rights of agent sem 3.docx

Rights of Agent An agent has the following rights against the principal: 1. Right to receive remuneration (Sees. 219 and 220):

The agent is entitled to receive his agreed remuneration, or if nothing is agreed, to a reasonable remuneration, unless he agrees to act gratuitously. In the absence of any special contract, the right to claim remuneration arises only when the agent has done what he had undertaken to do. It is important that the agent can claim remuneration once he has completed his work even though the contract is never executed on account of breach either  by the principal principal or the third party. For example, where where an agent is appointed to secure orders for the manufacturer, he can claim commission on orders actually obtained by him although the manufacturer is unable to execute them owing to a strike by the workmen. Case Way vs. Lalita (1937) An agent undertook to provide information on gold mines in West Africa. No remuneration had been agreed. Held: In the circumstances agreement that there should be remuneration was inferred and Rs.5000 was a reasonable sum to award. (NB it does not follow that ever agent is entitled to rewa rd it must be implied if it is not expr expres esse sed d . In KHUSHEED KHUSHEED ALAM V ASA RAM Every person is clearly entitled to his agreed remuneration ,or if there is no agreement agreement to a reasonable remeneration. Where a person is  proved to have acted as a broker,he is entitled to his commission and even if he fails to prove the rate of commission agreed upon ,a reasonable amount ought to be awarded to him on such commission.the mode,manner and the time of payment may be provided for by a special contract.1 MEHTA V CASSIMBAI In this case the remuneration remunerati on is payable on completion of sale,no quantum meruit if the transaction proved unsuccessful.2

Effect of misconduct:

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 AIR 1933 LAH 784  (1922) 24 BOM LR 847

2

 An agent who is guilty of misconduct in the business of the agency is not entitled to any remuneration in respect of that part of the business which he has misconduct. In addition, he is liable to compensate the principal for any loss caused by the misconduct. ILLUSTRATIONS (appended to Sec. 220): (a) A employs B to recover 1, 00,000 rupees from C, and to lay it out on good security. B

recovers the 1,00,000 rupees and lays out 90,000 rupees on good security, but lays out 10,000 rupees on security which he ought to have known to be bad, whereby A loses 2,000 rupees. B is entitled to remuneration for recovering the 1, 00,000 rupees and for investing the 90,000 rupees, He is not entitled to any remuneration for investing the 10,000 rupees and he must make' good the loss of 2,000 rupees' to A. (b)  A employs B to recover Rs 1,000 from C. Through B's misconduct the' money is not

recovered (the debt might have become time-barred because of B's negligence or leniency). B is entitled to no remuneration for his services and must make good the loss to A. . 2. Right of retainer (Sec. 217):

An agent has the right to retain, out of any sums received on account of the principal, all moneys due to himself in respect of his remuneration, or advances made or expenses properly incurred by him in conducting the business of agency. 3

Bombay Saw Mills Company case Where the claim of secretaries and the treasurer of a company ,who had the advanced money to the company ,to be paid first out of the company’s money was rejected ,because they were not in possession of the money.this right does not confer any ownership on the agent.the money remains that of the principal .The agent hasthe right t o retain his principal’s money until his claim ,if any ,respect of his remuneration or advances made or expences incurred in conducting the business of agency are paid.The right can be exercised on an y sumes received on account of the principal in the business of the a gency .he can retain only such money as is in his possession .

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 ILR (1888)13 BOM 314

3. Right of lien (Sec. 221) :

An agent has the right to retain goods, papers and other property, whether movable or immovable, of the principal received by him, until the amount due to himsel f for commission, disbursements and services in respect of the same has been paid or accounted for to him. This right is, however, subject to a contract to the contrary. Again, this lien of the agent is a "particular lien" But by a special contract an agent may have a general lien also. It may be recalled that by virtue of Section

171

factors, bankers, attorneys of High Court and policy brokers have a "general lien," in the absence of a contract to the contrary. It is to be noted that this right of lien of the agent is subject to all rights and equities of third parties against the principal, that is, if the agent has sold the goods, he will have to give delivery to the buyer (London and Joint Stock Bank vs. Simmons). 4Bombay

High Court

In Re: Bombay Saw Mills Company ... vs Unknown on 11 February, 1889 Equivalent citations: (1889) ILR 13 Bom 314  Author: Scott Bench: Scott JUDGMENT Scott, J. 1. The claim of Messrs. Ewart, Latham & Co. is set out in the affidavit of Mr. Greaves,  partner in the firm, dated the 17th January last, and raises a question of considerable commercial importance. He says that his firm was, at the time of the liquidation of the company and for several years previously, agents of the company, and in possession, as agents, of goods, papers, and other property of the company, both moveable and immoveable; that as agents they have made advances and disbursements, and incurred expenses on behalf of the company in conducting the business, or for the purposes of the business. In a previous affidavit (August 27), he states that in excess of the money they have advanced, they (the agents) gave their personal guarantee, as such, in order t o enable the concern to borrow money which was urgently required for the purpose of the company. All the advances made  by the firm, and all the guarantees given by the firm, he says, were made with the sanction of the directors of the company. The firm now says it is in possession of the whole of the  property of the company, and claims, under  Sections 217 and 221 of the Contract Act, to be entitled to retain all monies, goods, papers and other property, whether moveable or immoveable, received by his firm, until the amount due to them has been satisfied. 2. The question for my consideration may be put in the words of Lord Hardwicke in the leading case of Khuger v. Wilcox Amb. 252 at p. 253: "This is a case of bankruptcy, in which this Court always inclines to equality: yet if any person has a specific lien, or a special 4

https://indiankanoon.org/doc/947524/?type=print

 property in goods, which is clear and plain, it shall be reserved to him notwithstanding the  bankruptcy. "The question is twofold: (a) Have Messrs. Ewart, Latham & Co. the requisite  possesion of the property? and (b) have they the right to retain it? 3. Before I deal with the question of the alleged possession, I will consider their right to a li en on the assumption that they are in possession as t hey allege. For the sake of clearness, I must state the ordinary rules as regards this right of retainer or lion. A lien can only arise in one of three ways: (1) by common law; (12) by express or implied contract; and (3) by the general course of dealing in the trade in which the lien is claimed. Liens are of two kinds: general and  particular. A general lien is the right to retain the property for a general balance of accounts. A particular lien is a right to retain property for a charge on account of la bour employed or expenses bestowed upon the identical property detained. (Smith's Mercantile Law, Chapter on Lien.) Whilst particular liens are favoured, general liens are regarded with jealousy by the law, because they encroach upon the common law, and destroy the equal distribution of the debtor's estate among his creditors--Rushforth v. Hadfield 7 East 224. 4. In the first place the lien claimed in this case is a general, not a particular lien. It does not arise out of the identical property retained. The advances were made, not to the specific use of the mill, or the machinery, or the books or the papers detained, but they were made, as Mr. Greaves says "on behalf of the company for the general purposes of the business." The firm, as agents of this company, did what is often done by agents of companies in Bombay. They furnished the current capital. They financed business. Without their aid the company would have probably closed its doors for want of funds. Messrs. Ewart, Latham & Co., claim, then, a general lien for the amount of their debt. Is such a lien created by implication of law in the relations of principal and agent? According to English law, the answer must be in the negative. The right of general lien does not exist by the common law. It must arise out of general usage, ox by agreement. The onus of proving it lies upon him who claims it-Rushforth v. Hadfield 7 East. 224; Holderness v. Collinson 2 DeG. F. and J. at p. 443. Lord Chancellor Campbell in Bock v. Garrison 7 B. and C. 212 says: "I do not think that a general lien can be claimed according to any general law of principal and agent. The law of England does not favour general liens, and I apprehend that a general lie n can only be claimed as arising from dealings in a particular trade or line of business, such as wharfingers, factors and  bankers, in which the custom of a general lien has been judicially proved and acknowledged, or upon express evidence being given that, according to the established custom in some other trade or line of business, a general lien is claimed and allowed." There are exceptions as in the case of factors and bankers, and I might instance the usage which obtained as regards consignees or managers of West Indian estates, who were given a general lien on the estate, in respect of the balance due to them for the costs of management because the estate would  become valueless if it was not maintained in cultivation, But Lord Westbury in the last of the cases on the point expressly says in his judgment In re Leith's Estate L.R. 1 P.C. at p. 305: "The right of the consignee, as it is supposed to be established by decisions, giving him a lien on the plantation in respect of the balance due to him, is an exception to the general rule which applies to principal and agent." 5. Foxcraft v. Wood 4 Russ. 487 at p.448 was relied upon. But that case was expressly decided on the principle "that a factor, who became surety for his principal, had a lien on the  prices of the goods sold by him as such factor, to the amount of the sum for which he was surety." In the present case the claimants are not factors. A factor is an agent employed to sell goods or merchandise consigned or delivered to him by his principal; he is entrusted with the  possession, management, control and disposal of the goods and may buy and sell in his own name (Wharton's Law Lexicon). The claimants do not come within this definition of Law. No general lien then exists by implication. In the present case no usage was set up, still less  proved. It is also admitted that no special agreement was made as regards the advances. In

fact, Messrs. T Ewart, Latham & Co. wholly rely on Sections 217 and 221 of the Contract Act, which, if they give a lien in this case, differ from the general English law. 6. The first of these sections runs as follows: Section 217.--"An agent may retain, out of any sums received on account of the principal in the business of the agency, all monies due to himself in respect of advances made or expenses properly incurred by him in conducting such  business, and also such remuneration as may be payable to him for acting as agent." This section merely declares the English law. Adding the words concerning remuneration to the following passage from Story on Agency (pl. 350) the two statements of the rights of an agent would be almost identical: "An agent may insist upon deducting all his advances, expenses, disbursements, and losses, arising in the course of his agency from the pecuniary funds in his hands belonging to his principal." But in the present case it does not appear that at the time of the liquidation there were any monies of the company in the hands of the agent: monies received subsequent to the liquidation belong to the liquidation. So that the Section 217 does not apply to the circumstances of the case. 7. Section 221 runs as follows: "In the absence of any contract to the contrary, an agent is entitled to retain goods, papers, and other property, whether moveable or immoveable, of the  principal received by him (the agent), until the amount due to himself for commission, disbursements and services in respect of the same, has been paid or accounted for to him." This section also has its parallel in the English law. Story on Agency (pl. 373) says: "In cases of agency there generally exists a particular right of lien in the agent for all his commissions, expenditures, advances, and services in and about the property or thing entrusted to his agency." With Section 221 must be read Section 171 of the Contract Act, which limits the right to a general lien,--that is to say, the right of parties to retain all goods in their possession as a security for a genera l balance of account, to "bankers, factors, wharfingers, attorne ys, and policy-brokers," and the section further declares that "no other person has such a right unless there is a special contract." 8. Both English and Indian law, therefore, confine the lien claimable in this case to commission, disbursements, and services in respect of certain specific property or things. I have already said the advances now claimed cannot be held to be disbursements or services in respect of either the goods or the papers or the mill of the company. They were "loans made on behalf of this company," and for the purposes of the whole concern, not specially assigned to the mill or other property. There is, therefore, no lien. In the absence of any special agreement the claimants can only rank as ordinary creditors for these advances, and & fortiori for money paid on the guarantees given.

GOPALDAS VS THAKURDAS .. As regards the costs, . In cases such as the present one before us, where the principal owes some a mount to the agent, the agent has a right as against the principal, which is known in English Common Law as the Agent's lien. Lord Ellenborough in Houghton v . Mathew, 8 B & P 494 (A) has described this lien “to be the right in one man to retain that which is in his posse ssion  belonging to another until certain demands of the person who is so in possession are satisfied.” This rule of English law has been, put into a statutory form in Section 221 of the Indian Contract Act, which is as follows: “In the absence of any contr act to the contrary an agent is entitled to retain goods, papers and other property, whether moveable or immovable, of the principal received by him until the amount due to himself for commission, disbursement and services in respect of the same has  been paid or accounted for to him.”

 This agent's lien does not give unrestricted authority to the agent to deal with the property in any manner the agent may like. The right which the lien confers upon the agent is limited in nature: it enables the agent to retain the property till his dues are paid by the principal. This right can be availed of as a defence if the principal brings an action for the recovery of the  property in the possession of the agent, or, it may afford him a ground to reclaim the  property, if the agent has been unlawfully dispossessed of it. But this confers no authority on the agent to sell or otherwise dispose of the property without the consent of the owner (principal) in order to satisfy his lien. See  Bala  Mal  v . Budhumal , AIR 1926 Lah 94 (B). In Mulchand Shib Dhan v . Sheomal Sheo  Prasad , AIR 1929 Lah 666 (C), Shadilali, C.J has observed that “Where plaintiffs purchase certain goods on behalf of the defendants from whom certain money was due to them, they are entitled to retain possession as agents of the goods until the money is paid, but, without being directed by the defendants to sell them, and in the absence of a mercantile custom authorising them to do so, they are not entitled to sell the goods. If they sell them, however, they are l iable for the loss substained by the defendants on account of such unauthorized sale.” To this position of the agent's lien, may be added another stride which the law took and which appears to have extended the limits of the agent's lien. It is said that although “an agent pure and simple may not be justified in selling the principal's goods without his authority, yet where the agent has spent money from his own pocket in purchasing the goods on behalf of the principal, the agent is in the position of a tacit pledgee and can recover as much of his outlay as possible by selling the goods which are in his custody”. See Bar Dukan v . Gopal Singh, AIR 1928 Lah 747 (D).

4. Right to be indemnified against consequences of lawful acts. (Sec.222):

An agent has also the right to be indemnified against the consequences of all lawful acts done by him in exercise of the authority conferred upon him. ILLUSTRA TIONS (appended to Sec. 222): (a) B, at Singapore, under instructions from A of Calcutta, contracts with C to deliver certain

goods to him. A does not send the goods to B and C sues B for breach of contract. B informs A of the suit, and A authorizes him to defend the suit. B defends the suit and is compelled to pay damages and costs, and incurs expenses. A is liable to B for such damages, costs and expenses. (b) B, a broker at Calcutta, by the orders of A, merchant there, contracts with C for the purchase

of 10 casks of oil for A. Afterwards A refuses to receive the oil, and C sues B. B informs A, who repudiates the contract altogether. B defends, but unsuccessfully, and has to pay damages and costs and incurs expenses. A is liable to B for such damages, costs and expenses.

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It is a suit by an agent claiming indemnity against the principal, for the loss, which the agent had suffered, in carrying out the directions of the principal. The right to such indemnity is founded on the statutory provision contained in section 222 of the Indian Contract Act which stands as follows: The employer of an agent is bound to indemnify him against the consequences of all lawful acts done by such agent in exercise of the authority conferred upon him." Here the plaintiffs  paid the losses resulting from the transactions to third parties, on behalf of the defendant, in exercise of the authority conferred upon them by the latter. SECTION 223 ;Agent to be indemnified against consequences of acts done in good faith Where one person employs another to do an act and the agent does the actin good faith, the employer is liabe to indemnify the agent against the consequences of the act ,though it causes an injury to the rights if third persons. CASE THANGAL KUNJU KUDALIAR V. M .VENAKATACHALAM POTTI The SC held that there can be no agency for the commission of a crime .The wrongdoer would  be personally liable.

It may be noted that the agent cannot claim indemnity. in respect of acts which are apparently unlawful or criminal (Sec. 224).

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ILLUSTRATIONS (appended to Sec. 224):

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 Kishanlal vs.Banwarilal ,AIR 1954 SC 500,502

(a) A employs B to beat C and agrees to indemnify him against all consequences of the act. B

thereupon beats C and has to pay damages to C for so doing. A is not liable to indemnify B for those damages. (b) B, the proprietor of a newspaper, publishes, at A's request, a libel upon C in the paper and A

agrees to indemnify B against the consequences of the publication and all costs and damages of any action in respect thereof. B is sued by C and has to pay damages and also incurs expenses. A is not liable to B upon the indemnity.

5. Right to be indemnified against consequences of acts done in good faith (Sec. 223):

An agent has a right to be indemnified against the consequences of an act done in good faith though it turns out to be injurious to the rights of third persons. ILLUSTRATIONS (appended to Sec. 223): (a) A, a decree holder and entitled to execution of

B's

goods, requires the officer of the Court

to seize certain goods, representing them to be the goods of B. The officer seizes the goods, and is sued bye, the true owner of the goods. A is liable' to indemnify the officer for the sum which he is compelled to pay to C in consequence of obeying A's directions. (b) B, at the request of A, sells goods on the possession of A, but which A had no right to

dispose of. B does not know this and hands over the proceeds of the sale to A. Afterwards C, the true owner of the goods, sues B and recovers the value of the goods and costs. A is liable to indemnify B for what he has been compelled to pay to e and for B's own expenses. 6. Right to compensation. (Sec.225): COMPENSATION TO AGENT FOR INJURY CAUSED BY PRINCIPAL’S NEGLECT The principle must make the compensation to his agent in respect of injury caused to such agent by principal’s neglect or want of skill.  The agent has a right to be compensated for

injuries .sustained by him due to the principal's neglect or want of skill.

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Thus every principle owes to his agent the duty o care not to expose him to the reasonable

risks

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ILLUSTRATION (appended to Sec. 225):

A employs B as a bricklayer in building a house, and puts up the scaffolding himself. The scaffolding is unskillfully put up and B is in consequence hurt. A must make compensation to B.

 Narandas Morardas Gaziwala & Ors vs S. P. Am. Papammal& Anr.  Narandas Morardas Gaziwala & Ors. v. S. P. Am. Papammal & Anr. 1966 SCR 38 (agent’s right to claim for accounts) FACTS:  Narandas Morardas Gaziwala and Ors. a partnership firm, carrying on business in lace and silver thread at Surat had dealings with another firm, Krishna and Company –  who acted as their agents for selling their goods in the three districts in the State of Madras on commission  basis. Murugesa Chettiar, one of the partners of Krishna & Co. tool over all the assets and liabilities of the firm on dissolution of the firm. In respect of their dealings Krishna & Co.,  became indebted in 1951. On April 1, 1951 Murugesa Chettiar (hereinafter referred to as the  plaintiff) executed a promissory note in favour of Narandas Morardas Gaziwala for a sum of Rs. 7,500/- the amount ascertained as due and payable by Krishna & Co. The plaintiff instituted a claim in the District Munsif’s Court, Kancheepuram praying for rendition of accounts from April 1, 1951 till the date of the suit in order to ascertain the amount due and  payable to him. The Surat firm in return instituted a claim in the court of Subordinate Judge, Chingleput against the plaintiff seeking to recover the amount due under the promissory note. Both the suits were tried together by consent of parties. ISSUES: (i) Whether the plaintiff, being the agent, is entitled to sue the defendant-Surat firm for accounts? (ii) Whether the plaintiff is entitled to set up a parole agreement to prove the condition  precedent as to the enforceability of the promissory note? CONTENTIONS: Plaintiff(i) Surat firm circumvented the terms of the contract of sole agency and privately effected sales through others or direct to customers in those territories. (ii) Surat firm as part of this agreement of sole agency agreed to have its indebtedness under the promissory note adjusted towards the commission that may be earned by him. 6

 Federal Insurance Co v Nakona Singapore(p)Ltd,(1992)

Surat Firm(i) The plaintiff is precluded from setting up a parole agreement by reason of the  provisions of s. 92 of the Evidence Act.[1] The agreement that the promissory note should be discharged by commission payable by the Surat firm was with r egard to the mode of discharge of the obligation of promissory note and not a condition precedent to its enforceability. HELD: Subordinate Judge- It held that the Surat firm was liable to render an account of their sales in those territories and granted a decree for the amount covered by the promissory note but directed that the decretal amount should be adjusted out of the commission that may be found due and payable on taking of accounts High Court –  The High Court, by its judgment dismissed the appeals of Surat firm. SUPREME COURT: There is no provision in the Indian Contract Act that an agent can sue t he principal for the rendition of the account. The statute is not exhaustive and the right of the agent to sue the  principal for accounts is an equitable right arising under special circumstances and is not a statutory right. Such special circumstances may arise where all the accounts are in the  possession of the principal and the agent does not possess accounts to enable him to determine his claim for commission against his principal. The right of the agent may also arise in an exceptional case where his remuneration depends on the extent of dealings which are not known to him or where he cannot be aware of the extent of the amount due to him unless the accounts of his principal are gone into. The SC upheld the HC’s stand that the transactions in respect of which the plaintiff is entitled to commission are peculiarly within the knowledge of the principal alone. Therefore the SC held that in the special circumstances (remuneration depended on the volume of transactions) of this case, the plaintiff is entitled to sue the Surat firm for accounts. The court also agreed upheld the HC’s finding that the Surat firm had actually made direct sales to customers in contravention of the contract of sole agency granted to the plaintiff. On the question of parole agreement SC dismissed the Surat Firm’s contention and upheld the HC’s finding that there was a collateral oral agreement that the obligation under the  promissory note will not be enforced for 5 years and unless the amount was due after accounting for the period of the commission agency. The SC held that the agreement was not related to the mode of discharge of the obligation under the promissor y note but was a condition precedent to the enforceability of the promissory note and it is open to the plaintiff to adduce evidence of oral agreement under the 3rd proviso to s.  92 of the Evidence Act. [1] s. 92 of the Evidence Act says- When the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the f orm of a document, have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying, adding to, or subtracting from, its terms : Proviso (1) ………………………. Proviso (2) ………………………. Proviso (30) The existence of any separate oral a greement, constituting a condition precedent to the attaching of any obligation under any such contract, grant or disposition of property, may be proved.