What are the Rights of Agent and Duties of Principal

The Indian Contract Act 1872 confers a number of rights on an agent, and imposes some corresponding duties on the principal. They are as follows:

1. Right to Remuneration (Section 219)

Section 219 contains the following provision regarding agent’s right to remuneration for the act done on behalf of the principal:

“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.”

According to the above stated provision, an agent’s remuneration does not become due to him until the completion of the act assigned to him. This rule is subject to any special contract between the principal and the agent. If the parties have agreed that the agent will be entitled to commission when he finds a purchaser, who is ready and willing to purchase the property, the agent becomes entitled to the commission on doing that.

In Saraswati Devi v. Motilal A.I.R. 1982 Raj. 108, Moti Lal, the plaintiff, who was an estate agent, had been engaged by the defendant, Smt. Saraswati Devi and her husband, to find a purchaser for certain property. The plaintiff found a customer, who was willing to pay Rs. 1,27,000 for the property and who also paid an advance of Rs. 30,000. Subsequently, the defendants refused to sell the property to that customer. The plaintiff brought an action against the defendants to recover Rs. 2,500 as remuneration for finding the customer. It was held that according to the nature of this agreement, the remuneration was payable to the plaintiff when he found a purchaser who was ready, willing and able to purchase the property and since he had done that, he was entitled to his commission.

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Agent’s efforts should be effective cause for the transaction

If the agent’s efforts are the effective cause of making the contract, the agent is entitled to his commission. Therefore, when a broker is instrumental in purchase of land by the municipality, but at the last moment of the bargain a municipal commissioner strikes the bargain with a vendor, who has already agreed to sell the land with the efforts of the broker, the broker is entitled to his commission. (Municipal Corp. of Bombay v. Coverji, 20 Bom. 124)

Similarly, if the plaintiff is asked to negotiate a loan and he makes the principal have a contract with a banker who is willing to advance the loan but the transaction does not materialize at that time, but subsequently the principal takes the loan from the same source through another broker, the plaintiff would be entitled to the commission.(Vasanji Moolji v. Karsondas Tejpal, (1928) 30 Bom. L.R. 486; A.I.R. 1928 Bom, 270)

If the agent’s efforts are not the effective cause of the materialization of the transaction, he will not be entitled to any commission. In G.T. Hodges & Sons v. H.P. Residential Hotel Ltd. (1939) 4 All. E.R. 347., a firm of estate agents, in an effort to find a purchaser for their client’s property, negotiated for the sale of property at £ 12,500 with a Colonel, who was acting for the War Office, but the transaction did not materialize. Subsequently, there was compulsory purchase order of that property by the War Office at less than £ 8,000. The agents were held not entitled to any commission as their efforts were considered to be not an effective cause of the sale of property.

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Although as a general rule, an agent cannot claim his remuneration unless he has completed the act assigned to him, the rule does not apply when the agent is to sell the goods. In such a case, according to Section 219, the agent has a right to detain his principal’s money received by him on account of goods sold in order to recover his remuneration, 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. Generally, the sale of goods by an agent may be a continuous process. The law, therefore, entitles him to remuneration on the basis of the work done, from time to time.

No remuneration for the business misconducted (Section 220)

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 misconducted. For example:- A employs B to recover 1,000 rupees from C. Through B’s misconduct, the money is not recovered. B is entitled to no remuneration for his services, and must make good the loss.

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Suit for recovery of commission in contract of Agency

In Continental and Eastern Agencies v. Coal India Limited A.I.R. 2003 Del. 387, plaintiff, agent of foreign company had entered into contract with defendant for sale of machinery to defendant. There were terms in contract that payment of commission would be subject to installation of those machinery. Site for such installation was to be kept ready by the defendant. The Delhi High Court held that as there was failure of defendant to keep the site ready, therefore, agent could not be responsible for non-installation of machines and as such was entitled for commission.

2. Right to retain sums (Secs. 217 and 218)

The agent has a duty to pay to his principal all sums received on principal’s account. But he has also a right to retain, out of any sums received on account of the principal in the business of the agency, all money 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. Similarly, when an agent sells his principal’s goods, he may detain moneys received, for his remuneration on account of the goods sold by him. Such right can be exercised by an advocate also but the lien must be confined to the costs incurred in that particular case.

3. Right of lien on principal’s property (Section 221)

According to Section 221, in the 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.

A purchasing agent can exercise lien over the goods purchased for his principal until the amount due to him for such purchases has been paid. Such right is, however, subject to an agreement to the contrary. Moreover, such a right is lost, when the agent parts with the possession of the goods. The position in this regard was thus explained by Hegde, J. in Ram Prasad v. State of M.P. A.I.R. 1970 S.C. 1818, at p. 1821 :

“As a general rule, in order to have a lien, an agent must have some possession, custody or control or disposing power in or over the subject-matter in which the lien is claimed. The lien does not arise where the possession of property is acquired by the agent under a contract which expressly or impliedly shows contrary intention, or where it is delivered to him for a particular purpose inconsistent with the existence of lien thereon. The agent has no lien over the property where it is entrusted to him for a special purpose which is inconsistent with the lien claimed. Further, the lien of an agent being a mere right to retain possession of the property subject thereto, is lost by parting with the possession of the goods unless at the time of parting with them he reserved expressly or impliedly his right of lien, or they are obtained from him by fraud or unlawful means.”

4. Right to be indemnified (Secs. 222-224)

Indemnity for lawful acts (Section 222)

According to Section 222, 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.


(a) B, at Singapure, 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 the 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, 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.

Indemnity for civil wrongs (Section 223)

Apart from the right of indemnity against the consequences of all lawful acts done by the agent, the agent is also entitled to indemnity against the consequences of an act done in good faith, even though the act causes an injury to the rights of third persons, for example, it is a tort. Section 223 contains the following provision in this regard:

“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 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 persons.


(a) A, a decree-holder and entitled to execution of B’s goods requires the officer of the Court to seize goods, representing them to be the goods of B. The officer seizes the goods and is sued by C, the 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 in 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 C and for B’s own expenses.”

Illustration (b) above is similar to the case of Adamson v. Jarvis (1827) 4 Bing, 66, In this case, the plaintiff, an auctioneer, sold certain goods in good faith on behalf of the defendant. It turned out that the defendant had no right to sell the goods, and the plaintiff (auctioneer) was made to compensate the true owner. The plaintiff was held entitled to be indemnified by the defendant for the loss caused to the former.

No indemnity in case of criminal offences (Section 224)

It has been noted above that when the employer employs an agent to commit an act which amounts to a tort, he is bound to indemnify the agent against the consequence thereof. Section 224, however, makes it clear that when the agent commits a crime at the instance of the principal, the agent cannot claim indemnity from the principal against the consequences of the crime, even though the principal has expressly or impliedly promised to indemnify him.
Section 224 is as follows:

“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 an implied promise, to indemnify him against the consequences of that act.

(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 compensation for damages due to principal’s neglect (Section 225)

According to Section 225, 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.

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

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