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Duties and Liabilities of an Agent

Who is an Agent?

An agent is a person who is legally empowered to act on behalf of an entity (principal).

Section 182 of the Indian Contract Act defines agent and principal.

Duties of Agent

1) Duty of agent to conduct principal business (Section 211)

An agent is sure to conduct the business of his principal consistent with the directions given by the principal, or, within the absence of any such directions, consistent with the custom which prevails in doing business of an equivalent kind at the place where the agent conducts such business. When the agent acts negligently and if any loss occurs he should compensate the principal

Illustrations :

(a) A, an agent engaged in carrying business in which it’s the custom to invest from time to time, at interest, the money which may be in hand, on its to form such investments. A must handover to B the interest usually obtained by such investments.

2)Skill and diligence required by an agent for conduct of business (Section 212) :

The agent needs to conduct business with the reasonable skill required by the business and the agent is bound to act diligently and use his possed skill which he has and is liable to pay compensation to the principal for his negligence and want of skill ( not using reasonable skill required for business)

The loss should be direct and is calculated similarly as calculated in case of breach of contract ( section 73 of Indian contract act)

The agent needs to inform the principal if don’t possess the particular skill required for business before hiring and still if the principal hire him then the agent will not liable for want of skill

However, if the agent doesn’t inform the principal and later principal finds it then the agent will be liable

Illustrations:

(a) A, a merchant in Pune has an agent B, in the Uk to whom a sum of cash is paid on A’s account, with orders to remit. B retains the cash for a substantial time. A, in consequence of not receiving the cash, becomes insolvent. B is responsible for the cash and interest, from the day on which it needs to be paid.

3) Duty to present proper accounts (Section 213)

According to this section, the agent has to show an account of the transaction when demanded by the principal

4) Agent duty to communicate with the principal in difficult situations (Section 214) :

The agent has to communicate with the principal in all reasonable ways in case of difficulties

5) Agent should not deal on his Account :

right of principal when the agent acts, on his account, in the business of agency without principal’s consent is highlighted in section 215 of Indian Contract act

If the agent does not inform the principal of important material circumstances which he must know in a business transaction or dishonestly show material circumstances then the principal can repudiate the transaction.

(a) A direct his agent B to sell A’s car. B buys the car for himself within the name of C. A, on getting knowledge that B has bought the car 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 the principal

6) Not to make any secret profit

Section 216 of the Indian Contract Act highlights the Principal’s right to benefit gained by agent dealing on his account in business of the agency. An Agent, without the knowledge of his principal, shouldn’t deal within the business of the agency on his own to form secret profit

If the principal directs the agents for particular deals and the agent instead of the principal act on his behalf on finding the deal profitable however the principal can ask the agent the profit which he got due to that particular deal after getting the knowledge about it.

Illustration

A directs B, his agent, to shop for a particular car for him. B tells A it can’t be bought, and buys the car for himself. A may, after getting the knowledge that B has bought the car may compel him to sell it to A at the worth he gave for it.

7) Duty to pay the amount received for principal :

According to Section 218 of the Indian contract Act, An agent is bound to pay to his principal all sums received on his account after deducting the amount if any according to section 217 of the Indian contract act( The agent can retain money which he has incurred for the business of the principal from the amount received from the business transaction, remuneration and advance due.

8) Should Not Disclose Secret :

an agent should maintain the secrecy of the business and should not reveal the confidential matters

Liabilities of an Agent

An agent is not personally liable for the contract entered into by him on behalf of his principal unless there is a contract to the contrary

Exception:-

When the Agent is Acting for a Foreign Principal:

When an agent contracts for the deal or acquisition of merchandise for the principal dwelling abroad, the agent is responsible for such contracts. However, the agent can prohibit his responsibility by explicitly giving in the contract not to bring about close to its obligation.

When the Agent is Acting for an Undisclosed Principal:

When the agent is acting for an undisclosed principle, he is personally obligated to the contracts. Yet, where the agent reveals that he is just an agent or the third party realizes that he is acting as an agent of another, then, at that point, the agent isn’t obligated.

When the Agent Acts for an Incompetent Principal:

When the agent is contracting for an incompetent principal like minors, unsound mind, etc the agent is personally responsible for the contracts.

When the Agent is Acting for a Non-existing Principal:

When the Agent is Acting for a Non-existing Principal: Where the agent acts for a non-existent principal, the agent is personally liable on the contracts. For eg: the agent is contracting on behalf of the corporate which is yet to be incorporated, the agent is personally liable.

When the Agent’s Authority is Coupled with Interest:

When an agent has an interest in the subject matter of the contract, his agency is said to be coupled with an interest. In such a case, the agent is personally liable to the extent of his interest in the contract. the agent can also enforce the contract to the extent of his interest.

Agent Receives or Pays Money by Mistake or Fraud:

When an agent gets some cash from a third party unintentionally or misrepresentation, he is personally liable to the third party for a refund of the money Similarly, by chance if he pays some cash to a third party unintentionally or misrepresentation, he can recuperate it back from the individual to whom it has been paid.

When the Contract Expressly Provides:

If at the hour of going into a contract with a third party, it explicitly concurs that the agent will be actually at risk for the contract, the agent causes individual responsibility.

When the Agent Signs the Negotiable Instruments in his Name:

If an agent signs the negotiable instruments like Promissory Note, Bill of Exchange, or Check, without revealing that he signs as an agent, he causes individual responsibility on the instrument.

the Trade Usage or Customs makes agent Personally Liable:

Sometimes, the exchange usage or customs of a specific trade given that the agent will be actually at risk for the contract. In such cases, the agent causes individual responsibility.

10.Agent Contracts above his Authority:

Where the agent contracts surpassing his position, he is responsible to third-party for any misconduct caused due to it.

Pretended Agent:

A pretended agent is an individual who represents himself to be an agent of another, when in fact he has no authority over him at all. At the point when an individual professes to act as an agent of another, the principal may rectify the acts of the agent, and shield him from obligation. In any case, if the principal will not rectify the acts of the agent he will become personally liable for any loss or damage caused to him to the third party.

Eg: A acquired cash from B, as the agent of D. B trusted him to be so. In any case, this was false. It was held that A was responsible to B.

When a person contracts as an agent, he is not entitled to require the performance of it provided he was in reality acting not as an agent, but on his behalf.

Eg: An agent of B agrees with C, to buy C’s house. But A is not acting as an agent for B but on his account. So A cannot enforce the performance of the contract.

Case Study

In this case of Jayabharthi Corp v. Sv P.N. Rajasekhara Nadar, it was held that “Section 212 covers another aspect which says that an agent must use all reasonable diligence to speak with the principal in cases of difficulty and check out his best to hunt his instructions.

In Pannalal Jankidas v Mohanlal ( section 211 of Indian contract act) it was held that “here the agent who was asked by the principal to urge the products insured and also charged the premium from the principal but never got the insurance, so it was held that the agent is liable to compensate the principal when the goods were lost in an explosion.

In John v Philip it was held that “an estate agent cannot make a contract with a third party that would be binding upon his principal.”

In Yasuda Fire and Marine Insurance Co. v. Orion Marine Insurance Underwriting Agency Ltd., it was highlighted that “the obligation to supply an accurate account within the fullest sense arises because of the very fact that the agent has been entrusted with the authority to bind the principal to transactions with third parties and therefore the principal is entitled to understand what his contractual rights and duties are about those third parties as well as what he is entitled to receive by way of payment. If the principal is a foreigner then the agent is personally liable to him.