Taming an agent

Introduction

It is common for people to carry on their in business dealings with third parties though an agent. This could be on account of the vastness of the principal’s business or since the dealings may require significant skill or expertise, which the principal may lack. An agent is someone who acts and represents the principal in his dealings with third persons. Vis-à-vis the principal, an agent stands in fiduciary capacity.

Duties of an agent

An agent owes to the principal certain we defined duties. For stance:

i) An agent is bound to conduct the business of his principal according to the directions given by the principal. In absence of any such direction, the agent is bound to carry out the business according to the custom prevailing.

ii) Agent is bound to conduct the business of agency with required skill. He is the bound to act with reasonable diligence.

iii) An agent is required to render proper accounts to his principal on demand.  Mere production of an account statement without explaining the same and without producing vouchers to support the entries, where the same are necessary, is insufficient and cannot be treated as rendering an account: An agent is not discharged from the duty of accounting by merely delivering to the principal a set of written accounts without attending to explain them, and without producing vouchers by which the items of disbursements are supported[1]. Further, the duty of the agent to render proper accounts is irrespective of any contract to that effect and it appears that the duty cannot be avoided by pleading estoppel[2].

iv) In case of difficulty, an agent is bound to use all reasonable diligence in communicating with his principal and seeking to obtain his instructions.

So long as the agent complies with the above duties, the agent is entitled to agreed remuneration as well as indemnification from the principal for all lawful acts done by him.

Recourse against erring agent:

However in case the agent commits breach any duties, the question arises as to what are remedies available to the principal. The following are the statutorily recognized rights of the principal in cases the agent commits breach of his duties or misconducts himself:

i) An agent who is guilty of misconduct in the business of agency is not entitled to any remuneration in respect of that part of business which he has misconducted. Performance of the contemplated services fully and faithfully is a condition precedent for agent’s entitlement to remuneration[3]. By demonstrating that an agent has been guilty of misconduct in the business of the agency, the principal can avoid liability to pay remuneration to the agent. The principle underlying provision is that a principal is entitled to have an honest person as his agent and not a person whose actions are calculated to prejudice his interest and it is only an honest agent who is entitled to remuneration[4].

ii) If an agent fails to act in accordance with the directions of the principal or in accordance with the custom prevailing, if any loss is sustained, the agent is required to make it good to his principal and if any profit accrues, the agent must account for it.

iii) In case of the agent failing to conduct business of agency with the required skill and reasonable diligence, the agent is bound to compensate the principal in respect of direct consequences of agent’s neglect, want of skill or misconduct.

iv) If an agent deals on his own account in the business of the agency without first obtaining the consent of the principal and acquainting him all material circumstances, the principal has an option to repudiate the transaction, in case any material fact has been dishonestly concealed by the agent or the dealings of the agent has been disadvantageous to the principal.

v) if an agent without the knowledge of the principal deals in the business of agency on his own account instead of on account of principal, the principal is entitled to claim from the agent any benefit which may have resulted from the transaction.

vi) of course in all cases of revocable agency, the principal has an option to terminate the agency.

In substance

An agent as a fiduciary is bound to act with transparency, in good faith and with required skills and diligence. A breach by agent not only entitles the principal to recover losses, but also to withhold remuneration.

  • [1] State of Rajasthan v. Rao Manohar Singh, AIR 1961 Raj 143 
  • [2] S. Paul & Co. v. State of Tripura AIR 1984 Cal 378 
  • [3] Sirdhar Vasanta Kao v. Gopala Rao, AIR 1940 Mad 299
  • [4] Purushotham Haridas and Ors. vs. Amruth Ghee Co. Ltd., Guntur and Ors. AIR 1961 AP 143

 

Smita Singh 
on 06 August 2018
Published in Civil Law
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