The Indian Contract Act, 1872
212. 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.
(a) A, a merchant in Calcutta, 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 such 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 Bombay, 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 Engalnd. 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 of ship arrived, but not any profit he might have made by the subsequent rise.
The defendant/respondent had grossly misconducted himself firstly when he communicated to the appellant that the goods had been purchased at the rate of Rs. 36 per pound when they had not been and further stating that these goods would be despatched as soon as the transporters strike was over. The defendant later on informed the appellant that the goods could not be purchased as their delivery was dependant on yet another party. The defendant had misinformed his principal and his misconduct squarely comes within section 212 of Contract Act; and the defendant must bear the brunt to pay the damages; Jayabharathi Corporation v. SV P.N. SN Rajasekara Nadar, AIR 1992 SC 596.