Introduction

Duties of Agent :  The first and foremost duty of 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 the agent absolutely liable for the principal’s loss. ( Sec 211 to Sec 221)

Section 211 :  Agent’s duty in conducting principal’s business :-

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 customs 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.

(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.

Ref. cases : Pannalal Jankidas v. Mohanlal / Lilley v. Doubleday

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 person engaged in similar business unless the principal has notice of his want of skill.

The agent is always bound to act with reasonable diligence, (careful) 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.

                                 

(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 order to remit. B retains the money for 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 in 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 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, 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 the ship arrived, but not any profit he might have made by the subsequent rise.

Jayabharathi Corp v. Sv. P.N.Sn. Rajesekara Nadar : Where the agent informed his principal that purchases have been effected on his behalf and subsequently confirmed it by reporting that the goods would be despatched as soon as the transport strike was over. Whereas in fact, he had done nothing in the matter, it was held by the SC that such a neglect and misconduct of the agent misinforming the principal was squarely within the wide terms of section 212.

Akin to this is the duty to maintain the business secrets of the principal.

It’s the duty of the agent to maintain confidence.

Duty to maintain accounts

213. Agent’s accounts

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

Accounts are necessary for the proper performance of the agent’s other duties. There is no provision in the Act enabling an agent to institute a suit for accounts against principal. The SC in Narandas v. S.P.A.M. Papammal laid down that, the right of an agent to sue the principal for accounts is an equitable right arising under special circumstances. (eg all the accounts are in the possession of the principal.

214. Agent’s, duty to communicate with principal

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.

Sushila Devi v. State of Bihar : In cases of difficulty the agent’s duty is to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions if the principal can be communicated with by reasonable care, before taking any steps in facing the difficulty or emergency.

Duty to avoid conflict of interest. ( S. 215)

An agent occupies fiduciary position and, therefore, it is his duty not to do anything which would bring his personal interest and his duty to the principal in conflict with each other. This conflict invariably arises when the agent is personally interested in the principal’s transaction, for example, where he buys himself the property he is appointed to sell.

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.

Illustrations :

(a) A direct B to sell A’s 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 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 wished 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.

Duty not to make secret profit (S 216)

What is meant by secret profit ?.. It means any advantage obtained by the agent over and above his agreed remuneration and which he would not have been able to make but for his position as agent. Acceptance of bribe is a profit of this kind.

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 to 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, compels him to sell it to A at the price he gave for it.

Novdisk Insulin Laboratorium v. C.L. Bencard : Knowledge which is acquired by an agent in the course of business of agency and which he converts into his advantage does not require accountability if the agent neither uses the principal’s property in the process nor diverts his business opportunities.

L.S. Harris Trustees v. Power Packing Services : As a part of the agent’s duty to be honest to his principal, it is necessary that the agent should not disclose any confidential information received by him from the principal. If he does so the principal may terminate the contract and hold the agent liable in damages for his loss if any.

218. Agent’s 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.

The agent is bound to pay his principal all sums received on his account. The agent, is, however, entitled to deduct his lawful charges, but subject only to this right, the principal’s money must be remitted to him even if it has been received in pursuance to a void or illegal contract.

Right of retainer (S 217)

217. Agent’s right of retainer out of sums received on principal’s 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 right can be exercised on “any sums” received on account of the principal in the business of agency. He can retain only such money as is in his possession only.

Turner Morrison & Co. Ltd. v. CIT. The right does not confer any ownership on the agent. The money remains that of the principal.

Right to remuneration (S 219) : Every agent is clearly entitled to his agreed remuneration, or if there is no agreement, to a reasonable remuneration. The difficult question is as to when remuneration becomes due. Answer is section 219.

219. When agent’s 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.

The provision raises two questions.

When is the act complete & is the act a result of the agent’s services ?

Both questions depend on “first and last on particular terms of the particular contract. ( Sellers v. London County Newspapers )

Green v. Bartlett : An agent was appointed to sell a house. He held an auction but failed to find a purchaser. One of the persons attending the auction obtained from him the address of the principal and purchased the house from him without intervention of the agent. Even so the transaction was held to be a result of the agent’s effort entitling him to his commission.

Effect of misconduct (S 220)

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

220. Agent not entitled to remuneration for business misconducted

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 B’s misconduct the money is not recovered. B is entitled to no remuneration for his services and must make good the loss.

“The principle underlying the rule is that, a principal is entitled to have an honest agent and it is only the honest agent who is entitled to any commission”. ( Purushottam v. Amruth Ghee Co. ). Secondly, the principal is entitled to recover compensation for any loss caused by the misconduct.

Right of lien (S 221)

In addition to right of retainer (S 217), the agent has the right to retain goods, papers or other property, whether movable or immovable, of the principal received by him.

221. Agent’s lien on principal’s 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 principal a sum of money by way of commission or disbursements made or services rendered in the proper execution of the business of agency.
2. The property over which the lien is to exercised should belong to the principal and it should have been received by the agent in his capacity and during the course of his ordinary duties as a agent. The agents possession must be lawful.
3. The agent has only a particular lien.

Effect of lien : Gopaldas v. Thakurdas : The agent’s lien does not give unrestricted authority to the agent to deal with the property in any manner the agent may like. The right is limited. He cannot sell.

         However, in terms of his agreement with the principal, the agent has become a pledgee of the goods, he may sell them after giving a notice to the principal of his intention to sell.

Loss of lien : Lien being a possessory right, is lost as soon as possession is lost.

The lien is lost when the agent waives his right. (out of an agreement)

The right of lien is lost where the agent has by his agreement with the principal excluded it.