Rights Duties and Liabilities of Agent and Principal

Duties and liabilities of agent to principal: The following are the duties of an agent to his principal:

To conduct principal’s business: (Sec 211) An agent is bound to conduct the business of his principal according to the directions given by the principal. In the absence of any such directions, the agent must conduct the business according to the custom which prevails in doing business of the same kind at the place where the agent conducts 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.

It is primary duty of the agent to obey the directions of his principal. If the principal has not given any direction, then the agent has to conduct the business according to the custom prevailing.

If the principal has given directions but the directions are ambiguous then the agent should communicate with the principal to obtain clarification or he must according to the directions, he honestly believes to be correct. However, an agent is not bound to obey unlawful directions.

The second part of the section throws liability on the agent in the event of his acting contrary to the instructions of the principal. If the principal sustains any loss he must compensate the principal. Principal is entitled to compensation for actual loss suffered. Even if he makes any profit while having acted contrary to the directions of the principal, the principal, the agent must pay the same to his principal. This is a corresponding right of principal to receive benefit under section 216.

Conduct the business with skill and diligence: (Sec 212) an agent is bound to conduct the business of 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, to use such skill as he possess. He is 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 is indirectly or remotely caused by such neglect, want of skill or misconduct.

Every person acting as a skilled agent is bound to bring reasonable skill and knowledge to the performance of his duties. In case where a skilled person is employed, there is an implied warranty that he is reasonably competent to carry out his duties skillfully. Reasonable diligence expected of an agent depends upon the circumstances of each case. Agent must not be negligent of misconduct himself in the performance of his duties. He must exercise reasonable degree of acre and skill. Thus an agent having authority to sell on credit must take care to ascertain the solvency of the buyer.

Agent is liable to make compensation to the principal only for loss suffered by the principal as a direct consequence of his neglect, want of skill or misconduct. He is not liable for loss arising out of indirect or remote causes. For instance, where an agent is directed to insure the goods against fire and the fails to do so, he will be liable to compensate the principal for the losses suffered by the principal for not insuring the goods against fire. Such a loss is due to direct consequences of agent’s neglect to insure as directed.

To render proper accounts (Sec 213): An agent is bound to render proper accounts to his principal on demand. An agent is under an obligation to keep his own accounts, property etc., separate from those of his principal and others. He shall maintain proper accounts of his principal and of the dealings and transactions effected by him on behalf of his principal. It is the obligation of the agent not only to tender the accounts but also to explain them to the principal.

To pay sums received for principal: (Secs 217 & 218) The agent is bound to pay to his principal all sums received on his account after deducting there from all monies 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.

To communicate with principal (Sec 214): In cases of difficulty, it is duty of an agent to use all reasonable diligence in communicating with his principal and in seeking to obtain his instructions. —