Duties of Principal towards Agent
Introduction
In a contract of agency, the principal must support and protect the agent while the agent performs duties on his behalf. The Indian Contract Act, 1872 provides clear rules on the obligations of the principal. These duties ensure fairness, trust, and smooth business functioning.
Meaning / Definition
A principal is a person who appoints another (agent) to act on his behalf. The principal is legally bound to fulfil certain duties towards the agent, especially when the agent acts within his authority.
Modes or Types
Duty to indemnify for lawful acts
The principal must compensate (protect from loss) the agent for all lawful acts done within the scope of authority.
Duty to indemnify for acts done in good faith
Even if the act affects third parties, the principal must indemnify the agent if the agent acted honestly and in good faith.
No indemnity for criminal acts
The principal is not liable for acts that are illegal (criminal).
The agent also cannot claim protection for such acts.
Duty to compensate for injury
If the agent suffers loss or injury due to the principal’s lack of skill or negligence, the principal must compensate the agent.
Duty to pay remuneration
The principal must pay the agreed payment (remuneration) to the agent for services rendered, within reasonable time.
Duty to reimburse expenses
The principal must repay all expenses incurred by the agent while performing duties on behalf of the principal.
Duty to cooperate and assist
The principal must support the agent and provide necessary help for performing the work properly.
Liability for agent’s acts (Secs. 226–228)
The principal is liable for all lawful acts done by the agent within authority.
Such acts are treated as if done by the principal himself.
Liability for fraud or misrepresentation (Sec. 238)
If the agent commits fraud (cheating) or misrepresentation (false statement) during business, the principal is liable as if he committed it himself.
When agent exceeds authority
- If authorised and unauthorised acts can be separated → Principal is liable only for authorised part
- If not separable → Principal may reject (repudiate) the entire transaction
Practical Example
A principal asks his agent to purchase goods and gives money for the same. The agent spends money on transport and storage.
The principal must reimburse these expenses and also pay the agreed commission.
Summary
- Principal must indemnify agent for lawful and good faith acts
- No protection for illegal (criminal) acts
- Must compensate agent for injury caused by his own negligence
- Must pay remuneration and reimburse expenses
- Must cooperate and support the agent
- Principal is liable for agent’s acts within authority
- Principal is also liable for agent’s fraud or misrepresentation
- Liability depends on whether excess acts are separable or not