The rights and duties of the principal and agent depend on the express or implied terms of the contract of agency.
Where there is no such contract of agency, the rights and duties of an agent to his principal and vice versa are laid down in Section 164 – 176 of the Contracts Act 1950

Agent’s duty in conducting principal’s business
S. 164. An agent is bound to conduct the business of his principal according to the directions given by the principal, or, in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts the business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and, if any profit accrues, he must account for it.

(a) A, an agent engaged in carrying on for B a business, in which it is the custom to invest from time to time, at interest, the moneys which may be in hand, omits to make the investment. A must make good to B the interest usually obtained by such investments.

(b) B, a broker, in whose business it is not the custom to sell on credit, sells goods of A on credit to C, whose credit at the time was very high. C, before payment, becomes insolvent. B must make good the loss to A.

Skills and diligence required from the agent

S.165. An agent is bound to conduct the business of the agency 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 is always bound to act with reasonable diligence, and to use such skill as he possesses; and to make compensation to his principal in respect of the direct consequences of his own neglect, want of skill, or misconduct, but not in respect of loss or damage which are indirectly or remotely caused by such neglect, want of skill, or misconduct.

(a) A, a merchant in Kuala Lumpur, has an agent, B, in London, to whom a sum of money is paid on A’s account, with orders to remit. B retains the money for a considerable time. A, in consequence of not receiving the money, becomes insolvent. B is liable for the money and interest from the day on which it ought to have been paid, according to the usual rate, and for any further direct loss— as, e. g., by variation of rate of exchange—but not further.

(b) A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit, without making the proper and usual enquiries as to the solvency of B. B, at the time of the sale, is insolvent. A must make compensation to his principal in respect of any loss thereby sustained.

(c) A, an insurance broker employed by B to effect an insurance on a ship, omits to see that the usual clauses are inserted in the policy. The ship is afterwards lost. In consequence of the omission of the clauses nothing can be recovered from the underwriters. A is bound to make good the loss to B.

(d) A, a merchant in England, directs B, his agent at Kelang, who accepts the agency, to send him 100 bales of cotton by a certain ship. B, having it in his power to send the cotton, omits to do so. The ship arrives safely in England. Soon after her arrival the price of cotton rises. B is bound to make good to A the profit which he might have made by the 100 bales of cotton at the time the ship arrived, but not any profit he might have made by the subsequent rise.

Agent’s account
S. 166. An agent is bound to render proper accounts to his principal on demand.

Agent’s duty to communicate with the principal
S. 167. It is the duty of an agent, in cases of difficulty, to use all reasonable diligence in communicating with his principal, and in seeking to obtain his instructions.

Right of principal when agent deals, on his own account, in business of agency without the principal
S. 168. If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows either that any material fact has been dishonestly concealed from him by the agent, or that the dealings of the agent have been disadvantageous to him.

(a) A directs B to sell A‘s estate. B buys the estate for himself in the name of C. A, on discovering that B has bought the estate for himself, may repudiate the sale, if he can show that B has dishonestly concealed any material fact, or that the sale has been disadvantageous to him.

(b) A directs B to sell A’s estate. B, on looking over the estate before selling it, finds a mine on the estate which is unknown to A. B informs A that he wishes to buy the estate for himself, but conceals the discovery of the mine. A allows B to buy, in ignorance of the existence of the mine. A, on discovering that B knew of the mine at the time he bought the estate, may either repudiate or adopt the sale at his option.

Principal’s right to benefit gained by agent dealing on his own account in business of agency
S. 169. If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.

A directs B, his agent, to buy a certain house for him. B tells A it cannot be bought, and buys the house for himself. A may, on discovering that B has bought the house, compel him to sell it to A at the price he gave for it.

Agent’s right to retainer out of sums received on principals account
S.170. An agent may 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 by him in conducting such business, and also such remuneration as may be payable to him for acting as agent

Agent’s duty to pay sums received for the principal
S. 171. Subject to the deductions specified in section 170, the agent is bound to pay to his principal all sums received on his account.

When agent’s remuneration becomes due.
S. 172. In the absence of any special contract, payment for the performance of any act is not due to the agent until the completion of the act; but an agent may detain moneys received by him on account of goods sold, although the whole of the goods consigned to him for sale may not have been sold, or although the sale may not be actually complete.

Agent not entitled to remuneration for business misconduct.
S. 173. An agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconducted.

(a) A employs B to recover RM100,000 from C, and to lay it out on good security. B recovers the RM100,000 and lays out RM90, 000 on good security, but lays out RM10,000 on security which he ought to have known to be bad, whereby A loses RM2,000. B is entitled to remuneration for recovering the RM100,000 and for investing the RM90,000. He is not entitled to any remuneration for investing the RM10,000, and he must make good the RM2,000 to A.

(b) A employs B to recover RM1,000 from C. Through B’s misconduct the money is not recovered. B is entitled to no remuneration for his services, and must make good the loss

Agents’ lien on principal’s property.
S. 174. In the absence of any contract to the contrary, an 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.

Agent to be indemnified against consequences of lawful acts.
S. 175. The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by the agent in exercise of the authority conferred upon him.

(a) B, at Kelang, under instructions from A, of Taiping, contracts with C to deliver certain goods to him. A does not send the goods to B, and C sues B for breach of contract. B informs A of the suit, and A authorizes him to defend the suit. B defends the suit, and is compelled to pay damages and costs, and incurs expenses. A is liable to B for such damages, costs and expenses.

(b) B, a broker at Taiping, by the orders of A, a merchant there, contracts with C for the purchase of 10 casks of oil for A. Afterwards A refuses to receive the oil, and C sues B. B informs A, who repudiates the contract altogether. B defends, but unsuccessfully, and has to pay damages and costs, and incurs expenses. A is liable to B for such damages, costs and expenses.

Agent to be indemnified against consequences of acts done in good faith.
S. 176. Where one person employs another to do an act, and the agent does the act in good faith, the employer is liable to indemnify the agent against the consequences of that act, though it cause an injury to the rights of third persons.

(a) A, a decree-holder and entitled to execution of B’s goods, requires the officer of the court to seize certain goods, representing them to be the goods of B. The officer seizes the goods, and is sued by C, the true owner of the goods. A is liable to indemnify the officer for the sum which he is compelled to pay to C, in consequence of obeying A’s directions.

(b) B, at the request of A, sells goods in the possession of A, but which A had no right to dispose of. B does not know this, and hands over the proceeds of the sale to A. Afterwards C, the true owner of the goods, sues B and recovers the value of the goods and costs. A is liable to indemnify B for what he has been compelled to pay to C and for B’s own expenses

  1. To obey principal’s instructions
  2. In absence of instructions, to act according to customs which prevails
  3. To exercise care and diligence in carrying out his work
  4. To render proper account for all monies and property
  5. To pay to his principal all sums received on his behalf
  6. To communicate with the principal
  1. Not to let his interest conflict with his duty
  2. Not to make secret profit out of the performance of his duty
      Principal may do the following in event of agent taking secret profits:
   Repudiate the contract
   Recover the amount of secret profit
   Refuse to pay the agent his commission or other remuneration
   Dismiss the agent for breach of contract
   Sue the agent and third party for the bribe
  1. Not to disclose confidential information or documents entrusted to him by his principal
  2. Not to delegate his authority


  1. To pay the agent the commission or other remuneration as agreed unless the agency relationship is gratuitous
  2. Not to willfully prevent or hinder the agent from earning his commission
  3. To indemnify the agent for acts done in the exercise of his authority
  4. To respect any lien the agent has over the property of the principal in the actual or constructive possession of the agent
DUTY OF PRINCIPAL AND AGENT DUTY OF PRINCIPAL AND AGENT Reviewed by Kamaruddin Mahmood on 3:55:00 PTG Rating: 5

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