Section 182 of the Indian Contract Act defines the term an 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 main duties of an agent are as follows:-
1. Duty of an Agent not to delegate his duties (Section 190)
When an agent has undertaken to perform certain duties personally, he is not allowed to delegate his duties to another person. The rule is contained in the maxim ‘Delegatus non potest delegar’‘, which means that an agent to whom some authority has been delegated cannot further delegate that authority to another person. The relationship of principal and agent is based on confidence and trust. When the principal has reposed trust in a particular agent, the agent cannot substitute another person in his place. In other words, an agent cannot employ a sub-agent to get the work done through him. An agent, who has undertaken to do some work personally, cannot employ a sub-agent to do the same. This rule, however, is subject to certain exceptions. Section 190 contains the following provision in this regard :
“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 as abs sub-agent must, be employed.”
This Section contains the general rule that when an agent has expressly or impliedly undertaken to perform a contract personally, he cannot employ a sub-agent for the same. But there are certain exceptions to this rule.
Exceptional situations when a sub-agent can be validly appointed
An agent can employ a sub-agent in the following exceptional cases:
(i) When there is a custom of trade to that effect, the agent may employ a sub-agent.
(ii) When the nature of agency so requires, an agent must employ a sub-agent. For instance, an agent authorized to recover some amount from a third person by filing a suit must engage a lawyer for the purpose, or when an agent has been authorized to purchase or sell goods in a foreign country, he must engage a sub-agent for doing the work.
(iii) When an act does not require personal skill, the same may be got done through a sub-agent. The rule against delegation is only for such acts, which an agent has undertaken to perform personally. If the undertaking is of a purely ministerial nature, where an agent has not undertaken to perform the same personally, a sub-agent may be appointed to do the work. For instance, if an agent has been appointed to weigh coal lying at a place, or to transport goods from one place to another, he may get the work done from a sub-agent.
(iv) When the principal, expressly or impliedly, agrees to the appointment of a sub-agent for doing certain work, which has been otherwise assigned to the agent, a sub-agent may be validly appointed.
2. Duty of an Agent to follow principal’s directions (Section 211)
According to Section 211, an agent has a duty to follow the directions given to him by the principal. As stated in this Section:
(i) An agent is bound to conduct the business of his principal according to the directions given by the principal; or,
(ii) If there are no such directions, the agent should conduct the business 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 does not act as stated above, if any loss is sustained by the principal, he must make it good to his principal, and if any profit accrues, he must account for it.
(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 money which may be in hand, omits to make such investment. A must make good to B the interest usually obtained by such investment.
(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.
It is clear from illustration (b) above that when the agent does not act according to the principal’s directions or the custom, 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 the doing of the act. In such cases, the fact that the agent has taken care is of no avail. In Lilley v. Doubleday (1881) 7 Q.B.D. 510, the defendant, having agreed to store the plaintiff’s goods in his own repository, stored some of them in another 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 a salvage claim for less than £10,000 but the agent settles it for £ 100, the agent is guilty of breach of duty.( The “Hermione”, (1922) 126 L.T. 701)
In the same way, if the agent sells the goods belonging to the principal, below the limit placed by the principal for the sale of such goods, the principal is entitled to recover from the agent, damages for the loss thus caused to him, and the agent is not entitled to the commission to which he would have been entitled, if the goods would have been sold by him according to the instructions of the principal.(Pani Bai v. Sire Kanwar, A.I.R. 1981 Raj. 184)
An advocate being an agent of his client has to follow the instruction and directions given by his client. If he acts in a manner contrary to the directions given by his client, or against the custom, or practice of his profession and any loss is caused to his client thereby, he must make good such loss.(Gloriya Chemicals v. R.K. Cables, A.I.R. 1988 Delhi 213)
A banker has a duty of secrecy towards his customer. Such duty is a legal duty arising out of contract, and is not a mere moral duty. Breach of this duty, therefore, renders him liable towards his customer if some loss is thereby caused to the latter. The duty is not absolute but subject to certain exceptions. In Shankarlal v. State Bank of India A.I.R. 1987 Cal. 29, on the demonetisation of the currency notes of the denomination of Rs. 1,000/- each, on the passing of the High Denomination Bank Notes (Demonetisation) Act, 1978, the petitioner deposited some notes with the respondent bank for exchange on 15-1-1978. Instead of crediting the exchange value of those notes to the petitioner’s account immediately, the bank informed the Income Tax Authorities about the same, and payment was withheld under the instructions from the Income Tax Authorities. Earlier, there were instructions from the Reserve Bank of India and the Ministry of Finance to the State Bank of India, directing it to furnish all particulars regarding deposit of Bank notes to the Income Tax Department. The exchange value of the notes was tendered to the petitioner only on 10-10-1979. The petitioner contended that the respondent bank had made a breach of duty of secrecy by informing the Income Tax Authorities, and claimed damages equivalent to the interest lost due to delayed receipt of the exchange value of the notes. It was held that the case was covered by the exception of “compulsion of law”, when the duty of secrecy need not be observed by the Bank. Moreover, the petitioner could not prove that his claim for interest was justified by any provisions of law. Apart from that his action claiming interest through a writ of mandamus was time barred. The petitioner’s application was, therefore, dismissed.
If in any particular case, there are neither any express instructions given to the agent, nor is there any custom to guide him, the agent is to do the act to the best interest of his principal.
Liability of agent in suit for recovery of money.- Defendant, owner of vessel had agreed to deliver specific amount of goods to plaintiff at concerned ports. But plaintiff got lesser amount of goods. Plaintiff had filed suit for damages against both, defendant and his agent. Defendant had stated that his agent was not responsible as alleged for delivery and for carriage of goods. No decree could be passed against agent as no material was placed before the Court showing that agent had agreed to take any responsibility in the said transaction.( J.M. Baxi and Company v. Food Corporation of India, A.I.R. 2006 Cal. 94)
3. Duty of an Agent to show proper skill and care (Section 212)
The agent is supposed to take due care and act with reasonable diligence in the matter of agency. Section 212 makes the following provision in this regard :
“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 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.”
The provision has been explained by the following illustrations:
(a) A, a merchant in Calcutta has an agent, B, in London, to whom a sum of money is paid on A’s 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 loss as, e.g., by variation of rate of exchange but 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.
(c) A, an insurance broker employed by B to effect an insurance on a ship, omits to see that 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 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 the ship arrived, but not any profit he might have made by the subsequent rise.
In Keppel v. Wheeler (1927) 136 L.T. 203, the principal instructed an estate agent to find a buyer for his estate. The agent communicated an offer of a prospective purchaser who was willing to buy the estate for £ 6,150. Before the contract for sale was concluded, the agent got an offer of £ 6,750 from another buyer. The agent did not communicate about the second offer to the principal. It was held that the agent did not show proper skill and care in the matter and, therefore, he was liable to pay damages to his principal for the loss suffered by him.
In Link International v. Mandya National Paper Mills Ltd. A.I.R. 2005 S.C. 1417, there was contract for purchase of suction press roll machine from foreign company. Appellant had acted as agent between respondents and foreign company. Instead of full machine, only shell of machine was supplied. Suit for damages was filed. Finding was recorded by Courts below that appellant facilitated playing fraud upon respondents 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 not correct. The Apex Court held the appellant would be liable for loss caused to respondent irrespective of fact whether contract was entered into by appellant on behalf of foreign company or it was direct contract.
4. Duty of an Agent to render proper accounts (Section 213)
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 proper 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 the 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 the accounts are in the possession of the principal and the agent does not possess 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 of which are available only with the principal. The decision of the Delhi High Court in Saroj Kapur v. Nitin Casting Ltd. A.I.R. 1987 Delhi 349, provides one such example. In that case, the plaintiff was appointed by the defendant company as its agent to secure order for supply of its goods to parties. The plaintiff was to be paid 5% commission on the orders received by the company. Such commission was to be paid after the orders were executed and the amounts recovered by the defendant. The defendant company was keeping all the accounts relating to the receipt of orders, their execution and the amounts recovered. It was held that the suit by the plaintiff against his principal (i.e., the defendant company) for rendition of accounts about the commission to which he was entitled to was maintainable. But, if the accounts are in the hands of the agent himself and he merely alleges that they have been forcibly taken away by the principal without giving any satisfactory proof of the same, he cannot sue the principal for rendering accounts.
5. 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 in seeking to obtain his instructions.
6. Duty of an Agent not to deal on his own account (Secs. 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 principal’s prior consent, the principal has the following two rights:
(i) To repudiate the transaction by showing either:
(a) that any material fact has been dishonestly concealed from him by the agent; or
(b) that the dealings of the agent have been disadvantageous to him. (Section 215).
(ii) To claim from the agent any benefit which may have resulted to him from the transaction. (Section 216).
(i) Repudiation of contract by principal when agent deals on his own account
The position in this regard is contained in Section 215 which is as follows:
“215. Right of principal when agent deals on his own account in business of agency without principal’s 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 from him by the agent, or that the dealings of the agent have been disadvantageous to him.
(a) A directs B to sell A’s estate. B buys the estate 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 A’s 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) Principal’s right to claim benefit when agent acting on his own account
Section 216 contains the following provision in this regard:
“216. Principal’s 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 entitled to claim from the agent any benefit which may have resulted to him from the transaction.
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 any secret profits while acting as agent. In De Bussche v. Alt (1878) Ch. D. 286, an agent was entrusted with the task of selling a ship at a stated price. He could not find a customer for the same and without the consent of the principal he purchased that ship, at the settled price, himself. Later, he sold the ship on profit. It was held that the agent was bound to account to the principal for the profit made by him in the transaction. In Turnbull v. Garden(1869) 29 L.T. 218, an agent purchased goods for his principal obtaining some discount on the transaction. He tried to charge the principal with the full price of the goods. It was held that the principal was not bound to pay to the agent more amount than the agent had actually paid while purchasing the article.
There is mutual agency between the partners of a partnership firm, and in their case also, the rules of the law of agency are applicable. If any partner derives any profit from any transaction of the firm, or from the use of the property or business connection of the firm, he shall account for that profit and pay it to the firm.( Section 16(a), Indian Partnership Act, 1932)
In Bentley v. Craven(1853) 18 Beav. 75; 104 R.R. 373, a partner of a firm of sugar refiners, who was asked to purchase sugar for the firm for the purpose of refining, supplied to the firm his own sugar, without informing the other partners about this fact. He supplied this sugar at the prevailing market rate but had himself purchased it at a lower rate. It was held that he was bound to account for the profit made in this transaction, to the firm.
7. Duty of an Agent to pay sums received for principal (Secs. 217 and 218)
According to Section 218, another duty of the agent is to pay to his principal all sums received by him on principal’s account. Before making such payments to his principal, the agent is, however, entitled to make such deductions out of the same as are lawfully due to him.
According to Section 217, 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.