Corporate and Business Law (Global) · Agency law

Rights and Duties of Principal and Agent in Agency Law

Updated 11 October 2026 · Fact-checked

An agent owes the principal duties of obedience, care and skill, personal performance, and fiduciary loyalty (no conflict of interest, no secret profit, account for money). The principal must pay agreed remuneration and indemnify the agent for expenses and liabilities properly incurred. Match each fact in the scenario to one duty or right.

Understand Rights and Duties of Principal and Agent

Agency is a relationship where an agent is authorised to act for a principal and can create or change the principal's legal relations with third parties. Because the agent holds that power, the law places duties on the agent. The principal also owes the agent certain things in return.

The agent's duties come in two groups. The first group is the contractual or common law duties. Obedience: follow the principal's lawful instructions. Care and skill: act with the care and skill expected of someone in that profession or trade. A paid professional agent is held to a higher standard than an unpaid amateur. Personal performance: the agent should do the work themselves and not hand it to someone else unless the principal agrees, the task is purely mechanical, or trade custom allows it. A common rule is *delegatus non potest delegare*.

The second group is the fiduciary duties. A fiduciary must put the principal's interests first. The agent must avoid a conflict between duty and personal interest. The agent must not make a secret profit or take a bribe. The agent must not use the principal's property or confidential information for personal gain. The agent must keep the principal's money separate and account for it, keeping records. The principal can disclose and agree to a conflict, but only if the agent gives full disclosure first and the principal gives informed consent.

If an agent breaches fiduciary duty, the principal has strong remedies. The principal can demand that the agent hand over the secret profit or bribe. The principal can also recover loss, refuse to pay commission, dismiss the agent without notice, and rescind the contract with the third party where that party was involved in the bribe. In many legal systems the principal may also sue for damages.

The principal's duties are mainly these. Remuneration: pay the agreed commission or fee once the agent has earned it under the contract terms. Where no amount is agreed, a reasonable sum may be payable if payment was clearly expected. Indemnity: reimburse expenses and liabilities the agent properly incurred while acting within authority. There is no indemnity for losses caused by the agent's own default, or for acts that are illegal or outside authority. The agent also has a right to be kept free from harm, and in some systems a lien over the principal's goods in the agent's possession for sums owed.

Key formulas to remember

Duty of obedience: Agent must follow lawful, reasonable instructions; Breach makes the agent liable for loss. Unlawful instructions need not be followed.
Duty of care and skill: Standard = reasonable skill of the profession held out; A paid professional is held to a higher standard than a gratuitous agent.
Personal performance: Agent must not delegate without consent; Exceptions: principal agrees, purely ministerial acts, trade custom, or necessity.
Fiduciary duty: no conflict: No conflict of duty and interest without full disclosure and informed consent; Applies to dealing with the principal's property or acting for both sides.
Fiduciary duty: no secret profit: Any profit or bribe from the agency belongs to the principal; Disclosure to and consent from the principal removes the breach.
Duty to account: Keep principal's money separate, keep records, hand over what is due; Includes confidential information not being misused.
Principal's duty: remuneration: Pay agreed commission when the contract conditions are met; Lost if the agent is in fiduciary breach.
Principal's duty: indemnity: Reimburse expenses and liabilities properly incurred within authority; Not for the agent's own default, illegal acts or unauthorised acts.
Remedies for fiduciary breach: Recover profit or bribe, refuse commission, dismiss, rescind, claim damages; Principal may choose among them, but cannot double recover for the same loss.

How to solve Rights and Duties of Principal and Agent questions

Use this method for any scenario on an agent's or principal's duties. Work from the facts to the duty, then to the remedy.

1Identify the principal, the agent and any third party. Check an agency relationship exists.
2Underline what the agent did or failed to do, and what the principal wanted.
3Sort each act into a duty: obedience, care and skill, personal performance, or a fiduciary duty (conflict, secret profit, bribe, accounting).
4Ask whether the agent disclosed fully and the principal consented. Consent can cure a conflict or profit.
5State the rule in one sentence, then apply it to the facts using the facts given.
6Identify the principal's remedies: recover profit or bribe, withhold commission, dismiss, rescind, damages.
7If the question is about the agent's claims, check remuneration terms and the indemnity limits.
8Finish with a clear conclusion that answers the question asked.

Quickest way: Duty-or-right spotting in 30 seconds

When to use it: Section A and Section B objective questions where you must pick the correct statement.

Find the key word: secret, bribe, commission, instructions, delegate, expenses.
Secret, bribe or conflict points to fiduciary duty. The profit goes to the principal.
Instructions ignored points to obedience. Careless work points to care and skill.
Someone else doing the job points to personal performance.
Expenses or losses paid by the agent point to indemnity, unless the agent was at fault or acted outside authority.
Check for disclosure and consent before choosing a breach answer.
Eliminate options that say the agent may keep the profit or that the principal must pay despite a breach.

Common mistakes in Rights and Duties of Principal and Agent

Saying the agent may keep a secret profit if the principal suffered no loss.
Students think a breach needs a loss.
Fix: Fiduciary duty is about loyalty. The principal can claim the profit even without loss.
Treating all agent duties as fiduciary.
The duties are listed together and blur.
Fix: Separate care, obedience and personal performance from the fiduciary duties of loyalty and accounting.
Ignoring consent and disclosure.
Students stop at the conflict.
Fix: Always ask whether the agent made full disclosure and the principal gave informed consent.
Saying the principal must always indemnify the agent.
Indemnity is learned as a right without limits.
Fix: Indemnity covers only expenses and liabilities properly incurred within authority, not the agent's own default or illegal acts.
Forgetting the loss of commission for a breach.
Students list only damages and dismissal.
Fix: Include recovery of the profit, refusal to pay commission, dismissal and rescission where relevant.
Holding a gratuitous agent to the professional standard.
The care standard is stated without its context.
Fix: State that a paid or professional agent is held to a higher standard than an unpaid, non-expert one.

Worked examples

Example 1

Anil is a property agent for Beta Ltd to buy a warehouse. He agrees to buy it from the seller at ₹80,00,000 and secretly takes ₹2,00,000 from the seller as a thank-you payment. Beta Ltd finds out. Explain Beta Ltd's rights.

Show the solution

Anil is an agent and Beta Ltd is the principal. Anil owes fiduciary duties.
The ₹2,00,000 is a secret profit or bribe taken from a third party because of the agency. Anil did not disclose it to Beta Ltd and Beta Ltd did not consent.
This breaches the duty not to make a secret profit and the duty to avoid a conflict of interest.
Beta Ltd can recover the ₹2,00,000 from Anil. It can also refuse to pay Anil's commission and dismiss him.
Because the seller took part in the bribe, Beta Ltd can also rescind the purchase and may claim damages.

Answer: Beta Ltd can recover the ₹2,00,000, withhold Anil's commission, dismiss him, and rescind the contract with the seller, with possible damages.

Example 2

Meera, a paid shipping agent, is told by her principal Kesh Ltd to ship goods only with Carrier A. She uses Carrier B, which is cheaper. The goods are damaged. Meera also spent ₹15,000 on warehouse storage that Kesh Ltd's contract authorised. Discuss the parties' claims.

Show the solution

Meera is a paid agent. She owes a duty of obedience.
Kesh Ltd gave a clear lawful instruction. Meera ignored it by using Carrier B. This breaches the duty of obedience.
Kesh Ltd can claim for its loss from the damage, and need not accept the act as authorised.
On the other side, the ₹15,000 for storage was properly incurred within Meera's authority, so Kesh Ltd must indemnify her for it.
The indemnity does not cover loss arising from her own default. Kesh Ltd may set off its damages claim against the amount it owes her.

Answer: Meera breached the duty of obedience and Kesh Ltd can claim damages for the loss. She can still recover the ₹15,000 storage expense through indemnity, but Kesh Ltd can set off its loss against that sum.

Exam tips

Use the exact phrase secret profit, conflict of interest or bribe when it fits. Examiners reward the correct label.
In multi-task questions, name the duty, state the rule, apply it, then list the principal's remedies.
Check for disclosure and consent first. It often decides which option is correct.
Remember the limits to indemnity: own default, illegal acts and acts outside authority.
In objective questions, reject any option that lets the agent keep a secret profit without consent.

Practice questions from Agency law

Rights and Duties of Principal and Agent in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Rights and Duties of Principal and Agent: frequently asked questions

What are the fiduciary duties of an agent?

The agent must avoid conflicts between duty and personal interest, must not make a secret profit or accept a bribe, must not misuse the principal's property or confidential information, and must account for money held. Full disclosure and informed consent from the principal can remove the breach.

What is a secret profit in agency law?

It is a benefit the agent gets from the agency without telling the principal. The principal can recover it and can also refuse commission, dismiss the agent and claim damages. The principal need not prove a loss.

When can an agent claim an indemnity from the principal?

The agent can claim for expenses and liabilities properly incurred while acting within authority. There is no indemnity for the agent's own default, illegal acts, or acts outside authority.

Can an agent delegate their work to someone else?

Generally no, because the duty of personal performance applies. Delegation is allowed if the principal agrees, the task is purely mechanical, trade custom permits it, or necessity requires it.