Duties That a Principal Owes to an Agent

Pages: 6 (2319 words) Published: August 24, 2013
Question 3 (A) April 2005
Identify and elaborate upon the duties that a principal owes to an agent.

An agency is the creation of a contract entered into by mutual consent between a principal and an agent.  By agency, a principal grants authority to an agent to act on behalf of and under the control of the principal. A principal owes certain contractual duties to his/her agent by an agent will serve the principal loyally and with obedient. The principal duties can be found in section 172 of Contracts Act 1950. The acts said that to pay the agent’s commission or other remuneration as agreed between the agent and the principal. Principal main duty is to pay his agent the commission or other remuneration as they have agreed unless the nature of their relationship is gratuitous one. If there are no amounts being agreed, the agent is entitled to reasonable amount based on quantum meruit or based on how much the works have been done by the agent. For instance, cases of Tan Chiok Sing v Llian Fatt’s Sawmill Co. the case stated principal still has to pay the agent even of the contract between the principal and the third party had failed. This is because the agent had fulfilled his duties to the principal. However, there are exceptions on this section. Section 172 of Contracts Act 1950 states agent will be liable and entitled to the commission when he / she had fully fulfill the duties that been given by the principal. Not only that, section 173 of Contracts Act 1950 states also the agent not only entitled to the commission if he is found guilty in misconduct, for example, doing a fraud or have or received a secret profits from the last duties, for example, in the case of Andrew v Ramsay.

Next, the principal must not prevent or hinder the agent from earning his commission. Principal cannot do any act which would prevent his / her agent from earning his / her commission. Example of this statement, if principal appointed one agent to do a job or duties, the principal must not find or appoint other or second agent while in the negotiation. This is because the first agent is responsible to bring the parties or third party to come to a negotiation with the principal. However, if during the absence of any express agreement, principal himself may sell property or do the negotiation even after he had appointed an agent to sell the property or doing negotiation. If this happen, the principal is not under a duty to pay any commission to the agent. For example, in one decided case, Luxor (Eastbourne) Ltd v Cooper in 1941, the case is about the payment to estate agent generally.

Lastly, to indemnify and reimburse the agent for acts done in the exercise of his duties. An agent is entitled to be indemnified by the principal against any loses and liabilities incurred by agent while doing his duties. The right of indemnity arises when: 1) Where the agent has incurred losses or liabilities in performance of the contract of agency. ( Section 175 of Contracts Act 1950 ) 2) Where the agent causes injury to third party while exercising his / her duty in good faith. ( Section 176 of Contracts Act 1950 ) 3) Where the agent suffers injury during the doing his duties or neglect of principal or lack of skill. ( Section 178 of Contracts Act 1950 )

The first situation, section 175 of Contract Act 1950 governs that agent suffer loss while performing his duties. In the case of Kyall and Evatt v Lim Kim Keat in 1928, the case is about the agent was employed to sell principal’s shares. However, the principal fail to inform his agent about the share that maybe not available. Due to it, agent has to buy other shares to deliver by that, he has to pay more to complete his duties. This makes the agent suffers loss. The court said since the agent did not have any information regarding the real situation and the principal who knew about the situation and fail to inform the agent, the principal...
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