Page 129 - DMGT102_MERCANTILE_LAWS_I

Unit 9: Law of Agency

Notes
Example: 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 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, provided C
has acted in good faith and he had no knowledge that the goods did not belong to A.
However, it must be remembered that agent cannot claim indemnification for criminal act,

even though the principal had agreed to do so (s.224).

Examples:

(i) A employs B to beat C and agrees to indemnify him against all consequences of that act.
B thereupon beats C and has to pay damages to C for so doing. A is not liable to indemnify
B for those damages.
(ii) B, the proprietor of a newspaper, publishes, at A’s request, a libel (defamation in
writing) upon C in the paper and A agrees to indemnify B against the consequences of the
publication and all costs and damages of any action in respect thereof. B is sued by C and
has to pay damages and also incurs expenses. A is not liable to B on the indemnity.
6. Right to compensation for injury caused by principal’s neglect (s.225): The principal must
make compensation to his agent in respect of injury caused to such agent by the principal’s
neglect or want of skill.

Example: A employs B as a bricklayer in building a house and puts up the scaffolding
himself. The scaffolding is unskillfully put up and B is in consequences hurt. A must make
compensation to B.

Task Analyze the role and rights of agents in real estate sector.

9.5 Principal’s Duties to the Agent and his Liability to Third Parties

9.5.1 Duties of a Principal

The rights of agent are in fact the duties of the principal. Thus a principal is (i) bound to indemnify
the agent against the consequences of all lawful acts done by such agent in exercise of the authority
conferred upon him (ii) liable to indemnify agent against the consequences of an act done in good
faith, though it causes an injury to the rights of third persons (iii) bound to compensate his agent
in respect of injury caused to such agent by the principal’s neglect or want of skill (s.225).
The principal is, however, not liable for acts which are criminal in nature though done by the
agent at the instance of the principal (s.224).

9.5.2 Liability of Principal to Third Parties

Liabilities of a principal to third parties are given below:
1. Agent being a mere connecting link binds the principal for all his acts done within the
scope of his authority.

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