The Duties of an Agent to Principal

THE DUTIES OF THE AGENTS TO PRINCIPAL The duties of an agent depend primarily on the contract of agency if there is one. Subject to any such express terms, the agent owes a number of implied duties or obligations to his principal. It is the agency relationship as such that gives rise to these obligations so that, as a general rule, they fall as much on the gratuitous agent as on the paid agent. 1. Obey the Principal’s instructions Section 164 states, The agent must obey the instructions given to him by his principal even if he thinks the instructions are wrong.

Sometimes of course the principal may expect the agent to advise him and indeed he may be employing an agent to use skill and care. The agent must not delegate his duty to another person unless such delegation has been agreed with the principal, or is the custom of the trade, or the delegation merely takes pace in relation to purely administrative matters. Case Example : In Turpin v. Bilton (1843), an insurance broker agreed for consideration to obtain a contract of insurance on the plaintiff’s ship. But he failed to do so. The ship was lost and the broker was held liable to the plaintiff.

In Fraser v. B. N. Furman (Production) Ltd (1967), insurance brokers agreed for consideration to effect an employer’s liability policy and failed to do so. The employer was held liable for $3000 damages in an action brought against him by an employee for breach of the Factories Act, and the Court of Appeal held that the brokers must indemnify the employer in that sum for breach of contract. Betram Armstrong & Co. V. Godefray (1830) 1 Knapp 381 Facts : The agent was a stockbroker. The principal told the agent to sell stock when the market price reached a certain figure per unit of stock.

The agent did not heed these instructions and held on to the stock. When the market dropped the agent was forced to sell at a loss. Decision : The principal successfully sued the agent to recover the difference between the price at which he was instructed to sell the stock and the price at which the stock was eventually sold. 2. A duty to exercise reasonable skill and diligence Section 165 states, The degree of skill and diligence required of an agent depends on whether the person is a gratuitous agent or a non-gratuitous agent. A gratuitous agent is not paid for their services whereas a non-gratuitous agent is paid.

A non-gratuitous agent is required to exercise a degree of skill equal to that which a reasonable person would expect an agent of that type to exercise. For example, a real estate agent is expected to display the qualities and expertise of a competent real estate agent. If the agent fails to meet this standard, the agent will be liable to the principle for any loss caused by this breach of duty. A gratuitous agent is not expected to exercise any special degree of skill. The agent must exercise the same degree of care and diligence as they would use in attending to their own affairs.

If that person has some special knowledge, they are expected to use that knowledge. Case Example : In Keppel v. Wheeler (1927), agents were employed to sell a block of flats and received an offer from one party which was accepted “subject to contract”. The agents later received a higher offer but, instead of telling the owners, arranged a resale from the earlier party to the later after the original sale to the earlier party was effected. It was ruled that the agents had acted in breach of their duty to obtain the best price available, and that duty included passing on details of better offers until a binding contract was concluded. . To render proper accounts when required Section 166 states, An agents owes a duty to the principal to keep proper accounts and make them available for inspection. For example, travel agents and real estate agents are required by statute to keep accurate and proper accounts. This duty imposes an obligation on agents to keep their property and money separate from that of their principal. Case Example : In Harry Parker Ltd v Mason [1940] 2 KB 590, where the principal conspired ith agent to make shame bets on the course and bets with street bookmakers contrary to the existing law but agent had failed to apply, as agreed the money that the principal handed to him. The Court of Appeal held that the principal could not recover it from agent on the general principal that money paid under an illegal contract is irrecoverable. 4. To pay his principal alls sums received on his behalf Section 171 states, However, an agent may retain or deduct from such sums received, advances made / expenses incurred by him in carrying out his duty, his commission and other remuneration payable to him for acting as agent. . To communicate with the principal Section 167 states, In cases of difficulty, an agent must use all reasonable diligence in communicating with and in seeking to obtain instructions from the principal. However, in emergencies, the agent may use his own discretion in adopting a course of action to safeguard the interest of the principal. 6. Not to let his interest conflict with his duty Section 168 states, An agent must not allow the possibility of personal interest to conflict with the interests of his or her principal without disclosing that possibility to the principal.

Upon full disclosure, it is up to the principal to decide whether or not to proceed with the particular transaction. If there is a breach of his duty, the principal may set aside the contract so affected and claim any profit which might have been made by the agent. Case Example : In McPherson v Watt (1877), a solicitor used his brother as a nominee to purchase property which he was engaged to sell. It was held that, since the solicitor had allowed the conflict of interest to arise, the sale could be set aside. It was immaterial that a fair price was offered for the property.

The corollary to the above case is that the agent must not sell his or her own property to the principal without fully disclosing the fact. This lead into the next duty. 7. Not to make any secret profit out of the performance of his duty In discharging the agents, an agent can’t take any secret profit as corruption in the form of commission payments on a confidential basis, coffee money or “kickback”, tips and so on. If the agent take the secret profit, the profit must be submitted to the principal. In other words, the agent can’t use the property of the principal to do something against the contract that agent for selfish motives.

That means agents can create a profit, only the principal agents are prohibited from using the property for personal gain. Section 168 states, If the principal knows and agrees on a secret, the agent can save profit because the profit is not a secret anymore. It should be noted that the secret profit is the profit earned outside the knowledge of the principal. If the principal give consent, the agent can take the profit. In situations where the principal does not agree with a secret profit, the principal has the option as follows: I. The agency contract may be terminated, if the contract is not to profit member.

For example, A has ordered B to sell the estate belonging to A. B has reviewed the estate before sale, find some of the mines in the estate is not known to A. B tells A that he wanted to buy the estate for himself, but conceals the discovery of the mine. A, when knowing this, can either refuse to sell the estate or otherwise manage the sales out of choice. II. Principal may recover the secret profit from an agent For example, as happened in the case of Tan Kiong Hwa vs S. H Chong. Plaintiff has purchased a flat from a company in which the defendant was the managing director.

Plaintiff has ordered the defendant as agent to sell the flat at RM45000 but the defendant has successfully sold at RM54000. The difference in price of RM9000 has been credited to the company account. Soon the company is wound up. The court ruled the plaintiff entitled to recover from defendants for RM9000 has defaulted in carrying out his duties as an agent. III. Principal may refuse to pay a commission or other remuneration to the agent. Section 173: An agent was found guilty of misconduct in successful agency not entitled to receive any advice relating to the business he was one proceeds. In the case of Andrews vs Ramsay & Co. the principal was member instructions to agents to sell the property and agreed to pay a commission of ? 50. The agents have to find the buyers and was given a ? 100 deposit. Agents then have to pay around ? 50 to the principal and keep the rest of the ? 50 commission. In the transaction, the agents have to get ? 20 from buyers. The court ruled the principal right to demand a secret agent commissions earned from buyers. IV. Principal reserves the right to expel the agent for breach of duty. Principal reserves the right to expel the agent if the agent was using the property for profit secrets principal from agency business.

Principal has such rights as the agent had failed to discharge its duties entrusted. If the principal has suffered loss as a result of the actions of the agent, he is entitled to claim damages. Principal reserves the right to expel the agent because duties. V. Principal may sue the agent and the third party to recover damages corruption if it is a loss of the contract. What happens in the case Mahesan vs The Malaysian Government Officers Cooperative Housing Society, the plaintiff was its director defendants. Defendant had purchased a piece of land worth $ 944,000 from a landlord who has obtained the land at $ 456,000 only.

Plaintiff to know the fact but did not inform the defendant. As a result, the plaintiff has obtained $ 122,000 in bribes from land owners for the sale and purchase agreement. The court ruled that the defendant is entitled to claim the amount of loss suffered by the crime. 8. A duty not to divulge confidential information To maintain confidentially about any matters communicated to him as agent, and not to disclose them to prospective third parties or anyone else. The relationship between principal and agent is a fiduciary relationship, depending upon mutual trust. Case Example :

In Robb v Green [1895] 2 QB 315, an injunction was obtained against a former manager of a business to prevent him using for his own purpose a list of customers of the business which he had copied out while he was the manager. Faccenda Chicken Ltd v Fowler [1986] 1 AER 617, the duty of good faith is broken if an employee makes or copies a list of his employer’s customers for use after his employment ends or deliberately memorises such a list even though, except in special circumstances, there is no general restriction on an ex-employee canvassing or doing business with customers of his former employer. . A duty to act personally An agent is not permitted to delegate to another person the tasks the agent has been appointed to perform. A principal has chosen an agent because of that person’s expertise. The rule with respect to delegation can be relaxed by express agreement between the parties. If an agent delegates authority without permission, then the agent will not be entitled to be paid commission for any delegated acts. However, the rule has no application in relation to minor clerical or administrative tasks.

These tasks can be delegated. Case Example : De Bussche v Alt (1878) 8 Ch D 286 ,agent was appointed by the principal to sell a ship in China at an agreed price but the agent was unable to effect such a sale and obtained the principal’s permission for the appointment by agent of a sub-agent to sell the ship in Japan. The Court held there was no breach of duty by agent in appointing a sub-agent as delegation was expressly agreed.