Duties of Agents and Principals

General

In the agency contracts the principal appoints an agent to perform a specific task on his behalf. The
principal is bound by the acts of the agent and the principal is responsible and liable for such acts of the
agents. However, the principal owes certain duties to the agent and the agents owes certain duties to the
principal as well, the rights of the agents become duties of the principal and rights of the principal
become duties of the agent to the principal. Such duties and obligations are normally spelt out in the
agency agreement, but they can also be implied into the agency agreement.

The duties and rights of the agent vary with the nature of the agency and terms of the agreement. A
breach of the agent’s obligations or duties could cause to the agent’s liability to recover the loss or
damage suffered by the principal for negligence of the agent.

Duties of the Agent to the Principal

A fiduciary relationship exists between the agent and the principal in an Agency contract. Therefore,
the agent must act towards the success of the principal.

The principal has the rights to sue the agent in case of breach of the duties of the agent. They are as
follows:

1. Duty to follow instructions of the principal

The agent must perform the acts according to the directions or instructions given by the principal
only. For the business works the agent is appointed by the principal and the agent shall not try to go
beyond the given authority. If the agent go beyond the given authority then he will be liable for the
losses or for the damages arisen as result of his disobedience.

Case Law : Bertram Armstrong & Co. Vs. Godfrey(1830) 12 English Rep 364

A broker was instructed by his principal to sell some shares when the market price reached a
certain figure. The broker failed to do so. The market price then fell and he was forced to sell
for less. The Court held that the Broker, as agent, was liable to the principal for the loss he
suffered, that is the difference in price.
2. Duty to exercise reasonable diligence, care and skill

The standard of care that an agent must exercise in acting for his principal is that which is normally
expected of a person engaged in such work. The agent is obliged to exercise reasonable diligence
and he is responsible for recompensate his principal for the losses resulting negligence of the agent.

As long as the agent has acted with normal care and skill having regard to the nature of the
transaction and has acted in a reasonable manner as would be expected from an agent employed in
such an undertaking, he will not be liable for negligence, even his efforts were unsuccessful.

Case Law: Keppel Vs. Wheeler (1927) 1 KB 577

An Agent was employed by a principal to find buyers for a property. The agent found a buyer
and the buyer’s offer was accepted by the principal subject to a sales contract to be drawn up.
Subsequently, the agent received a higher offer for the property but neglected to inform the
seller of the higher offer because the agent thought that he had completed his job by getting the
earlier offer.

The Court however held that the agent should have informed his principal of the higher offer
and because he had failed to do, he was liable to the principal for the difference in the price of
the higher offer. The agent has failed to exercise due diligence and care to get the maximum
price possible for his principal.

3. Duty not to delegate his duties

The principal in appointing an agent expects him to act personally and not through others.
Accordingly, unless when appointing the agent, the principal had permitted a delegation of duties, it
is a well-established rule of agency that an agent cannot delegate his duties to others.

Case Law: John McCann & Co. Vs. Pow (1975) 1 All ER 129

A principal appointed a firm of real estate agents to sell his flat. Without the principal’s
approval, the real estate agents gave details of the flat to a sub agent who find a buyer. Then the
agent asked for their commission for the sale of the flat. The Court held that since they had
delegated the sale to a sub-agent without the principal’s permission, the principal was not liable
to pay the commission to the agent although the flat had been sold for the price requested.
Exception to the principle of Delegates non- protest delegate

The Latin maxim “Delegatus non potest delegare” which means that a person to whom authority has
been delegated may not delegate it to another. There are following exceptions to this rule that an agent
must not delegate his duties to another.

These are,

I. The agent may delegate his duties where there is an express or implied authority to delegate
such as by professional or trade usage.
II. The agent may delegate purely ministerial acts such as the signing of a letter or the giving of a
notice where such act requires no personal skill or confidence.
III. If the delegation is ratified of approval by the principal
IV. Where it becomes essential due to some emergency.

4. Duty to act in the principal’s interests / Duty not to make secret profits

The relationship of principal and agent is a confidential one. The agent must always act in the
interests of and for the benefit of the principal. If there is any problem for the agent to so conduct
himself, he must relinquish his duties terminate the agency.
The agent must disclose properly any material information to his knowledge to the principal that
influence the agency contract. Principal places trust and confidence in the agent, the agent must act
honestly and must not do anything improper

Case Law: In McPherson Vs. Watt (1877) 3 App Cas 254;

The principals wanted to sell a property and were about to advertise its sale. Their solicitor told
them that he would find a purchaser. The solicitor then got his brother to bid for the property
and after the property was sold to him got the brother to convey the property to the solicitor.
When the principals discovered that the true purchaser was the solicitor –their agent they
applied to Court and got the sale set aside. The agent had acted improperly. He had put his
interests above those of his principal
The fiduciary or confidential obligation that is imposed on an agent requires that he should not make a
secret profit or commission in the performance of his duties. Any financial advantage an agent receives
in the performance of his duties, including a bribe, is considered a secret profit.

Case Law: Reiger Vs. Campbell Stuart (1939) 3 All ER 235

A principal wanted to buy a property and asked her agent to find a suitable property. The agent
found a suitable property for 2000 pounds. Instead of informing the principal about this
property for 2000 pounds, the agent got his brother to buy the property for 2000 pounds and
then pretended to buy the same property from the brother for 4500 pounds. He then offered the
property to his principal for 5000 pounds when its real value was 2000 pounds. Not knowing
the truth, the principal bought the property for 5000 pounds. But subsequently when the
principal learnt the improper actions of the agent, she claimed a refund of the profit the agent
had made. Court held in her favor and ordered the agent to pay the difference to the principal.
The agent had acted wrongly.

5. Duty to maintain accounts

A fundamental rule of the law of agency is that the agent must maintain proper accounts relating to
his work as an agent. He must also not improperly mix his principal’s funds with his personal funds
and if he does so the law will presume that the entire sum belongs to the principal.
Since an agent is under a duty to his principal for all monies received by him as agent, he must keep
his personal accounts and finances separate from the agency accounts and finances. He must not fix
his principal’s money with his personal monies.
For example: he must maintain separate bank accounts, one for his agency work and other for his
personal work.
6. Duty not to divulge confidential information.

It is an agent’s responsibility to keep the agency’s business secrets and not not disclose sensitive
matters. That is the agent is under a duty of confidentiality. Not only the agent must not tell others
about the principal’s business and affairs but he must not make use of such information for his
personal benefit or interests.
Case Law: Robb Vs. Green (1895) 2QB 315
In this case, an employer (the principal) was held entitled to prevent an ex-employee (an agent)
from making a list of the employer’s customers. The Court held that such information was
confidential and the agent must not make use of it for any purpose other than for the benefit of
the principal. Thus, he could not make a copy of that information to be used for his private
purposes.

Duties of the Principal to the Agent

The principal also owes certain contractual duties to the agent. There are three main duties that the
principal owes to his agent and the agent can in turn exercise these rights against the principal.

i) The right to remuneration

ii) The right to an indemnity
iii) The right to exercise a lien

Even if the above three rights of an agent are not expressly specified in the document appointing the
agent, they will be implied operation of law. In other word unless any of these rights are expressly
excluded by notice to the agent, a principal is bound by them.

1. Agent’s right to remuneration

The amount of remuneration that an agent can claim will depend on the agreement appointing the
agent. In many established commercial situations like solicitors, stock brokers and real estate agents,
the remuneration will depend on the fees and commissions charged in that particular profession or
business. However, it is advisable that the agent should clarify the amount and terms of remuneration
when accepting the agency.
 2. Agent’s right to indemnity

While acting for the principal within the scope of actual authority, the agent may incur certain liabilities
or make payments on behalf of the principal. In such circumstances, the agent will be entitled by
common law principles to be indemnified against such liabilities or to recover any amounts so paid
irrespective of whether the expenditure was expressly authorized or merely necessary in performing the
agency acts.

3. Agent’s right to a lien

A lien is a legal right that a creditor has to retain the goods of a debtor as security for the performance
of an obligation. A good example is a land lord of rented property who has not been fully paid the rent
by the tenant. The law recognizes the land lord’s right to hold on to any furniture or other goods of the
tenant until the unpaid is paid. An agent can exercise a lien over the principal’s goods which are in the
agent’s possession until the amount due to the agent is settled.