The Legal Consequences of Failing to Observe the Principal’s Interests by the Agent in Iranian Law, with Emphasis on Supreme Court’s Unified Ruling No. 847

Matters related to representation, particularly in contractual representation such as agency agreements, hold significant importance due to the extensive scope of contractual discussions. This significance is further highlighted by the large number of legal disputes between lawyers and their principals, which underscores the issue. The obligation to act in the principal’s interests is generally addressed within the law; however, there is no precise standard or clear guideline to define the extent of this duty. This lack of clarity often leads to disagreements between agents and their principals regarding whether the agent has complied with this obligation, with the potential for harm to either party. Moreover, no specific legal remedy has been established for such violations. For example, in a case concerning the annulment of a document and declaring a transaction as being contrary to the best interests of the client, the Ninth Chamber of the Supreme Court, in Ruling No. 108/9, ruled in a case where the client filed a lawsuit against the agent for transferring a property at a price much lower than its real value, against the client’s interests. Although the power of attorney stipulated that the agent could transfer the subject matter at any price and in any manner deemed appropriate, the court, in overturning the appellate decision, stated: “The appeal’s reliance on the premise that determining the client’s best interests (as the power of attorney grants the agent discretion to act at any price and by any method deemed appropriate) is within the agent’s discretion, is neither justifiable nor reasonable. Accepting this position would contradict the provisions of Article 667 of the Civil Code, and its broad application would constitute an abuse of power, contrary to the latter part of the aforementioned article.” This study, through an analysis of the Civil Code, judicial practices, and reliance on the Supreme Court’s recent Unified Ruling No. 847, demonstrates that agents are legally bound to fully safeguard the best interests of the principal. However, variations in the scope of authority granted to agents, the nature of representation, and the interpretation of the agents’ duties can lead to differences in how this obligation is applied.