Rights and duties of agent

RIGHTS AND OBLIGATIONS OF AGENT UNDER THE LAW OF AGENCY

Introduction

The law of agency is based on the maxim “Qui facit per alium facit per se” i.e. he who does an act through another does it by himself. The concept of representative capacity is the totem of agency. In the hustle and bustle of everyday life it sometimes becomes impossible to do everything ourselves and hence it becomes necessary to employ people to perform our acts. The person employed is the agent and the contract by which he is appointed is called agency. It is the principal who appoints the agent. In an agency, an agent acts on behalf of his principal and often uses his name and his acts in that capacity are attributable to the principal.

‘Agent’ is defined in Section 182 of The Indian Contract Act, 1872 as;

182. “Agent” and “principal” defined-An agent is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the principal.

The implication of the definition being wide enough it is important to have the right approach. It is the agent’s representative capacity coupled with a power to affect the legal relations of the principal with the third persons which is the distinguishing feature of agency, as enunciated by Vivian Bose J in Kalyanji Kunwarji v Tirkaram Sheolal.

The most important requisite of agency is that the principal must be competent to contract as agency is a contract of employment to bring the principal into legal relations with the third party.

183. Who may employ agent-Any person who is of the age of majority according to the law which he is subject, and who is of sound mind, may employ an agent.

The appointment of an agent involves a contract and a minor’s agreement being void, thus a minor cannot employ an agent.
The agent need not be competent to contract because he merely acts on behalf of his principal and incurs no personal liability while doing so. Section 184 elucidates the above mentioned;

184. Who may be an agent-As between the principal and third persons, any person may become an agent, but no person who is not of the age of majority and of sound mind can become an agent, so as to be responsible according to the provisions in that behalf herein contained.

No consideration is necessary for creation of agency although generally an agent is remunerated by way of commission for services rendered;

185. Consideration not necessary-No consideration is necessary to create an agency.

Thus we may say that agency is not a true contract in legal sense because agent need not be competent to contract and consideration is also not necessary.

Creation of agency

According to Desai J as pronounced in Syed Abdul Khader v Rami Reddy,the relationship of agency has its genesis in a contract. The relationship of principal and agent may be created in any of the following ways:

(1) By express appointment [Sec.186-187];

(2) By conduct or by situation of the parties i.e. implied [Sec.186-187]; a. Agency be estoppel
b.Agency by holding out
c.Agency by necessity

(3) By statute [Sec.18 of The Partnership Act,1932];

(4)Ex-post facto agency [Sec.196-200];

Kinds of Agent

Agents may be broadly classified into:

1. Mercantile agents

2. Non-mercantile agents

Another classification which is based upon extent of authority is:

(a) General agent

(b) Special agent

A general agent is one who is authorized to do all acts of some general class,while a special agent is the one who is authorized to do some particular act or enter into a particular contract.

1. Mercantile Agents

(a) Auctioneer

An auctioneer is an agent to sell goods at a public auction to the highest bidder for a remuneration. He has authority to deliver goods only on receipt of the price and is entrusted with the possession of goods. He is responsible for proper storage and is liable for damage caused by his negligence.

(b) Banker

The relationship between a banker and his customer is ordinarily that of a debtor and creditor. The banker however is an agent when he buys and sells
securities, collects cheques, dividends, bill of exchange etc. for his customer and insofar as he must pay of customer’s cheque when the account is in credit. The banker has a general lien on all securities and goods in respect of the general balance due to him and which have come into his possession in the course of his dealings as banker. Securities and goods left with the banker for specific purposes, i.e. safe custody does not attract the general lien.

(c) Broker

Broker is an agent of both the buyer and the seller,employed for making bargain in all matters of trade for a remuneration known as brokerage. He does not have possession of goods unlike a factor. The general method of dealing by a broker is to enter the terms of the contract he wishes to make in a book and sign it. He then sends particulars of the contract called the ‘sold note’nto the seller, and ‘bought note’ to the buyer. He has no lien as he does not possess goods. However, he will have a lien on any books and papers of his principal, in his possession. E.g an insurance broker will have a lien over the policy for his general balance.

(d) Del-credere agent

Del-credere agent is an agent who promises to his principal that he will ensure the performance of obligations by third person with whom he enters into a contract for an extra remuneration called the Del-credere commission. If the third party does not perform his obligation the dele-credere agent will be. The Del-credere agent thus occupies the position of an agent as well as a guarantor thia kind of agency arises when the agent delas with persons in a foreign country about whom his principal knows nothing.

(e) Commission Agent

Commission Agent is an agent who is employed to buy or sell goods or transact business for a remuneration called commission. Generally speaking, as pointed out by Viscount LC. In Luxor (East Bourne Limited) v Cooper such
contracts fall into three catagories :

(i) The first class is of cases in which the agent is promised a commission by his principal, if he succeeds in introducing to his principal, a person who makes an adequate offer of not less than the stipulated amount. The agent earns the commission for introducing to his principal a person who is willing to purchase goods or property for the stipulated amount.

(ii) The second class is of cases in which the property is put into the hands of an agent to dispose of for the owner and the agent accepts the employment, and it may be, expends time and money in endeavoring to carry it out. It is implied that the principal will not withdraw his authority until a purchaser has been found by the agent. If the authority is withdrawn before such event, the commission will still be payable to the agent.

(iii) The third class is of cases where the agent is promised his commission only upon the completion of the transaction which he was endeavored to bring about between the offeror and the principal. Commission will be payable only on completion of the transaction.

2. Non- Mercantile Agents

(a) Husband and Wife

Marriage does not itself create the relation of agent and principal. A wife in order to bind her husband by her dealings must have received his authority either expressly or impliedly. The general principles in this regard have been laid down by the full bench of the Allahabad High Court in Girdhari Lal v Grawford.

The liability of husband for a wife’s debt depends on the principles of agency and the husband can only be liable when it is shown that he expressly or impliedly sanctioned what the wife has done. Where the husband has expressly authorized the wife to borrow money or pledge his credit, the position is simple, the husband is liable.

The question is different and difficult when a wife is regarded, to have implied authority as an agent of her husband. Where the husband and wife are living together, the wife is presumed to have implied authority to pledge the husband’s credit for necessaries. But the husband can escape liability if he can prove that:

(i) he has expressly forbidden his wife from borrowing money or buying on credit.

(ii) The goods purchased were not necessaries.

(iii) He has allowed sufficient funds for purchasing the articles she needed to the knowledge of the tradesman, or

(iv) The tradesman has been expressly told not to give credit to his wife.

b) Husband and wife living apart

Where the wife lives apart from the husband under justifiable circumstances, the wife has an implied authority to bind the husband for necessaries of life. Some jurists pined that this is an agency of necessity.

However, where the wife stays apart on her own will and without justification, she is not her husband’s agent and cannot bind him even for necessaries.

DUTIES OF AN AGENT

Rights and duties may be mutually be imposed on each other in the contract. However there are rights and duties of general nature which are imposed by law upon every agent, unless they are modified or excluded by special contract.

1.Duty to execute mandate

The agent is expected and he must carry out the mandate of his principal because that is the very purpose of his appointment. If he fails to do so he can be made absolutely liable for the principal’s loss. It was articulated in the case of Tichel v Short by Lord Chancellor:

“The rule of equity is, that if an order is sent by a principal to a factor to make insurance, and he charges his principal, as if it was made, if he never in fact made that insurance, he is considered as the insurer himself.”

This was adopted by the Supreme Court in Pannalal Jankidas v Mohanlal where a commission agent was supposed to insure goods which he did not and the goods were destroyed by an explosion in the Bombay harbor. Thus the agent was held liable to compensate the principal’s loss in respect of the uninsured merchandise lost in the explosion.

2. Duty to follow instructions/customs

211. Agent’s duty in conducting principal’s business-An agent is bound to conduct the business of his principal according to the direction given by the principal, or in the absence of any such directions, according to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise, if any loss be sustained, he must make it good to his principal, and if any profit accrues, he must account for it.

The agent must conduct the business of the principal strictly in accordance with the directions of the principal. In case of absence of any directions the agent is bound to follow the custom prevailing in businesses of the same kind and at the place where the agent conducts such businesses if the agent acts contrary to it than in the event of any loss if sustained he is under the liability to make it good to his principal, and, in case of any profit accruing he must account for it.

The cases discussed below efficaciously bring out the different facets of
this section:

Lilley v Doubleday-The principal instructed the agent to store goods at a particular place. Instead he placed a part of them at a different warehouse which was equally safe. The goods were destroyed without negligence. The agent was held to be liable for the loss because of his disobedience and departure from the instructions given.

Ireland v Livingston-The directors of a company were asked to purchase a business as it was. The business turned to be insolvent they were held not liable because of the instruction being imprudent. The principal had given ambiguous instruction. Thus he was not permitted to argue as against the agent that he should have read the instruction in the other sense than what he actually did.

Ferrer v Robbins-In this case no instructions were given by the principal to his agent but the custom required that the goods should not be sold on credit or in return for the negotiable instrument. The agent was held to be liable for the loss as he had refrained from following this particular custom during the transaction.

3. Duty to maintain Secrecy

When an agent has obtained any information in the course of agency, the agent must on no account use it against the interest of his principal; otherwise he would be liable in damages if any loss is caused to him by leakage of such information. The agent must maintain confidence, secrecy and must not disclose any sensitive information about the affairs of his principal except where the disclosure ids under the compulsion of law e.g., Duty to obey an order under Bankers’ Books Evidence Act, or under higher duty owed to State or public institution which supersedes lower duty or under any statement in a formal claim or with customers permission.

4. Duty of reasonable care and skill

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 noticed 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.

In the case of State Bank of Indore v National textile Corp., the bank was paid cheques for collection which in turn sent them to the drawee bank for collection but they were lost in transit. The bank was held liable to the customer for the principal value of the cheques.

The standard of care and skill which an agent has to take is dependent upon the nature of his profession otherwise he may become answerable for the incompetence of the labour employed by him e.g.; an insurance broker must check the usual clauses for the protection of the principal in the policy, a stock broker must be aware of the stock exchange.

Section 212 limits the liability of the agent to “direct consequences”. An example of direct clause is stipulated in the facts of the case of Keppel v Wheeler when an agent appointed to sell a house communicated promptly an offer received by him to his principal. The latter accepted it provisionally, subsequent to which the agent received the higher offer which he failed to communicate to the principal resulting in acceptance of the first offer. Agent was held liable.

In the case of Pannalal Janki das v Mohanlal, the Supreme Court threw light on the meaning of the expression direct consequences. The agent was instructed to insure certain goods which he failed to do so. The goods were destroyed in an explosion. The court held that the loss was the direct result of the agent’s negligence.

5. Duty to maintain Accounts

213. Agents accounts- An agent is bound to render proper accounts to his principal on demand.

It is obligatory for the agent to provide accurate account. The reason being that he is entrusted with the authority to bind the principal to transactions with the third parties, thereby entitling the principal to know what his contractual rights and duties are with the third party and also what his fiduciary stand is. The principal must be aware of every significant aspect as he is a participant in the transaction.

In James Eggay Tailor v United Africa Co., an agent contrary to the terms of the contract with his principal failed to maintain proper accounts and also failed to examine the books of his subordinates. He was held liable to compensate the principal not only for the loss resulting from his acts and negligence, but also for the fraud and defalcations of his subordinates, resulting there from.

The court in Yasuda Fire and Marine Insurance Co v Orion Marine Insurance Underwriting Agency Ltd, articulated the root of this particular obligation of the agent. This duty arises out of the agency relationship and does not depend on the relationship having been created by contract. This duty coexists with the contract of agency, so much so that even an inspection of agent’s accounts can initiated if even a chance of mismanagement arises.

In Heyman v Darwins Ltd a key factor was brought to light i.e. the duty to provide access to the records survives the termination of the contract. It would be extremely inconvenient and potentially very damaging to the principal if this was not the case.

6. Duty to communicate with the principal in cases of difficulty

214. Agent’s duty to communicate with principal- It is the duty of an agent, in cases of difficulty, to use all reasonable diligence of communicating with his principal, and in seeking to obtain his instructions.

The principal expects the agent to carry out work as per his instructions in a particular situation but when the situation changes adversely i.e. when difficulty arises then the agent must as soon as possible report the matter to the principal and seek his new instructions. Otherwise he “must bear the brunt to pay damages”, as the court held in Jayabharathi Corpn v Sv.P.N.Sn. Rajesekara Nadar.

7. Duty to avoid conflict of interest

215. Right of principal when agent deals, on his own account, in business of agency without principal’s consent- If an agent deals on his own account in the business of the agency, without first obtaining the consent of his principal and acquainting him with all material circumstances which have come to his own knowledge on the subject, the principal may repudiate the transaction, if the case shows, either the agent, or that the dealings of the agent have been disadvantageous to him.

An agent must not deal on his own account in the business of the agency but if he wants to do so, he must disclose all the material facts to his principal and obtain his consent for dealing on his own account.

Section 215 can be approached in two ways i.e. the principal may repudiate the transaction if he can show that-

(a) a material fact that has been dishonestly concealed from him, or (b) the dealing of the agent has been disadvantageous to him.

The repudiation by the principal must be within reasonable time after discovering the facts as held in Armstrong v Jackson. Also the detriment of the principal is a question of fact.

216. Principal’s right to benefit gained by agent dealing on his own account in business of agency- If an agent, without the knowledge of his principal, deals in the business of the agency on his own account instead of on account
of his principal, the principal is entitled to claim from the agent any benefit which may have resulted to him from the transaction.

This section comes into play when the agent personal interest and his duty to the principal is in conflict with each other such a situation arises when the agent is personally interested in the principal’s transaction. In the case of Mollet v Robinson the Court observed that it is an axiom of the law of principal and agent that a broker employed to sell cannot himself become the buyer without distinct notice to the principal so that the latter may object to it if he thinks proper.

8. Duty not to make secret profit

The agent is forbidden from making any secret profit from the business of agency. The relationship of the agent with the principal is fiduciary in nature. It requires absolute good faith in the conduct of agency. It is a contract uberima fides. Secret profit means any advantage obtained by the agent over and above his agreed remuneration and which he would not have been able to make but for his position as agent e.g. acceptance of bribe.

Where an agent sells his own stock to the principal without disclosing the fact, he is bound to account any profit he made in the transaction such was held in the case of Bentley v Craven.

9. Duty not to use information obtained in the course of agency against the principal

When an agent has obtained any information in the course of agency, the agent must on no account use it against the interest of his principal.

10. Duty not to set up an adverse title

When the agent has obtained goods or property from the principal as an agent, he is precluded from setting up his own title, or setting up the title of third parties to the property.

11. Duty to remit sums

218. Agent’s duty to pay sums received for principal- Subject to such deductions, the agent is bound to pay to his principal all sums received on his account.

The agent is bound to pay to his principal all sums received on his account. The agent is, however entitled to deduct his lawful charges, but subject only to this right, the principal’s money must be remitted to him even if it has been received in pursuance to a void or illegal contract. The agent has to perform this duty even if his earnings for the principal flow out of void or illegal transactions. “If an agent receives money on his principal’s behalf under the illegal and void contract, the agent must account to the principal for the money so received and cannot setup the illegality of the contract as a justification for withholding payment, which illegality the other contracting party has waived by paying the amount. Such was decided in Bhola nath v Mul chand.

The agent can also make a counter claim the Bombay High Court in the case of National Shipping co of Saudi Arabia v Sentrans Industries ltd, did not consider it fair or in the interest of justice to compel the agent to deposit the amount in the court as a measure of protecting his principal, particularly when there was a claim against the claim.

12. Duty not to delegate authority

Delegatus non potest delagare is the basis maxim of this duty. The principal has trust and confidence in the agents integrity and competence and this is the reason why the former chooses the latter as his agent. Therefore the agent is incompetent to delegate the work further which is delegated to him by the principal.

This was laid down in John McCain & Co v Pow that unless authorized by the principal, the estate agent has no right to appoint a sub agent and delegate
to him his powers which have been particularly delegated to him as they require special skill and care. In this particular case the sub agent carried out a sale on his own account. The plaintiff agent had sued for his commission. The Court disallowed the claim as the appointment of the sub agent was beyond the purview of the contract of agency. However this principal has exception as well as stated in section 190:

190. When agent cannot delegate- An agent cannot lawfully employ another to perform acts which he has expressly or impliedly undertaken to perform personally, unless by the ordinary custom of trade a sub-agent may, or, from the nature of the agency, a sub-agent must be employed.

Thus in the following cases the agent may delegate the work to another:

1. Nature of work

The nature of work may sometimes be such that it is necessary to appoint as sub-agent e.g. an agent appointed to sell an estate may retain the services of an auctioneer and the one authorized to file a suit may engage a lawyer. A banker instructed to make a payment to a particular at the particular place may appoint a banker who has an office at that place. Such were the facts in Summan Singh v National City Bank of New York. In another case, Mohinder v Mohan it was held that a banker authorized to let out a house and collect rents may entrust the work to an estate agent. However in Union Of India v Amar Singh where goods received from another railway, it was held that sub-agency was not constituted. In Ramdeo Tilokchand Agarwal v Lalu Natha it was held that there was no sub-agency when a general agent appointed an advocate for a suit.

2. Trade Custom

A sub-agent may be appointed if the ordinary custom of trade allowed so. e.g. In Moon v Witney Union the architect appointed surveyors which was a general practice in architecture.

3. Ministerial Action

An agent cannot delegate acts which he has expressly or impliedly undertaken to perform personally. In Mason v Joseph it was held that the agent cannot pass over the authority to sign to any sub-agent. Acts which require personal or professional skill come under this.

4. Principal’s Consent

The principal can expressly allow his agent to appoint a sub-agent. His consent may be implied through his conduct as well. In the latter case the principal may be required to ratify his agents delegations if it is unauthorized.

Sub-agent

191. “Sub-agent” defined- A “sub-agent” is a person employed by, and acting under the control of, the original agent in the business of the agency.

The relationship constituted between the principal and the sub-agent and the agent depends upon whether the sub-agent has been properly or improperly appointed.

1. Improper delegation

193. Agent’s responsibility for sub-agent appointed without Authority-Where an agent, without having authority to do so, has appointed a person to act as a sub-agent, the agent stands towards such person in the relation of a principal to an agent and is responsible for his acts both to the principal and to third person; the principal is not represented by or responsible for the acts of the person so employed, nor is that person responsible to the principal.

Unauthorisation i.e. when it is not within any of the recognized exception these two improper delegation. The effect of such delegation is that the
principal is not bound by it. Such person does not represent nor bound the principal by his act. Although the agent will be responsible to the principal for any act responsible to the principal because the agent stands in the position of principal towards that person and is responsible for his acts to third parties. Thereby no legal relationship is created between the principal and the improperly delegated person because of lack of authorisation.

2. Proper delegation

192. Representation of principal by sub-agent properly appointed- Where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal.

Agent’s responsibility for sub-agent- The agent is responsible to the principal for the acts of the sub-agent.

Sub-agent’s responsibility- The sub-agent is responsible for his acts to the agent, but not to the principal, except in case of fraud or willful wrong.

There is no privity between the sub-agent and the principal even if the sub-agent is properly employed. The following are the effects of the appointment stated in section 192:

1. Principal represented by sub-agent

The sub-agent is bound by and is responsible for the acts as if he were an agent originally appointed by the principal

2. Agent’s responsibility for sub-agent

The agent is responsible to the principal for the acts of the sub-agent. In Summan Singh v N.C.Bank of New York the court held that there is no privity of contract between the principal and the sub-agent and, therefore he cannot
sue the sub-agent, except for fraud or willful wrong. Even where fraud or willful wrong is established the principal has the choice to sue either the agent or the sub-agent. But the agent exempt himself from such liability.

3. Sub-agent’s liability to principal

The sub-agent is responsible for his acts to the agent, but not to the principal, except in case of fraud or willful wrong. A well known illustration is Calico Printers’ Association v Barclays Bank where a sub-agent failed to insure the principal’s goods, which were destroyed by fire. But the principal could not recover against the sub-agent.

A sub-agent is bound by all the duties of the ordinary agent. His rights cannot go beyond those of the main agent and they have to exercised through the agent except where direct action would be necessary to give business efficacy to the appointment of a sub-agent. In Crema v Cenkos Securities plc a sub-broker was allowed to recover his agreed commission from the broker irrespective of the fact whether the broker had been paid by the principal or not. The Court held that such a question depends upon the terms of the appointment as interpreted in the backdrop of factual background of market practices.

Substituted Agent

194. Relation between principal and person duly appointed by agent to act in business of agency- Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent but an agent of the principal for such part of the business as is entrusted to him.

195. Agent’s duty in naming such person- In selecting such agent for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his own case; and, if he does this, he is not responsible to the principal for the acts or negligence of
the agent so selected.

In case of a substituted agent a direct privitive contract is established between him and the principal. The agent is only duty bound to make the selection of the substitute with reasonable care and is in no way concern about his work. Thus the sub-agent is an agent for the principal in respect of the business entrusted to him.

Difference between Sub-agent and Substituted agent

Sub-agent (sections 191-193)
Substituted agent (section 194-195)
1. A sub-agent is appointed by the agent and he works under a control and supervision of the agent. 1. A substituted agent is appointed by the agent under the discretion of the principal and works under his instruction. 2. An agent is responsible for the acts and negligence of the sub-agent. 2. The principal himself is liable for the acts of a substituted agent. 3. Privity of contract is established between agent and sub-agent. 3. Privity of contract is established between substituted agent and principal.

Rights and Remedies of the Principal

A principal has three fold rights against an agent who fails in his duty.

1. The principal can ask for an account and also demand payment of secret and illicit profits earned by him as an agent.

2. The principal can seek damages for disregard of the terms of agency as also for want of skill and care.

The principal can resist the claim of the agent for commission and indemnity by the plea that the agent had acted for himself.

RIGHTS OF AN AGENT

1. Right to remuneration

219. When agent’s remuneration becomes due- In the absence of any special contract, payment for the performance of any act is not due to the agent until the completion of such act; but an agent may detain moneys received by him on account of goods sold, although the whole of the goods consigned to him for sale may not have been sold, or although the sale may not be actually complete.

Except when the appointment is gratuitous, the first and the foremost right of an agent is to receive remuneration. Every agent is clearly entitled to his agreed remuneration, or if there is no agreement then to a reasonable remuneration. When the amount is left to the principal’s discretion, even then reasonableness would be criterion.

The transaction that results must be due to the agent’s services. The bargain must be direct result of his service. Where the agent’s services are only remotely connected with the transaction, his remuneration is not earned.

The above provision focuses on two points:

1. completion of the act
2. the act if result of the agent’s services.

Both depend on ‘first and last on particular terms of the particular contract’ as held in Sellers v London Countris Newspapers. The first point is well illustrated in the case of Ayyanah Chetty v Subaramania Iyer where the agent was not allowed to have his 2% commission on the purchase price of the house until the completion of the purchase of the house i.e. till the act was complete. The court relied on the statement of Lord Esher in Peacock v Freeman i.e. Land could only be said to have been sold when the conveyance was complete and not when there was a mere contract to sell. But a lot also depends upon the nature of the service the agent undertakes. If the agent,appointed to introduce a purchaser,did so and the earnest money was also paid but the sale could not be completed due to the purchaser’s lack of
funds then it was held that the agent is still entitled to his remuneration as he did what he was asked to do. This was held in the case of Sheikh Farid Baksh v Hargulal Singh.

Secondly the transaction must end due to the agent’s services i.e. the bargain must be the direct result of his service. This principle was illustrated in the case of Green v Bartlett where an agent was appointed to sell a house through an auction. The purchaser took the principal’s address from the agent and directly approached him. Held that he was entitled to his commission. This was later approved by the Privy Council in Burchell v Gowie. Agent’s remuneration are not earned when his services are only remotely connectedmwith the transaction illustrated in Tribe v Taylor. In this case the agent was to introduce a party which would advance loan. Later on the party became partner with the principal and advanced a further sum. In the second instance the agent was not entitled to the commission as it was not a direct result of his services. The agent must show that his act was the causa causans. Causa proxima is not the question.

The principal on the other hand is duty bound not to prevent the agent from receiving his remuneration, as held in Ellas v Govind Chandar where the transaction fell through because of the principal’s defective title and the broker was allowed his commission. But the principal can do the act himself or release the agent from doing the act appointed to him. In Luxor (Eastbourne) Ltd v Cooper, where the agent was promised remuneration if he brought about a sale of the principal’s cinemas. The Court decided against the agent when the principal refused to sell.

220. Agent not entitled to remuneration for business misconducted- An agent who is guilty of misconduct in the business of agency is not entitled to any remuneration in respect of that part of the business which he has misconducted.

An agent is not entitled to any commission in respect of that part of the business which he has misconducted. Section 220 accordingly provides that an agent, who is guilty of misconduct in the business of agency, is not
entitled to any remuneration in respect of that post of the business which he had misconducted.

The effect of misconduct is two-fold:

(i) the agent forfeits his right to commission. This is irrespective of any loss suffered by the principal. The principle underlying the rule is that a principal is entitled to have an honest agent and it is only the honest agent, who is entitled to his commission. The commission is forfeited only in respect of that part of the agency business which has been misconducted. In Heath v Parkinson, an agent employed to sell leasehold premises, increased the price without letting know to the principal and induced him to accept a lower price. This was a breach of duty and gross misconduct. The agent was not allowed to recover his commission.

(ii) the principal is entitled to recover compensation for any loss caused by the misconduct. The illustrations to section 220 make it clear that payment of damages caused by the misconduct is in addition to the forfeiture of commission or remuneration.

2. Amount of remuneration

The amount of remuneration payable to an agent depends on the terms of the contract between him and the principal. Where, however, the principal withdraws his instructions before a binding contract is made by his agent with the third party, the agent will not be entitled to the commission. This was held in Luxor v Cooper.

When the agent is prevented from earning his remuneration by some wrongful act or default of the principal, the agent can recover by way of damages the actual loss sustained by him, which in cases where he has done everything allotted to him, will be the full amount of remuneration.

When the agent is guilty of misconduct like earning secret profits, he will be compelled to refund that amount to the principal and if he receives it
fraudulently he(agent) will also forfeit his commission in respect of the transaction with which the corrupt bargain was made.

3. Right of retainer

217. Agent’s right of retainer out of sums received on principal’s account- An agent may retain, out of any sums received on account of the principal in the business of the agency, all moneys 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.

The agent has a right to retain his principal’s money until his claims, if any in respect of his remuneration or advances made or expenses incurred rightfully are paid.

He is not entitled to an equitable lien, that is, the right to have his claims satisfied in preference to other creditors out of the principal’s money in his possession. Except in the case of a vakil or solicitor as held in Menon v Cochine Mercantiles Ltd.

4. Right to stoppage in transit

This right is acquired by the agent in two cases:-

(i) If he has bought goods on behalf of the principal with his own funds, or by incurring personal liability for the price; he becomes an unpaid seller vis-à-vis the principal and as such possesses the right to stop the goods in transit, if they have been delivered to the carrier for transmission to the principal.[Section 50,Sales of Goods Act,1930]

(ii) where a del-credere agent is personally liable to his principal for the price of goods sold, he may resort to stopping the goods in transit on the insolvency of the buyer.

5. Right of lien

According to Tomlin’s Law Dictionary, lien signifies an obligation, tie, or claim annexed to, or attaching upon, any property without satisfying which such property cannot be demanded by it’s owner.

Lien is a right by which a person in possession of the property holds and retains it against the owner in satisfaction of a demand due to the party retaining it.

An agent can exercise a particular lien on the goods, papers, and other property of the principal received by him until moneys due to him are paid.

Lord Ellenborough in Houghton v Mathew described lien ‘to be the right in one man to retain that which is in his possession belonging to another until certain demands of the person who is in possession are satisfied’.

221. Agent’s lien on principal’s property- In absence of any contract to the contrary, an agent is entitled to retain goods, papers and other property, whether movable, or immovable, of the principal received by him, until the amount due to himself for commission, disbursements and services in respect of the same has been paid or accounted for to him.

The conditions of this right are:

(1) the agent should be lawfully entitled to receive from the principal a sum of money by way of commission earned or disembursements made or services rendered in the proper execution of the business of agency.

(2) the property over which the lien is to be exercised should belong to the principal and it should have been received by the agent in his capacity and during the course of his ordinary duties as agent.(Pestonji Bhimji v Ravji Javerchand). The property held by an agent for a special purpose cannot be subjected to lien. In Williamsv Millington it was held that the existence of a special purpose implicitly excludes this right.

Effect of lien

In Gopaldas v vThakurdas it was held that the right of lien is limited in nature. It enables the agent to retain the property till the dues are paid. But this confers no authority on the agent to sell or otherwise dispose of the property without the consent of the owner.

The agent’s lien is lost in following case:-

(1) lien being a possessory right is lost as soon as possession is lost. The agent’s possession is not terminated where property has been obtained from him by unlawful means or by fraud or misrepresentation.

(2) the lien is lost, when the agent waives his right. Waiver may arise out of an agreement express or implied or may be inferred from conduct inconsistent with the right.

(3) the agent’s lien is subject to a contract to the contrary and, therefore, does not exist where the agent has by his agreement with the principal excluded it. In Ramprasad v State of M.P., it was held that the right is excluded where the property is accepted for a special purpose.

6. Right to indemnity

222. Agent to be indemnified against consequences of lawful acts- 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.

The right to indemnify extends to all losses and expenses incurred by the agent in the conduct of the business.

In Kishan Lal v Bansilal, it was held by the Apex Court that the agent must have been demnified in the lawful conduct of the business of agency. A
wagering agreement is not lawful. It is only void. Accordingly, the Supreme Court allowed an agent to recover indemnity for losses incurred by him in wagering transactions entered into on instructions of his principal.

223. Agent to be indemnified against consequences of acts done in good faith- Where one person employs another to do an act in good faith, the employer is liable to indemnify the agent against the consequences of that act, though it causes an injury to the rights of third person.

In Adamson v Jarvis, an auctioneer sold certain cattle on instructions from the defendant and was held liable to the true owner for conversion. He recovered indemnity from the principal because the act in question was apparently lawful. The above right to indemnify does not apply to criminal acts of an agent even though they are authorised by the principal.

224. Non-liability of employer of agent to do a criminal act- Where one person employs another to do an act which is criminal, the employer is not liable to the agent, either upon an express or implied promise, to indemnify him against the consequences of that act.

When the act in question is apparently unlawful or criminal, such as beating a person or publication of a libel, the principal will not be liable upon express or implied promises to indemnify the agent against the consequences of such act.

In Ram Kumar v Lakshmi Narayan, an agent was appointed to import adulterated mustard oil, suffered loss and punishment, but he could not recover indemnity.

In Hazarimal v Khemchand, the plaintiff on instruction, from the defendant(principal), paid a sum of money to the caste panchayat to have the defendant’s caste disqualifications removed; he was allowed to recover money from the defendants.

When the act in question is apparently tortious, the agent, who has been held
liable principal(not indemnity) under the Law Reform(married and tortfeasors) Act,1955.

7. Right to compensation

225. Compensation to agent for injury caused by principal’s neglect- The principal must make compensation to his agent in respect of injury caused to such agent by the principal’s neglect or want of skill.

Thus every principal owes to his agent the duty of care not to expose him to unreasonable risks, as clearly laid down by the court in Federal Insurance Co v Nakano Singapore (P) Ltd where the principal was held liable for weak scaffolding.

References

(a) Acts

1. The Indian Contract Act, 1872, Section.182, Section.183, Section.184, Section.185. 2. The Sale of Goods Act,1930,Section 50.

(b) Books
1. Tomlin’s Law Dictionary.
2. Chitty on Contracts.

(c) Table of Cases
1. Kalyanji Kunwarji v Tirkaram Sheolal,AIR 1938 Nag 255. 2. Syed Abdul Khader v Rami Reddy, AIR 1979 SC 553.
3. Tichel v Short, (1750) 2 Ves Sen 239.
4. Pannalal Jankidas v Mohanlal, AIR 1951 SC 144.
5. Lilley v Doubleday,(1881) 7 QBD 510.
6. Ireland v Livingston,(1872) 2 QB 99.
7. Ferrer v Robbins,(1835) 2 CM & R 152.
8. State Bank of Indore v National Textile Corpn,(2004) 4 MPLJ 214. 9. James Eggay Tailor v United Africa Co.(1937).
10. Keppel v Wheeler,(1927) 1 KB 577.
11. Jyabharathi Corpn v Sv.P.N.Sn. Rajesekara Nadar,1933 Supp (1) SCC 401. 12. Mollet v Robinson,(1870) LR 5 CP 646.
13. Armstrong v Jackson,(1917) 2 KB 822.
14. Bentley v Craven,(1853) 18 Beav 75.
15. Bhola Nath v Mul Chand,ILR (1901-03) 25 All 639.
16. National Shipping Corpn of Saudi Arabia v Sentrans Industries Ltd,(2004) 2 Bom CR 1. 17. John McCain and Co v Pow,(1975) 1 All ER 129 (CA).
18. Summan Singh v National City Bank of New York,ILR 1952 Punj 189. 19. Mohinder v Mohan,AIR 1939 All 188.
20. Union of India v Amar Singh, AIR 1960 SC 233.
21. Moon v Whitney Union,(1837) 43 RR 802.
22. Mason v Joseph,(1804) 1 Smith KB 406.
23. Calico Printers’ Assn v Barclays Bank,(1931) 145 LT 51 (CA). 24. Crema v Cenkos Securities Plc,2011 Bus LR 943 (CA).
25. Sellers v London Countris Newspapers,(1951) 1 All ER 544 (CA). 26. Ayyanah Chetty v Subramania Iyer,(1923) 45 MLJ 409.
27. Peacock v Freeman,(1888) 4 TLR 541 (CA).
28. Sheikh Farid Baksh v Hargulal Singh, AIR 1937 All 46.
29. Green v Bartlett,8 LT 503.
30. Tribe v Taylor,(1876) LR 1 CPD 503.
31. Ellas v Govind Chandar,ILR (1903) 30 Cal 202.
32. Luxor (Eastbourne) Ltd V Cooper,1941AC 108.
33. Heath v Parkinson,(1926) 42 TLR 693.
34. Menon v Cochin Mercantiles Ltd,(1962)32 Comp Cass 378.
35. Houghten v Mathew,(1803) 3 Boss & P 485.
36. Pestonji Bhimji v Ravji Jverchand,(1934) 150 IC 483 (Sind). 37. Williams v Mellington,(1788) 1 Hy B1 81.
38. Gopaldas v Thakurdas,AIR 1957 MB 20,20.
39. Ramprasad v State of M.P.,(1969) 3 SCC 24,27.
40. Kishanlal v Bhanwar Lal,AIR 1954 SC 500 (1955).
41. Adamson v Jarvis,1827.
42. Ram Kumar v Lakshmi Narayan,AIR 1947 Cal.
43. Hazarimal v. Khemchand,AIR 1962 Raj.