Rights and Duties of Agent and Principal

Sections 211 to 234 of the Indian Contract Act, 1872 settle the second great question of agency: once one person is acting for another, what does each owe the other, and when does the agent step out of the principal's shadow into personal liability? The architecture is simple in design, treacherous in application. Sections 211 to 218 set out the agent's duties; Sections 219 to 225 set out the principal's duties and the agent's lien; and Sections 226 to 234 govern the contractual position between principal, agent, and third party — including the situations where the agent is personally bound.

The default rule is the rule of representation: the agent's act binds the principal, and the agent drops out. Personal liability of the agent under Sections 230 to 234 is the exception, not the rule. The aspirant who reverses this default — treating personal liability as the norm and representation as the carve-out — gets every fact-pattern wrong.

Statutory anchor and scheme

The agency relation, once created under Sections 182 to 200 — the architecture set out in the chapter on the creation of agency and authority — generates a triangle of obligations. The agent owes the principal four core duties: obedience, skill and diligence, account, and avoidance of conflict. The principal owes the agent three core obligations: remuneration, indemnity, and compensation for loss caused by the principal's neglect. Cutting through the triangle is the question of who answers to the third party — the principal, the agent, or both — and that question is settled by Sections 226 to 234.

The chapter must be read against the background of the broader Indian Contract Act, particularly the rules on free consent and lawful object. An agency to commit an illegal act is void; the agent's duties under Section 211 do not extend to obeying an instruction to violate the law. By the same logic, the law on void agreements bites on the agency itself — an agreement to procure an illegal favour through an agent is unenforceable, and Sections 211 to 218 cannot supply duties that the substantive law denies.

Agent's duty to follow principal's directions — Section 211

The first duty is the duty of obedience. Section 211 obliges the agent to conduct the business of his principal according to the directions given by the principal, and in their absence, according to the custom prevailing in doing business of the same kind at the place where the agent conducts the business. If the agent acts otherwise, and any loss is sustained, he must make it good to the principal; if any profit accrues, he must account for it. The provision converts every deviation from instructions into a financial reckoning. There is no halfway house. The principal's instruction is the law of the agency.

Two illustrations make the section's bite plain. An agent instructed to insure goods who fails to do so is liable for the value lost when the goods are destroyed. An agent instructed to sell on credit who sells for cash, or instructed to sell at a fixed minimum who sells below it, is answerable for the difference. The rule is strict, but it has a humane edge: deviation in an emergency to protect the principal's interests, where the agent could not communicate, is permitted as agency by necessity under Section 189.

Skill and diligence — Section 212

Section 212 requires the agent to conduct the business with as much skill as is generally possessed by persons engaged in similar business, unless the principal has notice of his want of skill. The agent must always act with reasonable diligence; he is liable for any loss caused by his want of skill. The standard is objective for the class of business — a chartered accountant agent is held to the standard of a competent accountant, a stockbroker to that of a competent broker. Two exceptions soften the rule: where the principal knew of the agent's lack of skill at the time of appointment, the higher standard is excused; and where the agent acts gratuitously, the standard reduces to the skill the agent in fact possesses. The rules under Section 212 sit alongside the more general norms governing performance of contract — the agent's performance is the principal's performance, and the standards converge.

Duty to render accounts — Section 213

Section 213 imposes the duty to render proper accounts on demand. The duty is continuous; it does not arise only at termination. The agent must keep the principal's money and property separate from his own and produce a complete account when called upon. The duty extends to the production of vouchers, books and documents in the agent's possession that relate to the business of the agency. A refusal to account opens the agent to a suit for an account, and adverse inferences may be drawn from missing vouchers.

Duty to communicate — Section 214

Section 214 imposes the duty to communicate with the principal in cases of difficulty. The agent must, in case of difficulty, use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions. The provision dovetails with Section 189: the agency by necessity is invoked only when communication is genuinely impossible. Where communication is feasible, the agent must seek instructions and act on them.

Conflict of interest — Sections 215 and 216

The agent's fiduciary character is enforced through Sections 215 and 216. Section 215 deals with the agent who deals on his own account in the business of the agency without the principal's consent. The principal may repudiate the transaction if any material fact has been dishonestly concealed, or if the dealing has been disadvantageous to him. The remedy is rescission. Section 216 goes further: where the agent, without the principal's knowledge, deals in the business of the agency on his own account, the principal may claim from the agent any benefit which may have resulted to him from the transaction. The remedy is disgorgement.

The leading authority on the disgorgement principle is Armstrong v. Jackson [1917] 2 KB 822 — a stockbroker, instructed to buy shares on behalf of his client, sold his own shares to the client without disclosure. The contract was rescinded notwithstanding that years had passed. Indian courts have applied the principle in numerous cases involving brokers, factors, and trustees. The agent who profits behind the principal's back must surrender the profit; the rule operates without proof of loss to the principal. The remedy of rescission under Section 215 is one expression of the wider law on remedies for breach — but it is special in that it does not require breach in the orthodox sense; mere undisclosed self-dealing suffices.

Secret profits and bribes — Section 217

Section 217 entitles the agent to retain, out of any sums received on account of the principal in the business of the agency, all moneys due to himself in respect of advances made or expenses properly incurred, and his agreed remuneration. The corollary, working with Section 216, is that the agent may not retain any secret profit. Where a third party gives the agent a commission or gift to secure a contract with the principal, the principal may recover the bribe from the agent and rescind the contract with the third party. The rule is strict and prophylactic — it operates without proof that the bribe in fact influenced the agent.

Remittance of sums received — Section 218

Section 218 requires the agent to pay to the principal all sums received on his account, subject to the deductions allowed by Section 217. The duty is owed not as one of debt but as one of fiduciary obligation. Time runs against the principal only from the date of demand or accounting; mere lapse of time without acknowledgment does not, of itself, defeat the principal's claim. The provision is the financial counterpart of the duty to render accounts.

Principal's duty to remunerate — Section 219

Section 219 fixes when the agent's remuneration becomes payable. In the absence of a special contract, payment of remuneration is not due to the agent until the completion of the act for which he was appointed. The agent is not entitled to remuneration for work which he has misconducted under Section 220 — and Section 220 makes the position pointed: where the agent is guilty of misconduct in the business of the agency, he is not entitled to any remuneration in respect of that part of the business which he has misconducted. The rule operates section by section, transaction by transaction; misconduct in one branch does not necessarily forfeit remuneration in another. Where the agent's claim is one for a fixed sum agreed in advance, the principles in the chapter on damages and liquidated damages govern the quantification; where it is one for a reasonable sum, the court awards a quantum meruit.

Agent's lien — Section 221

Section 221 confers on the agent a particular lien — in the absence of a contract to the contrary, the agent is entitled to retain goods, papers and other property, whether movable or immovable, of the principal received by him until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him. The lien is particular, not general — it attaches only to property received in the agency in question. The lien may be lost by waiver, by parting with possession, or by tender of the amount due. The agent's lien sits alongside related possessory rights — the bailee's lien under bailment and the pawnee's right under pledge — and shares with them the underlying logic that one who labours on or holds another's property may insist on payment before letting go.

Indemnity of the agent — Sections 222, 223 and 224

The principal's most important obligation, after remuneration, is the duty to indemnify the agent. Section 222 entitles the agent to be indemnified by the principal against the consequences of all lawful acts done by him in the exercise of his authority. Section 223 extends the indemnity to consequences of acts done in good faith — even if such acts cause injury to the rights of third persons. Section 224 carves out the exception: there is no indemnity for acts which the agent knew, or had reason to believe, to be criminal. The agent who knowingly executes a crime cannot turn to the principal for compensation. These provisions parallel the framework of indemnity under Sections 124 and 125, but operate by reference to the agency relation and not by an independent contract of indemnity.

Compensation for principal's neglect — Section 225

Section 225 closes the circle on the principal's duties: the principal must make compensation to the agent in respect of injury caused to him by the principal's neglect or want of skill. The classic illustration is the agent who suffers personal injury because the principal failed to provide reasonably safe premises or equipment. The duty is reciprocal to the agent's duty under Section 212 — the principal too is held to a standard of competence in the conduct of his side of the relation.

Effect of the agent's act on the principal — Sections 226 to 228

Section 226 enacts the general rule of representation: contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person. Section 227 deals with excess of authority — where the agent does more than he is empowered to do, and the part within authority can be separated from the part beyond authority, the principal is bound only by the former. Section 228 deals with non-separable excess — where the part beyond authority cannot be separated, the principal is not bound at all.

Notice and admissions — Sections 229

Section 229 enacts a familiar evidentiary rule: any notice given to or information obtained by the agent, in the course of the business transacted by him for the principal, has the same legal consequence as if it had been given to or obtained by the principal. The rule operates against the principal as well as for him; he cannot disown the agent's knowledge while accepting the agent's authority.

Personal liability of the agent — Sections 230 to 234

Section 230 enacts the default and the three exceptions. The default — in the absence of any contract to that effect, an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is he personally bound by them. Such a contract is presumed to exist in the following cases: (1) where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad; (2) where the agent does not disclose the name of his principal; and (3) where the principal, though disclosed, cannot be sued. The three exceptions cover, respectively, the foreign-principal rule, the undisclosed-principal rule, and the non-suable-principal rule.

Section 231 governs the position of the third party who deals with an agent without knowing he is an agent. Such a third party may, on discovering the principal, hold either the principal or the agent liable. The principal, if he steps in, is entitled to require that the third party take him subject to all the equities he could have urged against the agent — set-offs, counterclaims, and the like. Section 232 reciprocally protects the third party who, as against the principal, has a right of set-off against the agent. The provision codifies the rule in Browning v. Provincial Insurance Company of Canada (1873) LR 5 PC 263 and is the standard ground for examiner questions on the undisclosed-principal doctrine.

Section 233 allows the third party, in the case of liability of the principal, to sue either the principal or the agent or both — though he can recover only once. Section 234 is a procedural carve-out: where the third party has, with full knowledge, induced the principal or the agent to act on the belief that he will hold either alone responsible, he is precluded from afterwards holding the other liable. The doctrine is one of election by conduct.

The pretended agent — Section 235

Though strictly outside Sections 230 to 234, Section 235 is the natural companion: a person who untruly represents himself to be the authorised agent of another, and thereby induces a third party to deal with him as such an agent, is liable, if his alleged employer does not ratify his acts, to make compensation to the other in respect of any loss or damage which he has incurred by so dealing. The provision is the breach-of-warranty-of-authority cause of action — separate from a suit for fraud and not requiring proof of dishonest intent. Honest mistake about authority is no defence.

How the rights and duties hang together

The four agent-duties — obedience, skill, account, no conflict — are matched by three principal-duties: pay, indemnify, do not negligently injure. Each duty has a remedy attached. Breach of obedience entitles the principal to damages under Section 211. Breach of skill triggers Section 212. Breach of account opens a suit for accounts. Breach of fiduciary loyalty under Sections 215 to 217 entitles the principal to rescind, recover the secret profit, or both. On the other side, breach by the principal of remuneration triggers a suit on a quantum meruit; breach of indemnity entitles the agent to recover the cost of lawful acts; breach of Section 225 entitles the agent to compensation for personal injury.

Once these obligations come to an end — through revocation, renunciation, completion, expiry, or operation of law — the agency moves to its terminal phase, governed by Sections 201 to 210 and addressed in the chapter on how an agency ends. The doctrine of agency coupled with interest under Section 202, in particular, has substantial overlap with Section 221 (the agent's lien) — the agent who has created an interest in the subject matter of the agency may resist revocation in the same way as he may insist on retaining the goods. The aspirant who treats Sections 211 to 234 as a self-contained module misses these crossings.

Exam angle

Six propositions are reliably tested. One: Section 215 entitles the principal to repudiate; Section 216 entitles him to claim the agent's profit. Two: Section 220 makes misconduct destructive of remuneration only in the part of the business misconducted, not the whole agency. Three: the agent's lien under Section 221 is particular, not general. Four: Section 224 denies indemnity only for acts the agent knew or had reason to believe were criminal — civil wrongs in good faith remain indemnifiable under Section 223. Five: Section 230's default is non-liability of the agent; the three exceptions (foreign principal, undisclosed principal, non-suable principal) reverse that default. Six: Section 233 allows the third party to sue both the principal and the agent — but to recover only once. Each proposition pairs with a section number — cite the section, then state the rule.

A useful synthesising exercise is to take a single fact-pattern — say, an agent in Bombay buying cotton on credit from a dealer for a merchant resident in Manchester, and the merchant later refusing to take delivery — and trace it through every section in this chapter. Section 211 tests the agent's compliance with instructions on price and quantity. Section 212 tests the standard of his market judgment. Section 213 tests his accounting. Section 219 fixes when his commission falls due. Sections 222 to 224 tell us whether he can recover from the merchant the price he had to pay the dealer. Section 230 tells us whether the dealer can sue the merchant or only the agent. The whole chapter, properly understood, is a single connected commercial machine.

Two doctrinal pitfalls

First — the standard of fiduciary loyalty. It is tempting to read Sections 215 and 216 narrowly, as concerned only with the agent who buys from or sells to the principal in the same transaction. The reach is wider. Any benefit, advantage or opportunity that comes to the agent by reason of the agency, and which the principal might have wanted for himself, falls within the disgorgement principle. The Indian courts have applied Section 216 to a broker who took a referral fee from a third party, to a managing agent who placed his company's contracts with a firm in which he had an undisclosed interest, and to a confidential clerk who exploited information acquired in the course of employment. The agent who imagines that his obligation is owed only at the moment of contracting misreads the section.

Second — the rule on personal liability under Section 230. The exceptions are exhaustive in the section but commercial practice generates a fourth situation: where the agent signs in his own name without indicating any agency on the face of the contract. Indian courts have held that, in such a case, the agent is personally bound and may be sued; the addition of the words as agent after the signature is evidentiary, not magical, but its absence carries weight. The aspirant who can recite the three statutory exceptions but misses this practical fourth has only a part of the law. The orienting principle is the same throughout: representation is the default, personal liability the exception, and the contract document the first port of call when working out which side of the line a particular agent stands on.

Frequently asked questions

What is the difference between Section 215 and Section 216 of the Indian Contract Act?

Both sections target the agent who deals on his own account in the business of the agency without the principal's knowledge or consent — but the remedies differ. Section 215 entitles the principal to repudiate the transaction if any material fact was dishonestly concealed or if the dealing has been disadvantageous to him; the remedy is rescission. Section 216 entitles the principal to claim from the agent any benefit that may have resulted from the dealing; the remedy is disgorgement. The two are cumulative, not alternative — the principal may both rescind the transaction and recover any benefit the agent has derived. Section 216 operates without proof of loss; the agent's duty of loyalty is enforced by the simple recovery of any secret profit.

When can an agent be sued personally on a contract entered into for the principal?

Section 230 of the Indian Contract Act sets the default — in the absence of any contract to that effect, the agent cannot personally enforce contracts made for the principal, nor is he personally bound by them. The section then enacts three exceptions in which a contract to bind the agent personally is presumed: (1) where the agent contracts for the sale or purchase of goods for a merchant resident abroad; (2) where the agent does not disclose the name of his principal; and (3) where the principal, though disclosed, cannot be sued. To these may be added Section 235 — the agent who falsely represents that he has authority is liable to the third party for breach of warranty of authority.

What is the agent's lien under Section 221, and is it particular or general?

Section 221 confers on the agent a particular lien — in the absence of a contract to the contrary, the agent is entitled to retain the goods, papers and other property of the principal until the sums due to himself for commission, disbursements and services in respect of the same have been paid or accounted for. The lien is particular: it attaches only to property received by the agent in the very transaction or matter for which the sums are due. It is not a general lien permitting retention of one client's property against debts arising from another matter. The lien may be defeated by waiver, by parting with possession, or by tender of the amount due.

Is the principal liable to indemnify an agent for acts that injure third persons?

Yes — provided the agent acted in good faith and without knowledge that the act was criminal. Section 222 indemnifies the agent against the consequences of all lawful acts done in the exercise of authority. Section 223 extends the indemnity to acts done in good faith even where they cause injury to the rights of third persons — for example, an agent who sells goods that, unknown to him, do not belong to the principal may recover from the principal the damages he is forced to pay the true owner. Section 224 carves out the exception: there is no indemnity for acts which the agent knew, or had reason to believe, were criminal.

What is a secret profit and what are the principal's remedies if the agent makes one?

A secret profit is any benefit, commission, or gift that the agent obtains in connection with the agency business without the principal's knowledge and consent. The remedies are cumulative. The principal may, under Section 216, recover the profit from the agent by way of disgorgement. He may, under Section 215, repudiate the underlying transaction if material facts were concealed. He may, under Section 220, deny remuneration for the part of the business misconducted. Where a third party paid the agent a bribe, the principal may rescind the contract with the third party and recover the bribe from the agent — the rule operates strictly, without proof that the bribe in fact influenced the agent's judgment. The principle was settled in Armstrong v. Jackson [1917] 2 KB 822.