Duties of the Agent under Sections 211 to 216 of the Indian Contract Act, 1872: Following Directions and the Custom of Trade, Skill and Diligence, Accounts and Communication, and the Fiduciary Duties Against Conflict and Secret Profit

An agent's duties fall into two groups and they are different in kind. The first are duties of performance: to follow instructions, to work with proper skill, to keep accounts and to communicate. Breach of these sounds in compensation for loss actually caused. The second are fiduciary duties: not to place himself in a position of conflict and not to make a secret profit. Breach of these is treated far more severely, because the wrong is the disloyalty itself rather than any loss it produced. An agent who makes a secret profit must account for it whether or not the principal lost anything, may have the transaction set aside, and may forfeit his remuneration.

1. Duty to Follow Directions: Section 211

Section 211, Indian Contract Act, 1872

Agent's duty in conducting principal's business. 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 such 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.

Illustration (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 such 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.

Directions govern. The agent has no discretion to improve on his instructions, and Illustration (b) shows that acting honestly and reasonably is no defence if the agent departed from what he was told or from the custom.
Custom fills the gap where no directions were given, and the custom must be that prevailing in business of the same kind at the place where the agent conducts it.
A custom must be reasonable and lawful to bind the principal, and one that is unreasonable or inconsistent with the agency does not excuse a departure.
A custom the principal did not know of does not bind him where it alters the nature of the agency rather than merely regulating its conduct.
The liability is two-sided. The agent makes good any loss and accounts for any profit, so he cannot keep the benefit of a departure that happened to turn out well.
Section 189 is the exception, permitting the agent to depart from instructions in a genuine emergency to protect the principal from loss.

Two kinds of duty, with very different consequences for breach

2. Skill and Diligence: Section 212

Section 212, Indian Contract Act, 1872

Skill and diligence required from agent. 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.

The standard is objective, being the skill generally possessed by persons in similar business, and it therefore rises with the professional character of the agency.
The exception is notice. A principal who knew of the agent's want of skill and employed him anyway cannot complain of it, though the agent must still act with reasonable diligence and use such skill as he has.
Only direct consequences are compensable. The section incorporates the remoteness principle of Section 73 in terms, and indirect or remote loss is excluded.
A gratuitous agent is not excused. The section makes no distinction based on remuneration, though what is reasonable may be judged in the light of the circumstances.

3. Accounts and Communication: Sections 213 and 214

Sections 213 and 214, Indian Contract Act, 1872

213. Agent's accounts. An agent is bound to render proper accounts to his principal on demand.

214. Agent's duty to communicate with principal. 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.

The duty to account is fundamental to the relationship and extends beyond producing figures: the agent must keep the principal's money and property separate from his own, must maintain proper records, and must produce vouchers and documents. A failure to keep proper accounts is construed against the agent, and where accounts are irretrievably confused the court will resolve doubts in the principal's favour. Section 214 is the counterpart of Section 189: where there is a difficulty the agent must ask rather than act, and it is only where instructions cannot be obtained that the emergency authority arises.

4. The Fiduciary Duties: Sections 215 and 216

Sections 215 and 216, Indian Contract Act, 1872

215. Right of principal when agent deals, on his own account, in business of agency without principal's consent. 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.

216. Principal's right to benefit gained by agent dealing on his own account in business of agency. 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.

Illustration to Section 216. 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.

4.1 The two remedies

	Section 215	Section 216
What the principal gets	The right to repudiate the transaction	The right to claim any benefit that resulted to the agent
When it is available	Where a material fact was dishonestly concealed, or the dealings were disadvantageous to the principal	Wherever the agent dealt on his own account without the principal's knowledge
Does loss have to be shown?	Disadvantage or dishonest concealment must be shown	No. The benefit is recoverable whether or not the principal lost anything
Defence of consent	Consent, given after disclosure of all material circumstances, is a complete answer	Knowledge of the principal takes the case outside the section
Nature of the remedy	Rescission of the transaction	An account of profits

5. The Principle Behind the Fiduciary Duties

📖 Keech v. Sandford, (1726) Sel Cas Ch 61

Facts: A trustee held the lease of a market on trust for an infant. When the lease was about to expire the trustee applied to the lessor for a renewal on the infant's behalf. The lessor refused to renew in favour of the infant, since an infant could not be made liable on the covenants. The trustee then took a renewal of the lease for himself.

Held: He held the new lease on trust for the infant and had to account for the profits. Lord King LC acknowledged that the trustee was the only person in the world who might not have the lease, but held that the rule must be strictly pursued and not in the least relaxed, since any relaxation would leave trustees with an incentive to procure a refusal in favour of the beneficiary. It was immaterial that the beneficiary could not himself have obtained the renewal.

Ratio: A fiduciary may not take for himself a benefit arising out of his position, even where the beneficiary could not have obtained it and even where the fiduciary acted honestly. The rule is applied strictly to remove the temptation rather than to punish proven wrongdoing.

📖 Boston Deep Sea Fishing and Ice Co. v. Ansell, (1888) 39 Ch D 339 (CA)

Facts: The managing director of a company, while placing orders for the construction of ships on its behalf, received a secret commission from the shipbuilders. He had also taken bonuses from companies in which the company held shares. He was dismissed, and sued for wrongful dismissal.

Held: The dismissal was justified and he had to account for the secret profits. An agent who takes a commission from the other party to a transaction he is conducting for his principal commits a grave breach of duty, and the principal may dismiss him, recover the secret profit, and refuse remuneration. The Court held it immaterial that the company had suffered no loss and that the prices obtained may have been good ones.

Ratio: An agent must account for any secret profit obtained through his position. The principal may in addition dismiss him and recover the profit, and the absence of loss is no defence.

⚠ Secret profit is a breach even where the principal gains

This is the point that distinguishes the fiduciary duties from the duties of performance and it is consistently misunderstood. A claim under Section 216 does not require the principal to prove loss, a bad bargain, or dishonesty in the ordinary sense. It requires only that the agent dealt on his own account without the principal's knowledge and that a benefit resulted to him. In Keech the beneficiary could not himself have taken the lease; in Boston Deep Sea Fishing the prices may have been perfectly good. Both agents nonetheless had to account. The rule exists to remove the temptation to prefer one's own interest, and it is applied without inquiry into whether the temptation in fact operated.

5.1 The principal's cumulative remedies

Repudiate the transaction under Section 215, where a material fact was dishonestly concealed or the dealings were disadvantageous.
Recover the benefit the agent obtained, under Section 216, and where property was acquired, compel its transfer at the price the agent paid, as the Illustration provides.
Refuse remuneration under Section 220, in respect of the business misconducted, and where the agent took a secret commission from the other side, on the whole transaction, per Andrews v. Ramsay & Co., [1903] 2 KB 635.
Dismiss the agent without notice, the breach going to the root of the relationship.
Recover compensation for loss under Section 212, where loss was in fact caused.
Proceed against the third party who paid the bribe, and set aside the transaction as against him where he was party to the breach.

6. The Duties Summarised

Duty	Content	Consequence of breach
Follow directions, Section 211	Conduct the business as directed, or by the custom of the place in the absence of directions	Make good any loss and account for any profit
Skill and diligence, Section 212	The skill generally possessed in similar business, and reasonable diligence	Compensation for the direct consequences, not the remote ones
Render accounts, Section 213	Proper accounts on demand, with money kept separate	Accounts construed against the agent; liability to account
Communicate, Section 214	In cases of difficulty, use all reasonable diligence to obtain instructions	Liability for loss caused by acting without instructions
Not to deal on his own account, Section 215	No dealing without consent after disclosure of all material circumstances	The transaction may be repudiated
Not to make a secret profit, Section 216	Account for any benefit resulting from dealing on his own account	The benefit is recoverable regardless of loss; dismissal and loss of remuneration may follow
Pay over sums received, Section 218	Pay the principal all sums received on his account	Liability to account, subject to deduction under Section 217
Not to delegate, Section 190	Perform personally, save in the permitted cases	Section 193: the agent is responsible for the sub-agent's acts

7. The Position Stated Shortly

Section 211 requires the agent to follow directions, or the custom of the place in their absence, and to make good losses and account for profits from any departure.
Acting honestly and reasonably is no defence to a departure from instructions, per Illustration (b).
Section 212 sets an objective standard of skill, subject to the principal's notice of the agent's want of it, and confines liability to direct consequences.
Section 213 requires proper accounts on demand, and the agent must keep the principal's money separate.
Section 214 requires the agent to seek instructions in cases of difficulty, and is the counterpart of the emergency authority in Section 189.
Section 215 permits the principal to repudiate a transaction in which the agent dealt on his own account without consent, where a material fact was dishonestly concealed or the dealings were disadvantageous.
Section 216 entitles the principal to any benefit the agent obtained, and the Illustration allows him to compel a transfer at cost.
Keech v. Sandford: a fiduciary may not take a benefit arising from his position even where the beneficiary could not have obtained it.
Boston Deep Sea Fishing v. Ansell: an agent taking a secret commission must account, may be dismissed, and the absence of loss is no defence.
The principal's remedies are cumulative: repudiation, an account of profits, loss of remuneration, dismissal and compensation.

8. Related Topics and Provisions

Topic or provision	Connection
Rights of the Agent under Sections 217 to 225	Remuneration, lien and indemnity, and their forfeiture
Agency under Sections 182 to 238	Creation, authority, delegation and termination
Delegation and Sub-Agency under Sections 190 to 195	The duty to perform personally
Doctrine of Unjust Enrichment	The account of profits as a restitutionary remedy
Sections 211 to 216, Indian Contract Act	The agent's duties
Section 189, Indian Contract Act	Emergency authority, the exception to Section 211
Section 220, Indian Contract Act	Loss of remuneration for misconduct
Section 73, Indian Contract Act	Remoteness, incorporated into Section 212