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Principal's Duties and Rights in Agency

The principal has several duties and rights in relation to the agent: 1. The principal has a duty to indemnify the agent against any lawful acts done by the agent on the principal's behalf and compensate the agent for injuries caused by the principal's neglect. 2. The principal must pay remuneration and reimburse expenses to the agent that were properly incurred conducting the principal's business. 3. The principal has rights to revoke the agent's authority, demand accounts and profits from the agent, and refuse remuneration if the agent is guilty of misconduct.

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4K views5 pages

Principal's Duties and Rights in Agency

The principal has several duties and rights in relation to the agent: 1. The principal has a duty to indemnify the agent against any lawful acts done by the agent on the principal's behalf and compensate the agent for injuries caused by the principal's neglect. 2. The principal must pay remuneration and reimburse expenses to the agent that were properly incurred conducting the principal's business. 3. The principal has rights to revoke the agent's authority, demand accounts and profits from the agent, and refuse remuneration if the agent is guilty of misconduct.

Uploaded by

Annanya Singh
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Duties of Principal
  • Rights of Principal

DUTIES OF PRINCIPAL

# TO INDEMNIFY THE AGENT :


 Against consequences of lawful act (sec 222):
the employer is bound to indemnify his great against the consequences of all lawful acts
done by such agent in exercise of the authority conferred upon him. It must be noted that
principal is liable only for such damages as are direct and immediate and naturally follow
the execution of the agency.

-CASE: Kishan Lal & ANR Vs. Bhanwar Lal [1954]


ACT: Indian Contract Act (IX of 1872), s. Contract of agency --Agent's right of indemnity
against principal-Whether hit by the notification prohibiting forward contracts of purchase
and sale of bullion.
HELD THAT : the suit was really not one to enforce any contract relating to the purchase or
sale of bullion which comes within the prohibition of the notification but was one by an
agent claiming indemnity against the principal for the loss which the agent had suffered in
carrying out the directions of the principal. The right to such indemnity was founded on the
statutory provision contained in section 222 of the Indian Contract Act and the acts of
payment made by the plaintiffs on behalf of the defendant were lawful acts as all the
transactions took place and the payments were made outside Marwar and therefore the
suit was not hit by the notification.

Against consequences of the acts done in good faith (Sec 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 third person.

-ILLUSTRATION: 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 B’s own expenses.
# TO PAY REMUNERATION & DUES (SEC.219):
 It is the principal’s duty to pay his agent such remuneration as may be payable to him as
agent, and also all monies due to the agent is respect of advances made or expenses
properly incurred by the agent in conducting principal’s business.
CASE: Menon vs Cochine Mercantile Ltd. (1962)
The right can be exercised on “any sums received on the account of principal in the
business of the agency”.

# COMPENSATE THE AGENT FOR THE INJURY CAUSED (SEC.225) :


the principal must make the compensation to his agent in respect of injury caused to agent
by principal’s neglect or skills.
-CASE: Federal Insurance Co vs Nakano Singapore (P) Ltd. (1992) – liability for weak
scaffolding
Every principal owes to his agent the duty of care not to expose him to unreasonable risks.

RIGHTS OF PRINCIPAL

1. TO REPUDIATE CONTRACT (Sec 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.

[Link] CLAIM BENEFIT (Sec 216): 

if an agent without the knowledge of the 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.
-CASE: De Busche vs Alt. (1878)

The plaintiff sued the defendant to recover the profit made on resale. And he was
held bound to account for the profit. Court also said that there would have been
nothing wrong if the agent had bought the ship after disclosing the fact to his
principal. The agent might have been honest in this particular case. But if his
contentions was accepted, many an agent would make secret profits by feigning
inability to sell.

[Link] RATIFY OR DISOWN AGENT’S ACT (Sec 196): 

where acts are done by one person on behalf of another but without his knowledge
or authority, he may elect to ratify or disown such acts.

4. TO REVOKE AGENT’S AUTHORITY (Sec 203): 

the principal may revoke the authority given to his agent by giving a reasonable
notice of revocation at any time before the authority has been exercised.

-CASE: TCB Ltd. Vs Gray(1986)

The principal’s factory was burned down by a chance fire while there was still 3 years
of agency . he was held liable in damages as the agency seemed to have been
created for indefinite time.

-CASE: M.S Desai & Co vs Hindustan Petroleum Corpn Ltd (1987)

It was held that termination of the dealership by an instrumentality of the state


raises wider questions than mere breach of contract.

-CASE: Niloufer Siddique vs Indian Oil Corpn Ltd. (2008)

the company failed to send its standard agreement to the allottee. It was held that
the terms and conditions of the standard agreement could not legally bind the
allottee. The termination of the agency on the violations of such terms was not
proper.
5. TO CLAIM LOSS OR PROFIT (Secs 211 & 212):

 the principal is entitled to compensation for any loss sustained by him or to any
profits accrued

1) where the agent acts contrary to the directions given by the principal;
or
2) where loss is caused due to agent’s neglect, want of skill, or misconduct.
[Link] DEMAND ACCOUNTS (Sec 213): 

Principal is entitled to demand proper accounts from the agent.

-CASE: Ram Lal Kapur & Sons vs Asian Commercil Assurance Co Ltd. (1993)

The right to claim a statement of accounts is an unusual form of relief, only granted
in specific cases and only to be claimed when the relation between the parties is
such that this is the only relief which will enable the claimant to satisfactorily assert
his legal rights.

-CASE: Narandas Morardas Gajiwala vs S.P.A.M. Papammal (1967)

It was held that right of an agent to sue the principal for accounts is an equitable
right arising under special circumstances.

[Link] refuse remuneration when agent is guilty of misconduct (Sec 220):

 The principal has a right to refuse remuneration to the agent who is guilty of
misconduct in the business of the agency.

-CASE : Bow’s Emporium Ltd. Vs A.R. Brett & Co (1927), Baring vs Stanton (1876),
Municipal Corporation of Bombay vs Cuverji Hirji ( 1895)

A custom or knowledge of that kind would have to be proved by the agent. But
otherwise commission from the other party is a misconduct.

-CASE: Purushottam Haridas vs Amruth Ghee Co Ltd. (1961)

The commission is forfeited only in respect of that part of the agency business which
has been misconducted.

[Link] remunerate the agent only after the completion of the act (Sec.
219)
[Link] to give instructions in case of difficulty , when contacted by the
agent (Sec. 214)

10. to receive all money dues to him, subject to such deductions by the
agent as are permissible (Sec.218)

Common questions

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A principal may disown an agent's unauthorized act if the act was executed without the principal's knowledge or consent, and if the principal chooses not to ratify it. Ratification involves either a direct endorsement or indirect conduct that implies acceptance of the unauthorized action, as described under section 196 .

A principal can refuse to pay an agent's remuneration if the agent is guilty of misconduct in the business of the agency. This is established under section 220, where misconduct results in the forfeiture of commission for the implicated part of the agency business, as illustrated in cases such as Purushottam Haridas vs Amruth Ghee Co Ltd. .

A principal is entitled to compensation for losses due to an agent's actions that contravene the principal's instructions or result from the agent's neglect, lack of skill, or misconduct. Sections 211 and 212 provide that the principal can claim such compensation, reflecting the accountability expected from an agent's conduct .

A principal has the right to repudiate a contract if the agent deals on their own account without the principal's consent and fails to disclose material circumstances. This is contingent on two factors: the concealment of material facts by the agent or the disadvantageous nature of the dealings for the principal, as outlined in section 215 .

A principal can claim benefits from transactions an agent conducts on their own account without the principal's knowledge. This holds if the agent makes a profit from such transactions, under section 216. The principal may demand this benefit as it was obtained by use of their property or business relations, as demonstrated in the case of De Busche vs Alt .

The right to demand accounts allows the principal to ensure transparency and accountability over the agent's actions. By reviewing accounts, the principal can verify that the agent is acting in accordance with the principal's interests and contractual directives. This right is particularly exercised in cases where financial dealings are complex, as demonstrated by Ram Lal Kapur & Sons vs Asian Commercial Assurance Co Ltd. .

A principal is obligated to compensate an agent for injuries caused by the principal's negligence or lack of skill. For instance, if the agent is injured due to weak scaffolding provided by the principal, as in the case of Federal Insurance Co vs Nakano Singapore (P) Ltd., the principal is liable for compensation .

To effectively revoke an agent's authority, a principal must provide reasonable notice of revocation before the authority is exercised, as stated in section 203 of the Indian Contract Act. This ensures that the termination of authority is legally valid .

If an agent sells goods in good faith at the principal's request, but the principal lacks authorization to dispose of the goods, the principal must indemnify the agent against any liability to the true owner. This is exemplified when the agent is sued by the true owner and incurs expenses; the principal is liable for these expenses under section 223 of the Indian Contract Act .

The principal must indemnify the agent against losses from lawful acts executed within the scope of the agency's authority, as stipulated in section 222 of the Indian Contract Act. These losses must be direct, immediate, and naturally follow the execution of the agency .

DUTIES OF PRINCIPAL # TO INDEMNIFY THE AGENT :  Against consequences of lawful act (sec 222): the employer is bound to inde
# TO PAY REMUNERATION & DUES (SEC.219):  It is the principal’s duty to pay his agent such remuneration as may be payable to
-CASE: De Busche vs Alt. (1878) The plaintiff sued the defendant to recover the profit made on resale. And he was held bound
5. TO CLAIM LOSS OR PROFIT (Secs 211 & 212):  the principal is entitled to compensation for any loss sustained by him or to a
9.right to give instructions in case of difficulty , when contacted by the agent (Sec. 214) 10. to receive all money dues to

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