Project Report on:

Principle –Agent
relationship

Submitted to:
Dr. Anant Prakash
Narayan
(Assistant Professor)
School of Law &
Governance
Central University of South
Bihar (Gaya)

Submitted By: Hariom

Enroll. No.:-CUSB1813125033
Semester: 3rd
Year: 2nd
Batch: 2013-2018

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 Table of Contents

1) Introduction----------------------------------------------------03
2) Duties of agent-------------------------------------------------06
3) Rights of agent-------------------------------------------------15
4) Duties of principle for act done by agent-------------------22
5) Conclusion------------------------------------------------------26
6) References------------------------------------------------------27

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 INTRODUCTION
‘Agent’ and ‘principal’ defined. —

An ‘agent’ is a person employed to do any act for another, or to represent another in

dealings with third person. The person for whom such act is done, or who is so represented,
is called the ‘principal’.

The definition of an agent covers a person employed to do any act for another, and the
same applies to its use in ordinary parlance. It does not limit the employment to one by the
principal only. The actual status of the parties must be determined with reference to all the
circumstances, and not merely with reference to the words used. The mere fact that a person
offers advice or writes letters to another in the matters of business does not establish the
relationship of agency. The relation of agency arises whenever a person called the agent
has authority to act on behalf of another called the principal and consents so to act. The
relationship has its genesis in a contract. Qui per alium facit per seipsum facere videtur; he
who does an act through another is deemed in law to do it himself. Agency is founded on
a contract, either express or implied, by which one of the parties confides to the other the
management of some business to be transacted in his name or on his account and by which
the other assumes to do the business and to render an account of it. The essence of the
matter is that the principal authorizes the agent to represent or act for him in bringing or to
aid in bringing the principal into contractual relation with a third person. Therefore a person
does not become an agent on behalf of another merely because he gives him advice in
matters of business. Nor does a mere settlement of the terms of remuneration constitute a
contract of agency unless an authority to act is conferred and accepted. The essence of
agency to sell is the delivery of the goods to a person who is to sell these, not as his own
property but as the property of the principal who continues to be the owner of the goods
and will, therefore, be liable to account for the sale proceeds. The true relationship of the
parties in each case has to be gathered from the nature of the contract, its terms and
conditions, and the terminology used by the parties is not decisive of the legal relationship.
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By merely giving guarantee for a particular period in regard to carrying out the repairs one
can never say that the title to the goods passed. In all makes which are sold say motor cars,
refrigerators, fans, motor bicycles, there is always guarantee period during which the
manufacturer binds himself to carry out the repairs but all the distributors or all persons
who purchase for resale of such goods can never be considered or termed as agents, as
contemplated by section 182 of the Indian Contract Act.

It is only when a person acts as representative of the other in business negotiations that is
to say, in the creation, modification or termination of contractual obligations between that
other, and the third persons, that he is an agent. The definition of agent given in section
182 is very wide and embraces a servant pure and, simple. The agent carrying out his
undertaking within the scope of his authority binds his principal as the agents acts are
deemed to be those of his principal.

Representative character and derivative authority may be said to be the distinguishing

feature of an agent. Where a person is employed by another as accountant to perform the
duties of receiving money and of maintaining on his behalf the accounts of transactions,
relating thereto, he will be deemed to be the agent of such other person.

Where fraud is committed by responsible officers of a corporate body by knowingly

representing false facts, the corporate body would be held liable for fraud committed by
them.

An agent is not a servant but a servant is generally for some purposes his master’s agent,
the extent of the agency depending upon the duties or position of the servant, and in some
cases an independent contractor may also be an agent. According to the definition in section
182 an agent never acts on his own behalf but always on behalf of another. He either
represents his principal in any transaction or dealing with a third person, or performs any
act for the principal. In either case the act of the agent will be deemed in law to be not his
own but of the principal. The crucial test of the status of an agent is that his acts bind the
principal. The word ‘agent’ in itself means very little; the facts must speak for themselves,
and if those facts show a state of things different to a simple arrangement between a
principal and agent, the effect of those facts will not be altered simply because the language

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of agency has been used in a loose manner. In determining legal nature of relationship
between the alleged principal and agent the use or omission of the word ‘agent’ is not
conclusive. The Court must examine the true nature of the agreement and the subsequent
dealings between the parties, and then decide whether it establishes relationship of agency
under the law. Where delivery can be made in a mode or the option of the sender, the
agency through which delivery is made acts as the agent of the tender whereas if delivery
is made by way of dispatch in the mode stipulated or prescribed by the addressee, the
agency through which the article is dispatched acts as the agent of the addressee. Modern
business has given extension to the terms ‘agent’ and ‘agency’. In many trades—
particularly, for instance, in motor car trade—the so-called agent is merely a favored and
favoring buyer. It is true that in commercial usage, especially in modern contracts, the
expression ‘agent’ or ‘agency’ has acquired an extended meaning; often the so-called agent
is merely a buyer who has been given favorable terms in a particular area to sell the
manufacturer’s or supplier’s goods. The use of the expression ‘agency’ in an agreement
has therefore no special importance. Similarly, an agent employed by an insurance
company to introduce business to the insurers in not in any real sense of the word their
agent. The question of agency is a mixed question of fact and law very largely depending
on the evidence in the particular case. Agency need not be created expressly by any written
document and can be inferred from the circumstances and the conduct of the parties. A
person merely signing letters purporting to emanate from military secretary of ex ruler “for
the Military Secretary” is not acting as agent.

There is a distinction between a person employed to do an act for another and a person who
does an act at the bidding of another. In the first place the act done is not that of the person
employed but of him who employs him. In the second, the act is that of the person himself.
Again in the first case, the person employed is an agent of the employer; in the second, he
merely acts at the request of another. Then again in the first case, under section 222 the
person is entitled to be indemnified against the consequences of all lawful acts done by him
in the exercise of his authority as an agent in the latter he is entitled to be indemnified only
if there is a contract of indemnity to this effect.

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 DUTIES OF AGENT
Mutual rights and duties of principal and agent may be wholly provided for their contract
but the following duties of general nature are imposed by the law upon every agent, unless
they are modified or excluded by special contract:

1 DUTY TO EXCECUTE

The first and the foremost duty 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 agent absolutely liable for principal’s loss. Thus, it has been held in number
of cases that:

“The rule of equity is that if an order is sent by principal to a factor to make an insurance,
and he charges his principal as it is made, if he never in fact made that insurance, he is
considered as insurer himself”1

2 DUTY TO FOLLOW INSTRUCTION

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 custom 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.

1
Tichel v Short (1750) 2 Ves 239

6
 (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.

This section provides that agent is bound to conduct the business of his principal according
to the direction given by the principal and keep himself within the confines of authority .in
the absence of direction the agent has to follow the custom which prevails in the business
of the same kind and at the same place where the agent conducers the business. When the
agent acts otherwise, if any loss be sustained he must make good to his principal and if any
profit accurse he must account for it.

3 DUTY OF REASONABLE CARE AND SKILL

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 persons engaged in similar
business unless the principal has notice of this want of skill. The agent is always bound to
act with reasonable diligence, 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.

Illustrations

(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 orders to remit. B retains the money for a 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 on 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.

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 (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, 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 of ship arrived, but not any profit he might have made by the
subsequent rise.

Under section 212 the agent is always bound to act with reasonable diligence 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. The neglect and misconduct of agent misinforming his
principal as to purchase of goods squarely comes within the ambit of section 212.the
standard of care and skill which an agent has to bestow depends on the nature of his
profession. If the principal suffers any loss owing to the agent’s want of skill and care, the
agent must compensate the principal for such loss. Section 212 limits the consequences. It
provides that the agent must make compensation 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.

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 instruction, if the principal can be
communicated with the reasonable care, before taking steps in facing difficulty or
emergency.

In case of Pannalal Janki v Mohanlal2

2
(1950) 1 SCR 979

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 An agent having been instructed to insure certain goods failed to insure certain goods .The
goods were lost in explosion at dock. Even if the agents had taken out a fire insurance
policy in usual form it would not have covered the loss of this kind, as fire due to explosion
would have an expected peril. But the Bombay High government passed an ordinance
under which undertook to pay half loss in cases of uninsured goods. Thus the principal got
only half of what he would have got if the goods had been insured.

It was held by majority that loss was the direct result of agent’s negligence. Therefore agent
was held liable.

214. Agent’s duty to communicate with principal

It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in

communicating with his principal, and in seeking to obtain his instructions.

The principal is bound by the knowledge of the agent, if it is on material point and such
that the agent was bound to communicate to the principal3. This section makes incumbent
on the agent to use all reasonable diligence in communicating with his principal and
seeking to obtain his instructions in all cases of difficulty. An agent if unauthorized to pay
or sell at best rates cannot defer carrying out the order until he has communicated the rate
of the day to the principal and received his sanction. Where the purchaser raises dispute
regarding quality of goods the Pawnee must treat himself as agent of Pawnee and act
according to this section.

4 DUTY TO AVIOD CONFLICT OF INTEREST

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

3
JAYABHARATHI CORPN V S.V.P.N.S.N AIR 1992 SC 592

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 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 directs 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 wishes 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.4

If an agent deals on his own account in the business of agency, the principal may repudiate
the transaction if it appears that the dealings of the agent have been disadvantageous to
him, or if the agent has concealed a material fact dishonestly. By the law of England,
however, if an agent, without disclosing the fact that he is the person dealing himself, deals
with the principal, the principal on discovering the fact can have the transaction set aside.
However principal has to prove

(1) A material fact has been dishonestly concealed from him

(2) The dealing of the agent has been disadvantageous

216. Principal’s right to benefit gained by agent dealing on his own account in
business of agency.—

4
RANGANAYAKAMMA V K.S PRAKASH (2005) AIR Kant HCR 2654

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 If an agent, without the knowledge of his 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.

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

The general rule is that a person who is dealing with another man’s money ought to give
the truest account of what he has done, and ought not to receive anything in the nature of a
present or allowance, without the full knowledge of the principal that he is so receiving5.An
agent cannot, without the knowledge and consent of the principal, be allowed to make any
profit out of the matter of the agency beyond his proper remuneration as agent. He would
be answerable for any present solicited out of the money paid on behalf of his principal,
because it is perfectly obvious that if the creditor who, received the payment is willing’ to
make a deduction and discount from the sum he had received: that would be for the benefit
of the master who is making the payment and not for the benefit of the servant, who without
consent of his master has no tight to receive any such profit. The operation of the section
in no way depends upon the principal having suffered in any manner. This is so because
the agent holds a fiduciary position and if he makes some profits in that capacity he should
make good the same to the principal, even if the agent has spent his own money in the
transaction. A principal has inter alia, a right as against the agent who fails in his duty, to
obtain an account and payment of secret and illicit profits which have come to the hands
of the agent as an agent. As Lord Cockburn stated the result of the authorities in Morrison
v. Thompson.6“An agent is bound to account to his principal for all profits made by him in
the course of his employment, and is compelled to account in equity. At the same time
there is a duty which we consider a legal duty, incumbent upon him whenever any profits
so made have reached his hands, to pay over the amount as money absolutely belonging to

5
N. Joachinson v. Meghjee Vallabhdas, 34 Bom 292
6
LR 9 QB 480.

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 his employer, unless there is an account remaining to be taken between him and his
employer.”7

5 Secret profits made by agent

It is thus a recognized principle of law that an agent is not entitled to make a secret profit
by dealing in the agency on his own account, and if any profit accrues he must account for
it. An agent must never place himself in a position in which it is possible that his own duty
to his principal and his own interests would stand in opposition to each other. The law is
well put in Story on Agency (Para. 207)—“It may also be stated as generally true that all
profits which are made by the agent in the course of the business of the principal belong to
the latter, Indeed, this doctrine is so firmly established upon principles of public policy that
no agent will be permitted to take beyond a reasonable compensation for his services any
profit incidentally obtained in the execution of his duty, even if sanctioned by usage. Such
a usage has been severely stigmatized as usage of fraud and plunder. When the profits are
made by a violation of duty, it would be obviously unjust to allow the agent to reap the
fruits of his own misconduct, and when the profits are made in the ordinary course of the
business of the agency, it must be presumed that the parties intended that the principal
should have the benefit thereof. If the agent fails to keep proper accounts or conceals the
true nature of the transaction from the principal fraudulent or receives secret profit the
agent is liable to the principal in a suit for account.7 Where an agent uses a debt due to his
principal in order to obtain valuable property himself, he in fact realizes the debt for and
on behalf of his principal and is liable to account for the same. It is of no consequence that
a third person has been joined as vendee in the sale transaction. Where the plaintiff who
agreed to send the defendants’ goods to a foreign country for commission arranged to
receive a return commission from the foreign merchant without the defendants’ knowledge,
held that the defendants were entitled to the return commission.

Ref. to in Mayen v. Alston, 16 Mad 238, 249.

7

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 6 DUTY TO REMIT SUMS

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.

Agent’s duty to account for all receipts

The agent’s duty extends to payment of all moneys received by him on his principal’s
behalf though he did so under an illegal or void contract, e.g., moneys received under a
wagering contract, or illegal ceases realized. The illegality of a contract between the
principal and stranger, under which an agent recovers money due to the principal, is no bar
to the principal recovering the money so realized from the agent

7 DUTY TO MAINTAIN ACCOUNTS

213. Agent’s accounts.—

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

As between the principal and agent there is a contractual position fortified by fiduciary
relations and one of the terms is that the agent should render an account to the principal of
his dealings with the property entrusted to him in the course of the mandate.8 The right of
a principal to have an account taken in equity rests upon the trusts and confidence reposed
in the agent and it is the duty of every agent to render just and true account of his agency
to the principal.

8 DUTY NOT TO DELEGATE

Delegatus non potest delegare is a well known maxim of the law of agency .The principal
chooses a particular agent because he has trust and confidence in his integrity and
competence. Ordinarily, therefore, the agent cannot further delegate his work which he has
been delegated by the principal.

AIR 1992 SC 596: 1993 Supp (1) SCC 401.

8

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 As stated in section 190

190. When agent cannot delegate.—

An agent cannot lawfully employ another to perform acts which he has expressly or
impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-
agent may, or, from the nature of the agency, a sub-agent must, be employed.

As a general rule an agent cannot without authority from his principal devolve upon another
obligations to the principal which he has himself undertaken to personally fulfill. But in
special circumstances, it is permissible for the agent to appoint a substitute who would be
responsible to the principal in the same way as the agent himself. Such a substitute is not a
sub-agent but an agent of the principal.

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 RIGHTS OF AGENT
The following are some of the important rights of an agent

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.

Every agent is clearly entitled to his agreed remuneration, or there is no agreement to a

reasonable remuneration.9 Where the amount of remuneration is left on principal’s
discretion but then also reasonableness would criterion.10

Where the parties have made an express contract for remuneration, the amount of
remuneration and the condition under which it becomes payable must be ascertained by a
reference to the terms of that contract and no implied contract can be set up to add to or
deviate from the original contract though it can be interpreted by a reference to custom not
inconsistent with it. In order to entitle an agent to receive his remuneration, he must have
carried out that which he bargained to do or at any rate must have substantially done so and
all conditions imposed by the contract must have been fulfilled the transaction that results
must be due to the agent’s services .where the agent’s services are only remotely connected
with the transaction, his remuneration is not earned. Causa proxima is not the question;the
plaintiffs must show that the act of theirs was Causa causans

Where one has expressly or impliedly requested another to render him a service without
specifying any remuneration, but the circumstances of the request imply that the service is
to be paid for, the law will imply a promise to pay quantum meruit, i.e., so much as the
party doing the service has deserved, or as it is normally said, a reasonable sum. The claim
for quantum meruit can only arise upon a promise to be implied from a request by the

9
KHURSHEED ALAM V ASA RAM AIR 1933 Lah 784
10
KOFI SUNKERSETTE OBU V A . STRAUSS 1951 AC 243

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 defendant to the plaintiff to perform services for him or from the acceptance of such
services as the plaintiff rendered so as to imply a promise to pay for the same

220. Agent not entitled to remuneration for business misconduct.—

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.

An agent is not entitled to any commission in respect of that part of the business which he
has misconducted.11 This section states that an agent who is guilty of misconduct in a
business of agency is not entitled to any remuneration in respect of that part of the business
which he has misconducted.

The effect of misconduct is twofold .Firstly the agent forfeits his right to the commission.
This is irrespective of any loss suffered by the principal. The principal underlying the rule
is that ‘a principal is entitled to have an honest agent and it is only honest agent who is
entitled to any commission.

11
MUNICIPAL CORPN OF BOMBAY V CAVERJI HIRJI (1895) 20 Bom 124

16
 Secondly the principal is entitled to recover compensation for any loss caused by
misconduct of agent.

2 RIGHT OF RETAINER

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 agent has the right to retain his principal’s money until he claims, if any, in respect of
his remuneration advances made or expenses incurred in conducting the business of agency
are paid.

3 RIGHT OF LIEN

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 the principal a sum money by way of
commission earned or disbursements made or services rendered in proper execution of the business
of agency

(2) The property over which the lien is to be exercised should belong to the principal and it should
have been received by the agent in his capacity and during the course of his business as agent

(3) The agent has only particular lien. A particular lien attaches only to that specific subject matter
in respect of which the charges are due No property can be retained.

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 4 RIGHT OF IDEMNITY

222. Agent to be indemnified against consequences of lawful acts.—

The employer of an agent is bound to indemnify him against the consequences of all lawful
acts done by such agent in exercise of the authority conferred upon him.

Illustrations

(a) B, at Singapore, under instructions from A of Calcutta, contracts with C to deliver

certain goods to him. A does not send the goods to B, and C sues B for breach of contract.
B informs A of the suit, and A authorizes him to defend the suit. B defends the suit, and is
compelled to pay damages and costs, and incurs expenses. A is liable to B for such
damages, costs and expenses.

(b) B, a broker at Calcutta, by the orders of A, a merchant there, contracts with C for the
purchase of 10 casks of oil for A. Afterwards A refuses to receive the oil, and C sues B. B
informs A, who repudiates the contract altogether. B defends, but unsuccessfully, and has
to pay damages and costs and incurs expenses. A is liable to B for such damages, costs and
expenses.

A claim for indemnification under section 222 is only maintainable if the acts, which the
agent employed to do, are lawful. An agent making unauthorized settlement is not entitled
to indemnity, but a suit by agent against principal for recovery of losses is maintainable.

This section is founded upon a well-recognized principle of English law that every agent
has right against his principal founded upon an implied contract to be indemnified against
all losses and liabilities and to reimburse all expenses incurred by him in the exercise of
his authority. The principal’s duty to indemnify is no part of the contract but is an
obligation attached by law to the relation of principal and agent constituted by act of the
parties. An agent on general grounds is entitled to reimbursement and indemnity by his
principal but only on the condition that he has acted within the scope of his directions. The
agent’s right to indemnity arises and becomes enforceable immediately on his incurring
the liability and it is in no manner dependent upon his discharging the same as well, but
without actual proof of loss the agent cannot claim indemnity.54 A right to indemnity is

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 founded on section 222. Actually the right is incident of contract of agency and is not hit
by order of prohibition. The matter is collateral to the forward contract and is enforceable.

But there is no implied promise to indemnity an agent for the losses ensuing from his own
negligence, wrong, ‘breach of duty’, default. The right to indemnity, however, extends to
cases where the agent has occasioned loss or liability by an honest mistake.

223. Agent to be indemnified against consequences of acts done in good faith.—

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 may cause an injury to the rights of third persons.

Illustrations

(a) A, a decree-holder and entitled to execution of B’s goods requires the officer of the
Court to seize certain goods, representing them to be the goods of B. The officer seizes the
goods, and is sued by C, the true owner of the goods. A is liable to indemnify the officer
for the sum which he is compelled to pay to C, in consequence of obeying A’s directions.

(b) 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

One of the illustrations is Adamson v. Jarvis12

A auctioneer sold certain cattle on instruction from the defendants and was held liable to
the true owner for conversion. He recovered indemnity from the principal because the act
in question was apparently lawful.

Where the principal would not be liable upon an express or an implied promise to
indemnify the agent against the consequences.

12
29 RR 503

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224. Non-liability of employer of agent to do a criminal act.—

Where one person employs another to do an act which is criminal, the employer is not
liable to the agent, either upon an express or an implied promise to indemnify him against
the consequences of that Act.

Illustrations

(a) 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.

(b) B, the proprietor of a newspaper, publishes, at A’s request, a 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 thereof. B is sued by C and has to pay damages, and also
incurs expenses. A is not liable to B upon the indemnity.

If some of the partners, on behalf of the firm and with the express or implied consent or
concurrence of the other partners spent certain sums on bribes, credit should be given to
the former for the amounts. As a general rule, a master is not criminally liable for the acts
of his servant. But where the provisions of a statute prohibit an act or enforce a duty in
such words as to make the prohibition or the duty absolute, the master will be liable if the
servant infringes those provisions. Mens rea is not the essence of the contravention of Rule
9 (a) of the Octroi Rules of Waraseoni Municipal Committee.

A claim for indemnification under section 222 of the Act is only maintainable if the acts
which the agent is employed to do are lawful. An agreement to commit criminal acts is
expressly and specifically excluded by section 224 from the scope of any right to any
indemnity.75

5 RIGHT OF COMPENSATION

225. Compensation to agent for injury caused by principal’s neglect.—

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 The principal must make compensation to his agent in respect of injury* caused to such
agent by the principal’s neglect or want of skill.

Illustration

A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The
scaffolding is unskillfully put up, and B is in consequence hurt. A must make compensation
to B.

Thus, every principal owes to his agent the duty of care not to expose him to unreasonable
risks.13

Duties OF PRINCIPAL FOR ACT DONE BY AGENT

226. Enforcement and consequences of agent’s contracts.—

13
Federal insurance co v nakano Singapore (1992) 1 Current LJ 539

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 Contracts entered into through an agent, and obligations arising from acts done by an agent,
may be enforced in the same manner, and will have the same legal consequences as if the
contracts had been entered into the acts done by the principal in person.

Illustrations

(a) A buys goods from B, knowing that he is an agent for their sale, but not knowing who
is the principal. B’s principal is the person entitled to claim from A the price of the goods,
and A cannot, in a suit by the principal, set-off against that claim a debt due to himself
from B.

(b) A, being B’s agent, with authority to receive money on his behalf, receives from C a
sum of money due to B. C is discharged of his obligation to pay the sum in question to B.

It is necessary for this effect to follow that the agent must have done the act within the
scope of authority the authority. The authority of an agent and more particularly its scope
are subject of some controversy this is because of the fact that it does not depend on one
source. It emanates from the principal but is often determined by legal interferences and
also on the nature of agency. The authority of agent means his capacity to bind the
principal. It refers to “the sum total of acts it has been agreed by between principal and
agent that agent should do on behalf of the principal.14 When agent does any such acts, it
is said he has acted within his authority.15

227. Principal how far bound, when agent exceeds authority.—

14
“JJ Montrose ,actual and apparent authority (1938) 16 Can BR 757 , 761

15
Nand Lal Thanvi v lr of Goswami Brij Bhushan (2004) 2 ICC 103 (Raj)

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 When an agent does more than he is authorized to do, and when the part of what he does,
which is within his authority, can be separated from the part which is beyond his authority,
so much only of what he does as is within his authority is binding as between him and his
principal.

Illustration

A, being owner of a ship and cargo, authorizes B to procure an insurance for 4,000 rupees
on the ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum
on the cargo. A is bound to pay the premium for the policy on the ship, but not the premium
for the policy on the cargo.

Where an agent exceeds his authority, actual or apparent the principal is not bound by the
excess, but where it is separable from the authorized work the principal is bound to such
extent.

228. Principal not bound when excess of agent’s authority is not separable.—

Where an agent does more than he is authorized to do, and what he does beyond the scope
of his authority cannot be separated from what is within it, the principal is not bound to
recognize the transaction.

Illustration

A, authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of
6,000 rupees. A may repudiate the whole transaction.

Where the authorized work is not separable from the rest, the principal may repudiate the
whole transaction

229. Consequences of notice given to agent.—

Any notice given to or information obtained by the agent, provided it be given or obtained
in the course of the business transacted by him for the principal, shall, as between the

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 principal and third parties, have the same legal consequences as if it had been given to or
obtained by the principal.

Illustrations

(a) A is employed by B to buy from C certain goods, of which C is the apparent owner,
and buys them accordingly. In the course of the treaty for the sale, A learns that the goods
really belonged to D, but B is ignorant of that fact. B is not entitled to set-off a debt owing
to him from C against the price of the goods.

(b) A is employed by B to buy from C goods of which C is the apparent owner. A was,
before he was so employed, a servant of C, and then learnt that the goods really belonged
to D, but B is ignorant of that fact. In spite of the knowledge of his agent, B may set-off
against the price of the goods a debt owing to him from C.

The effect of the provisions is that notice given to or information obtained by an agent in
course of business transacted by him on his behalf of principal shall have same
consequences as if it has been given to obtain by the principal.

238. Effect, on agreement, of misrepresentation or fraud by agent.—

Misrepresentation made or frauds committed, by agents acting in the course of their

business for their principals, have the same effect on agreements made by such agents as
if such misrepresentations or frauds had been made or committed by the principals; but
misrepresentations made, or frauds committed, by agents, in matters which do not fall
within their authority, do not affect their principals.

Illustrations

(a) A, being B’s agent for the sale of goods, induces C to buy them by a misrepresentation,
which he was not authorized by B to make. The contract is voidable, as between B and C,
at the option of C.

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 (b) A, the captain of B’s ship, signs bills of lading without having received on board the
goods mentioned therein. The bills of lading are void as between B and the pretended
consignor.16

16
BARE ACT LAWMANN’S

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 CONCLUSION

Any person who has the legal capacity (meaning that they are not insane, or in certain
circumstances a minor) to perform an act may be a principal and empower an agent to carry out
that act. Persons, corporations, partnerships, not-for-profit organizations, and government agencies
may all be principals and appoint agents.

Any individual capable of comprehending the act to be undertaken is qualified to serve as an agent.

A contract to be made by an agent on behalf of a principal is considered to be the contract of the

principal and not that of the agent. It allows the principal to authorize somebody to carry out her
duties, either for a specific purpose (i.e., purchasing a house) or generally (i.e., to conduct many
transactions). The agency relationship is usually entered into by informal agreement, but also can
occur by formal agreement (in certain cases, the agency relationship must be specified in writing).
The acts must be legal (i.e., principal cannot hire agent to kill the professor).

Inherent in the Principal-Agent (P-A) relationship is the understanding that the agent will act for
and on behalf of the principal. The agent assumes an obligation of loyalty to the principal that she
will follow the principal’s instructions and will neither intentionally nor negligently act improperly
in the performance of the act. An agent cannot take personal advantage of the business
opportunities the agency position uncovers. A principal, in turn, reposes trust and confidence in
the agent. These obligations bring forth a fiduciary relationship of trust and confidence between P
and A.

An agent must obey reasonable instructions given by the P. The A must not do acts that have not
been expressly or impliedly authorized by the P. The A must use reasonable care and skill in
performing the duties. Most importantly, the A must be loyal to the P. The A must refrain from
putting herself in a position that would ordinarily encourage a conflict between the agent’s own
interests and those of the principal .The A must keep the P informed as to all facts that materially
affect the agency relationship.

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End note

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 References

BOOKS REFERED

 SINGH AVATAR, Contract & Specific Relief,10th edn, Eastern Book company
 BANGIA R K, Law of Contracts, Central law agency

SITES REFERED

 http://www.ruf.rice.edu/~schuler/principal-agent.html
 http://www.indiankanoon.org/search/?formInput=principal-agent%20relationship
 http://www.investopedia.com/terms/p/principal-agent-relationship.asp
 Shttp://www.manupatra.com/

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