx?nActCompId=15519&nid=4432#fa1218http://www.manupatrafast.com/ba/comdispcom.aspx?nActCompId=15519&nid=4432#fa1218


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6 DUTY TO REMIT SUMS

218. Agents 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.

Agents duty to account for all receipts

The agents duty extends to payment of all moneys received by him on his principals

behalf though he did so under an illegal or void contract, e.g., moneys received under a

wagering contract, or illegal ceases realized. The illegality of a contract between the

principal and stranger, under which an agent recovers money due to the principal, is no

bar to the principal recovering the money so realized from the agent

7 DUTY TO MAINTAIN ACCOUNTS

213. Agents accounts.

An agent is bound to render proper accounts to his principal on demand.

As between the principal and agent there is a contractual position fortified by fiduciary

relations and one of the terms is that the agent should render an account to the principal

of his dealings with the property entrusted to him in the course of the mandate.8The right

of a principal to have an account taken in equity rests upon the trusts and confidence

reposed in the agent and it is the duty of every agent to render just and true account of his

agency to the principal.

8 DUTY NOT TO DELEGATE

Delegatus non potest delegare is a well known maxim of the law of agency .The

principal chooses a particular agent because he has trust and confidence in his integrity

and competence. Ordinarily, therefore, the agent cannot further delegate his work which

he has been delegated by the principal.

As stated in section 190

8AIR 1992 SC 596: 1993 Supp (1) SCC 401.


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190. When agent cannot delegate.

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.

As a general rule an agent cannot without authority from his principal devolve upon

another obligations to the principal which he has himself undertaken to personally fulfill.

But in special circumstances, it is permissible for the agent to appoint a substitute who

would be responsible to the principal in the same way as the agent himself. Such a

substitute is not a sub-agent but an agent of the principal.


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CHAPTER 2

RIGHTS OF AGENT

The following are some of the important rights of an agent

219. When agents remuneration becomes due.

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.

Every agent is clearly entitled to his agreed remuneration, or there is no agreement to a

reasonable remuneration.9 Where the amount of remuneration is left on principals

discretion but then also reasonableness would criterion.10

Where the parties have made an express contract for remuneration, the amount of

remuneration and the condition under which it becomes payable must be ascertained by a

reference to the terms of that contract and no implied contract can be set up to add to or

deviate from the original contract though it can be interpreted by a reference to custom

not inconsistent with it. In order to entitle an agent to receive his remuneration, he must

have carried out that which he bargained to do or at any rate must have substantially done

so and all conditions imposed by the contract must have been fulfilled the transaction that

results must be due to the agents services .where the agents services are only remotely

connected with the transaction, his remuneration is not earned. Causa proxima is not the

question;the plaintiffs must show that the act of theirs was Causa causans

Where one has expressly or impliedly requested another to render him a service without

specifying any remuneration, but the circumstances of the request imply that the service

is to be paid for, the law will imply a promise to pay quantum meruit, i.e., so much as the

9KHURSHEED ALAM V ASA RAM AIR 1933 Lah 784

10KOFI SUNKERSETTE OBU V A . STRAUSS 1951 AC 243


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party doing the service has deserved, or as it is normally said, a reasonable sum. The

claim for quantum meruit can only arise upon a promise to be implied from a request by

the defendant to the plaintiff to perform services for him or from the acceptance of such

services as the plaintiff rendered so as to imply a promise to pay for the same

220. Agent not entitled to remuneration for business misconduct.

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.

An agent is not entitled to any commission in respect of that part of the business which he

has misconducted.11

This section states that an agent who is guilty of misconduct in a

business of agency is not entitled to any remuneration in respect of that part of the

business which he has misconducted.

The effect of misconduct is twofold .Firstly the agent forfeits his right to the commission.

This is irrespective of any loss suffered by the principal. The principal underlying the rule

is that a principal is entitled to have an honest agent and it is only honest agent who is

entitled to any commission.

11MUNICIPAL CORPN OF BOMBAY V CAVERJI HIRJI (1895) 20 Bom 124


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Secondly the principal is entitled to recover compensation for any loss caused by

misconduct of agent.

2 RIGHT OF RETAINER

217. Agents right of retainer out of sums received on principals account.

An agent may retain, out of any sums received on account of the principal in the business

of the agency, all moneys 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.

The agent has the right to retain his principals money until he claims, if any, in respect

of his remuneration advances made or expenses incurred in conducting the business of

agency are paid.

3 RIGHT OF LIEN

221. Agents lien on principals property.

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

The conditions of this right are

(1)The agent should be lawfully entitled to receive from the principal a sum money by way of

commission earned or disbursements made or services rendered in proper execution of the

business of agency

(2) The property over which the lien is to be exercised should belong to the principal and it

should have been received by the agent in his capacity and during the course of his business as

agent

(3) The agent has only particular lien. A particular lien attaches only to that specific subject

matter in respect of which the charges are due No property can be retained.


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4 RIGHT OF IDEMNITY

222. Agent to be indemnified against consequences of lawful acts.

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 Singapore, 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 authorizes 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.

A claim for indemnification under section 222is only maintainable if the acts, which the

agent employed to do, are lawful. An agent making unauthorized settlement is not

entitled to indemnity, but a suit by agent against principal for recovery of losses is

maintainable.

This section is founded upon a well-recognized principle of English law that every agent

has right against his principal founded upon an implied contract to be indemnified against

all losses and liabilities and to reimburse all expenses incurred by him in the exercise of

his authority. The principals duty to indemnify is no part of the contract but is an

obligation attached by law to the relation of principal and agent constituted by act of the

parties. An agent on general grounds is entitled to reimbursement and indemnity by his

principal but only on the condition that he has acted within the scope of his

directions. The agents right to indemnity arises and becomes enforceable immediately on

his incurring the liability and it is in no manner dependent upon his discharging the same


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as well, but without actual proof of loss the agent cannot claim indemnity.54

A right to

indemnity is founded on section 222. Actually the right is incident of contract of agency

and is not hit by order of prohibition. The matter is collateral to the forward contract and

is enforceable.

But there is no implied promise to indemnity an agent for the losses ensuing from his

own negligence, wrong, breach of duty, default. The right to indemnity, however,

extends to cases where the agent has occasioned loss or liability by an honest mistake.

223. Agent to be indemnified against consequences of acts done in good faith.

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 may cause 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

One of the illustrations isAdamsonv.Jarvis12

A auctioneer sold certain cattle on instruction from the defendants and was held liable to

the true owner for conversion. He recovered indemnity from the principal because the act

in question was apparently lawful.

1229 RR 503
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Where the principal would not be liable upon an express or an implied promise to

indemnify the agent against the consequences.

224. Non-liability of employer of agent to do a criminal act.

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.

If some of the partners, on behalf of the firm and with the express or implied consent or

concurrence of the other partners spent certain sums on bribes, credit should be given to

the former for the amounts. As a general rule, a master is not criminally liable for the acts

of his servant. But where the provisions of a statute prohibit an act or enforce a duty in

such words as to make the prohibition or the duty absolute, the master will be liable if the

servant infringes those provisions. Mens rea is not the essence of the contravention of

Rule 9 (a) of the Octroi Rules of Waraseoni Municipal Committee.

A claim for indemnification under section 222 of the Act is only maintainable if the acts

which the agent is employed to do are lawful. An agreement to commit criminal acts is

expressly and specifically excluded by section 224 from the scope of any right to any

indemnity.75

5 RIGHT OF COMPENSATION
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225. Compensation to agent for injury caused by principals neglect.

The principal must make compensation to his agent in respect of injury* caused to such

agent by the principals 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 unskillfully put up, and B is in consequence hurt. A must make

compensation to B.

Thus, every principal owes to his agent the duty of care not to expose him to

unreasonable risks.13

13Federal insurance co v nakano Singapore (1992) 1 Current LJ 539
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CHAPTER 3

Duties OF PRINCIPAL FOR ACT DONE BY AGENT

226. Enforcement and consequences of agents contracts.

Contracts entered into through an agent, and obligations arising from acts done by an

agent, may be enforced in the same manner, and will have the same legal consequences

as if the contracts had been entered into the acts done by the principal in person.

Illustrations

(a)A buys goods from B, knowing that he is an agent for their sale, but not knowing who

is the principal. Bs principal is the person entitled to claim from A the price of the

goods, and A cannot, in a suit by the principal, set-off against that claim a debt due to

himself from B.

(b)A, being Bs agent, with authority to receive money on his behalf, receives from C a

sum of money due to B. C is discharged of his obligation to pay the sum in question to B.

It is necessary for this effect to follow that the agent must have done the act within thescope of authority the authority. The authority of an agent and more particularly its scope

are subject of some controversy this is because of the fact that it does not depend on one

source. It emanates from the principal but is often determined by legal interferences and

also on the nature of agency. The authority of agent means his capacity to bind the

principal. It refers to the sum total of acts it has been agreed by between principal and

agent that agent should do on behalf of the principal.14

When agent does any such acts, it

is said he has acted within his authority.15

14JJ Montrose ,actual and apparent authority (1938) 16 Can BR 757 , 761

15Nand Lal Thanvi v lr of Goswami Brij Bhushan (2004) 2 ICC 103 (Raj)


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227. Principal how far bound, when agent exceeds authority.

When an agent does more than he is authorized to do, and when the part of what he does,

which is within his authority, can be separated from the part which is beyond his

authority, so much only of what he does as is within his authority is binding as between

him and his principal.

Illustration

A, being owner of a ship and cargo, authorizes B to procure an insurance for 4,000 rupees

on the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum

on the cargo. A is bound to pay the premium for the policy on the ship, but not the

premium for the policy on the cargo.

Where an agent exceeds his authority, actual or apparent the principal is not bound by

the excess, but where it is separable from the authorized work the principal is bound to

such extent.

228. Principal not bound when excess of agents authority is not separable.

Where an agent does more than he is authorized to do, and what he does beyond the

scope of his authority cannot be separated from what is within it, the principal is not

bound to recognize the transaction.

Illustration

A, authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum

of 6,000 rupees. A may repudiate the whole transaction.

Where the authorized work is not separable from the rest, the principal may repudiate the

whole transaction


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229. Consequences of notice given to agent.

Any notice given to or information obtained by the agent, provided it be given or

obtained in the course of the business transacted by him for the principal, shall, as

between the principal and third parties, have the same legal consequences as if it had

been given to or obtained by the principal.

Illustrations

(a)A is employed by B to buy from C certain goods, of which C is the apparent owner,

and buys them accordingly. In the course of the treaty for the sale, A learns that the goods

really belonged to D, but B is ignorant of that fact. B is not entitled to set-off a debt

owing to him from C against the price of the goods.

(b)A is employed by B to buy from C goods of which C is the apparent owner. A was,

before he was so employed, a servant of C, and then learnt that the goods really belonged

to D, but B is ignorant of that fact. In spite of the knowledge of his agent, B may set-off

against the price of the goods a debt owing to him from C.

The effect of the provisions is that notice given to or information obtained by an agent in

course of business transacted by him on his behalf of principal shall have same

consequences as if it has been given to obtain by the principal.

238. Effect, on agreement, of misrepresentation or fraud by agent.

Misrepresentation made or frauds committed, by agents acting in the course of their

business for their principals, have the same effect on agreements made by such agents as

if such misrepresentations or frauds had been made or committed by the principals; but

misrepresentations made, or frauds committed, by agents, in matters which do not fall

within their authority, do not affect their principals.

Illustrations


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(a) A, being Bs agent for the sale of goods, induces C to buy them by a

misrepresentation, which he was not authorized by B to make. The contract is voidable,

as between B and C, at the option of C.

(b)A, the captain of Bs ship, signs bills of lading without having received on board the

goods mentioned therein. The bills of lading are void as between B and the pretended

consignor.16

.

16BARE ACT LAWMANNS


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CONCLUSION

Any person who has the legal capacity (meaning that they are not insane, or in certain

circumstances a minor) to perform an act may be a principal and empower an agent to carry out

that act. Persons, corporations, partnerships, not-for-profit organizations, and government

agencies may all be principals and appoint agents.

Any individual capable of comprehending the act to be undertaken is qualified to serve as an

agent.

A contract to be made by an agent on behalf of a principal is considered to be the contract of the

principal and not that of the agent. It allows the principal to authorize somebody to carry out her

duties, either for a specific purpose (i.e., purchasing a house) or generally (i.e., to conduct many

transactions). The agency relationship is usually entered into by informal agreement, but also can

occur by formal agreement (in certain cases, the agency relationship must be specified in

writing). The acts must be legal (i.e., principal cannot hire agent to kill the professor).

Inherent in the Principal-Agent (P-A) relationship is the understanding that the agent will act for

and on behalf of the principal. The agent assumes an obligation of loyalty to the principal that

she will follow the principals instructions and will neither intentionally nor negligently actimproperly in the performance of the act. An agent cannot take personal advantage of the

business opportunities the agency position uncovers. A principal, in turn, reposes trust and

confidence in the agent. These obligations bring forth a fiduciary relationship of trust and

confidence between P and A.

An agent must obey reasonable instructions given by the P. The A must not do acts that have not

been expressly or impliedly authorized by the P. The A must use reasonable care and skill in

performing the duties. Most importantly, the A must be loyal to the P. The A must refrain from

putting herself in a position that would ordinarily encourage a conflict between the agents own

interests and those of the principal .The A must keep the P informed as to all facts that materially

affect the agency relationship.


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References

BOOKS REFERED

SINGH AVATAR, Contract & Specific Relief,10th

edn, Eastern Book company

BANGIA R K, Law of Contracts, Central law agency

SITES REFERED

http://www.ruf.rice.edu/~schuler/principal-agent.html

http://www.indiankanoon.org/search/?formInput=principal-agent%20relationship

http://www.investopedia.com/terms/p/principal-agent-relationship.asp

http://www.manupatra.com/

relation of principal and agent contract sem 3

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