Five ways that may arise an agency
Contract Act 1950 Section 168, agents are not allowed to make any secret profit out of the performance of his duty. Secret profit is not restricted to money but it may include anything of value, for example, an interest-free loan, a club membership and etc. An agent who has made secret profit is liable to account to the principal for such profit.
For the statement above, the agent has used the property of principal to make profit or benefit for himself, the agent deals on his own account in the business of agency, without first obtaining the consent of his principal and acquantining him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction or contract. The agent should not make a secret profit in his own account.
The statement stated that the agent gains the unjust benefit by use of principal’ property, the principle may:Repudiate the contract if it is disadvantageous to himRecover the amount of secret profit from the agentRefuse to pay the commission or remuneration to the agentDismiss the agent for breach of dutySue the agent and third party giving the bribe, for damages for any loss hemay have sustained through entering into the contract.But, if the principal knows about the secret profit and consent to it, the agent is entitled to keep the profit and is not liable for the transaction.In the Boardman v. Phipps case, Mr. Boardman was a solicitor of a family trust. The trust assets include 27% holding in a company, Boardman was concerned about the accounts of a company and required to protect the shareholding. He and his beneficiary, Tom Phipps, went to a shareholders’ general meeting of the company.
They suggested to a trustee which is Mr. Fox that it would be desirable to acquire a majority shareholding, but Mr. Fox said it was completely out of the question for the trustee to do. After that, Boardman and Phipps decided to purchase the shares but they did not fully informed consent of all the beneficiaries. By capitalizing some of the assets, the company made a distribution of capital without reducing the values of the shares.
The trust benefited by distribution for £47,000, while Boardman and Phipps made £75,000. Then, John Phipps, another beneficiary, sue for their profits. The court held that Boardman was liable to pay for his breach of the duty of loyalty, but he could be paid for his services.In conclusion, agents were disallowed to make any secret profit in perform his duty.
But if the secret profit was known by the principal, agent is entitled to keep the profit.
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