The Duties of an Agent Towards His/Her Principal

2 February 2017

Explain, with reference to the relevant sections in the Contract Act 1950 and example of case law, the duties of an Agent towards his/her Principal. Normally, an agreement creating an agency relationship may be arises out by express or implied and as such, their rights and duties will depend on the terms of the contract of agency. When the contract of agency is silent on the terms, the rights and duties of an agent to his principal are governed by sections 164 to 174. The main duties of an agent are as follows: 1. Section 164: Agent’s duty in conducting principal’s business.An agent has to obey his or her principal’s instructions when conducting the business of the principal.

Failure to obey may be treated as a breach of contract and the agent is liable for any loss sustained by the principal an account of the breach. For example, in Turpin v Bilton (1843), the agent failed to insure a ship when instructed to do so and the ship was lost, therefore the agent was held liable. Another example is Bostock v Jardine (1865), where the agent was liable when he bought more than he was directed to buy. However, an agent has no duty to obey the unlawful instructions of his or her principal.In Cohen v Kittel (1889), the agent was held not liable for failing to place bets. In the absence of instructions from the principal, the agent has to act according to the customs which prevail, in doing business of the same kind, at the place where he or she carries on his or her work. Otherwise he or she has to make good any loss sustained by the principal.

The Duties of an Agent Towards His/Her Principal Essay Example

As an example, N is a broker, in whose business it is not the custom to sell on credit. N sells goods of M on credit to Q and the credit at that time was very high. But before payment, Q becomes insolvent. Hence, N must make good the loss to his or her principal, M. 2.Section 165: Skill and diligence required from agent. An agent has to exercise care and diligence when carrying out his or her work and to use such skill as he or she possesses.

The agent has to act as a professional which demands a particular skill and has to display such skill as is generally possessed by people who engaged in such a similar profession, unless the principal has notice of his or her lack of skill. Otherwise, the usual requirement is that the agent must act with reasonable diligence and use the skill he has. For example, M is employed to sell goods, thus it is his duty to obtain the best price as possible.It has been held that his duty does not end upon obtaining an offer which was conditionally accepted. If there is a better offer and is subsequently made, he is obliged to inform the principal of the new offer. A case in point is Keppel v Wheeler (1927), the defendant, Wheeler was employed by the plaintiff, Keppel to sell his house. Keppel had received and accepted an offer as a subject to contract.

After a few days, Z had made a higher offer for the same property, but this offer was not communicated to Keppel. A written contract of sale between the plaintiff and the first offeree was duly signed.The court held that the defendant was liable for the difference between the two offers. Hence, an agent must disclose everything which comes to his or her knowledge that is likely to influence the principal in the making of a contract. Even where a power of attorney gives the agent an authority to act without instructions, he or she still has the duty of giving the principal correct and timely information. As an example, in Phillips v Barn (1937), the defendant had been given a power of attorney by the plaintiff to manage and invest money entrusted to them by him.Then the defendants made loans to debtors through brokers and the business was good for some time.

The plaintiff was to be informed that owing to the world depression, one of the brokers made default in paying interest, but the defendants expressed their opinion that if there were time to be given, the broker would improve in his position; the plaintiff did not differ in this opinion. After that, the plaintiff wrote to the defendants that they should sell the defaulted scrip as and when they thought it is the best time to do so. However, sooner or later the market grew worse and the broker became bankrupt.The shares were afterwards being realized but it resulted in loss to the plaintiff. The plaintiff was not satisfied with his affairs and then he went to the defendants’ place to investigate the matter for himself and thereby incurred an expense of $2,500. The plaintiff then claimed damages for negligence and breach of duty in not informing him of the situation earlier. The Privy Council held that though the power of attorney gave the defendants authority to act without instructions, it did not relieve them from a business obligation enforced by statute to give to the plaintiff correct and timely information.

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