Duties and liabilities of principal to Agent

The principal has the following duties to the agent:

To indemnify the agent: (1) 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. When the agent acts in an unauthorized manner or in breach of his duty, he is not entitled to be indemnified. However, the principal may ratify agent’s default.

The agent must be indemnified in the lawful conduct of the business of the agency. Therefore, if the act turns out to be unlawful, agent is entitled to indemnity.

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.

The principal is therefore liable to indemnify the agent not only against the lawful acts (Sec 222) but also against the unlawful acts of an agent done in good faith (sec 223). An agent therefore cannot claim indemnity for acts which is known to be unlawful.

When is the agent not entitled to be indemnified: (Sec 224) where one person employs another to do an act which is criminal, the employer is not liable either upon an express or an implied promise, to indemnify him against the consequences of that act. This establishes the principle that an agent can refuse to carry out the instructions of the principal to do a criminal act.


1) A employs B to beat C, and agrees to indemnify him against all consequences of the act. B thereupon beats C and has to pay damages to C for so doing. A is not liable to indemnify B for those damages.
2) B, the proprietor of a newspaper, publishes at A’s request, libel upon C in the paper, and A agrees to indemnify B against the consequences of the publication and all costs and damages of any action in respect there of. B is sued by C and has to pay damages, and also incurs expenses. A is not liable to B upon the indemnity.

Compensate the agent for injury caused: (Sec 225) the principal must take compensation to his agent in respect of injury caused to the agent by the principal’s neglect or want of skill.


A employs B as brick layer in building a house, and puts up the scaffolding himself. The scaffolding is unskillfully put up, and B is consequently hurt. A must pay compensation to B.

However, if the injury is due to agent’s own contributory negligence the principal may not be liable to compensate the agent.

To pay remuneration and dues: (sec 217) 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.

Misrepresentations or fraud by agent: (sec 238) Misrepresentations made, or frauds committed, by an agent acting in the courses of business for his principal, has the same effect on agreement made by such agent as if such misrepresentations or fraud had been made or committed by the principal. Therefore, in case of mis- representations made or frauds committed by an agent in the course of the business, the principal is liable. However, misrepresentations made of frauds committed, by an agent in matters which do not fall within his authority, do not affect his principal.

In order that a principal shall be made liable for the misrepresentations and frauds committed by the agent, such misrepresentations or frauds must be committed by the agent —

1) in the course of the business of his principal; and
2) the act must be within the scope of agent’s authority. The acts of agent shall be deemed to be acts of the principal. Principal may then liable for damages. The underlying principle is that master is answerable for every wrong the servant or agent does. The act must be committed by the servant or agent in service or in principal’s business.

In case where an agent receives money from a third party by fraud and the principal is not aware that the money was wrongfully obtained, the third party cannot call upon the principal to repay the same.