NATIONAL LAW UNIVERSITY, JODHPUR
PROJECT
Subject- Contracts II
PROJECT TOPIC: AGENTS RIGHT OF REMUNERATION
Submitted by- Submitted to-
Ayush Mehta (1661) Mr. Arunabha Banerjee
Assistant Professor
Semester- II Faculty of Law
NATIONAL LAW UNIVERSITY, JODHPUR, (WINTER SEMESTER)
(JANUARY- MAY 2019)
TABLE OF CONTENTS
TABLE OF CONTENTS...........................................................................................................2
INTRODUCTION......................................................................................................................3
SECTION 219, INDIAN CONTRACT ACT 1872...................................................................4
COMPLETION OF ACT:......................................................................................................4
COMMISSION OF AGENT:................................................................................................5
RIGHT OF AGENT WHEN PREVENTED FROM EARNING REMUNERATION:........5
WHEN DOES REMUNERATION BECOMES DUE TO THE AGENT?...........................6
SECTION 220, INDIAN CONTRACT ACT, 1872..................................................................7
AGENTS RIGHT TO BE INDEMNIFIED...............................................................................8
ACT WITHIN SCOPE OF AUTHORITY............................................................................8
SECTION 223 OF THE INDIAN CONTRACT ACT,1872.................................................8
CONCLUSION........................................................................................................................10
BIBLIOGRAPHY....................................................................................................................11
INTRODUCTION
According to the Indian Contract Act, 1872 “an Agent is a person employed to do any act for
another, or to represent another in dealings with third person. The person for whom such
work is done, or who is so represented is called the principal.”1
An agent is supposed to conduct the business of his principal according to the directions
given by the principal, or, in absence of any such directions, according to the custom which
prevails. It is the duty of every agent to carry out the mandate of his principal. An agent is
bound to conduct the business of the agency with as much skill as is reasonable. An agent is
bound to render proper accounts to his principal on demand. It is the duty of an agent, in
cases of difficulty, to use all reasonable diligence in communicating with his principal, and in
seeking to obtain his instructions. If an agent deals on his own account in the business of the
agency, the principal may repudiate the transaction.
This project will cover the rights of an agent, mainly his rights to remuneration in relation to
act done by him for his principal.
Remuneration defines as reward for performing a service in form of cash, kind bonus etc.
Under Indian Contract Act, 1872 agents right of remuneration is defined under Section 219
which states that “ 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 money
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”2
This project shall deal specifically with the rights of agent when his remuneration is due and
what are the exceptions to it, for example when there is misconduct in the behaviour of the
agent which comes under section 220 of the Indian Contract Act, 1872. It shall also cover the
relevancy of the section in the Indian context with relevant case laws.
It shall also cover in brief agents right to indemnity when he has done some work for
principal which resulted in losses, he has a right to be indemnified for those losses.
1
Section 182 of the Indian Contract Act, 1872.
2
Section 219 of the Indian Contract Act, 1872.
SECTION 219, INDIAN CONTRACT ACT 1872
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 money 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”3
An agent has no right to receive any remuneration from the principal for whom he is working
unless there is an express or implied contract made to that extent with the principal.4
From the section 219 of ICA we get the term special contract: when there is an express
contract providing for the remuneration of the agent, the amount of the remuneration and the
conditions under which it becomes payable must primarily be ascertained from the contract’s
terms.5 When the terms of remuneration are written in a contract then until all the conditions
are fulfilled the agent is not entitled to remuneration failing to do so the agent shall not
receive remuneration.6 Therefore an agent only receives remuneration when it is expressly
mentioned in a contract between the agent and the principal, which can be either expressed or
implied.
When there is no contract specifically mentioned then the agent receives remuneration
through the principles of customs, or usage or otherwise which can be implied of the
particular business in which the agent is employed. 7 This generally include the nature of the
work done by an agent and the services provided by him, or if he had previously done some
services for the same.
In the business world, if services are rendered by the agent and accepted by the principal,
there is often an implied term that the agent may be entitled to reasonable remuneration for
such services rendered, even if there is no express agreement for the payment of
remuneration8
COMPLETION OF ACT:
In order to entitle the agent, the right to remuneration he must have carried out all that he
agreed to do so under the terms of the agency, and all conditions imposed by the contract
must have been fulfilled and only then he shall get the remuneration for the work done. Also,
the agent shall get the remuneration for the work done and irrespective of the fact that the
work he did was beneficial to the principal or not, or even if the transaction falls through any
reason of default by the principal or otherwise.9
Work Partly Done: Where the authority of an agent is revoked after it has been partly
exercised or after the agent has attempted to exercise it, the question is whether he is entitled
to quantum meruit for the work previously done, depends upon the terms of contract of
agency and the custom or usage of the particular trade or business. However, the principle of
quantum meruit does not apply to an agreement expressly limiting commission to goods
3
Supra, Note 1
4
Lakshmiji Sugar Mills Co. Ltd v. Banwari Lal Tandon, AIR 1959 AP 370.
5
Green v. Mules (1861) 30 LJCP 343.
6
Raja Ram Jaiswal v. Ganesh Prasad AIR 1959 All 29.
7
Satchinanda Dutt v. Nritya Nath Mitter, (1923) 50 CAL 878, AIR 1924 CAL 517, 79 IC 287.
8
https://www.eaa.org.hk/en-us/Information-Centre/Publications/Agency-Law/-6-Agents-rights-against-
principal-under-common
9
Green v. Lucas 1876 31 LT 731
delivered; or when the agent fails to comply with the terms imposed upon him under the
agency agreement.10
Whether the parties intended to give the agent reasonable remuneration or a fixed
remuneration depends upon the facts of each case. Ordinarily if an intending purchaser
withdraws before or at the time of the completion of the sale, the vendor may (i) forfeit the
earnest money or (ii) sue for specific performance or (iii) sue for damages. In the last two
categories, the agent is entitled to remuneration but in the first category, the agent would not
be entitled to his commission unless it is possible to infer that in any event parties intended to
give reasonable remunerations for the service of the agent.11
COMMISSION OF AGENT:
Commission basically is the remuneration earned by an agent in respect to a job done by him
resulting in benefit for the principal.
Contracts with commission agents can fall in three classes:
- Where the agent is promised a commission by the principal if he succeeds on
introducing to his principal a person who makes an adequate offer
- Where the property is put into the hands of the agent to dispose of for the owner and
agent accepts the employment.
- Where the agent is promised commission only upon the completion of the transaction
which he had endeavoured to bring about between the offeror and his principal.12
In respect to the completion of act by the agent, the question whether an agent is entitled to
commission, it has been decided that if the relation of the buyer and seller is really brought
about by the act of the agent, he is entitled to commission, although the actual sale has not
been affected by him.13
An agent can claim commission only on transactions made by a direct result of his agency. 14
It is not sufficient to show that the transaction would not have entered into, but for his
introduction, rather he must go further and show that his introduction was the direct cause of
the transaction which had occurred in order to claim compensation for the same. 15 The agent
must show that he was the causa causans and not the remote cause for the transaction.16
What is the effect of termination of contract of agent on the commission earned by the agent?
Prima facie, the right of remuneration in form of commission of agent is ceased to end after
the contract with the principal is terminated, unless in the cases where whole of the work
necessary to earn the commission has been done by the agent before the employment ceases.
RIGHT OF AGENT WHEN PREVENTED FROM EARNING REMUNERATION:
10
Premji Virji v. Sir Edward Sassoon, AIR 1927 Bom 225.
11
Turner v. Goldsmith (1861) 1 QB 5
12
Raja Ram Jaiswal v. Ganesh Prasad AIR 1959 All 29.
13
Pollock and Mulla, The Indian Contract and Specific Relief Act (14th Ed, Vol 2)
14
Vasanji Moolji v. Karsondas Tejpal AIR 1928 Bom 270
15
Tribe v. Taylor 1876 1 CPD 505; Liladhar Chaturbhuj v. Mathurdas Gokuldas AIR 1934 Bom 158, 36 Bom
LR 119
16
Unger, J. (1941). Remuneration of Agents. The Modern Law Review, 4(4), 304-307.
Where an agent is employed on a commission basis, the commission is payable on
completion of the employment and there is no general rule preventing the principal taking
steps to deprive the agent of his commission. However, if in breach of contract, express or
implied, with an agent the principal, by refusing to compete a transaction or otherwise
prevents the agent from earning the remuneration, then the agent is entitled to damages. 17
And in such cases the measure of damages entitled to the agent who has done all the work he
undertook, is the full amount of remuneration he was to earn had the principal had completed
the transaction.18
However, the burden of proof to show that the agent was entitled to remuneration lies on the
agent himself in case of breach by the principal.
WHEN DOES REMUNERATION BECOMES DUE TO THE AGENT?
This is a question worth asking from the understanding of the section 219 of the Indian
Contract Act,1872.
It raises two major points:
First being when is the act complete and second being is the act a result of the agent’s
services.
Both the questions depend basically on the terms of the contract. Much also depends on the
nature of the service that the agent undertakes to provide. An example is a case in the
Allahabad High Court where an agent was informed to provide for a purchaser willing to
purchase the defendants property, which he did and even the sale was settled however, it
could not go through because of the purchaser’s inability to procure money. The agent is this
case was nevertheless entitled to the commission even though the act was not completed.19
Secondly the transaction that results must be due to the agent’s services. The bargain resulted
must be a direct result of the actions of the agents done for the principal 20, and not a partial
result of agent’s services as in such case he shall not get compensation as the work stipulated
to him by the principal for which the remuneration would be given has not been fulfilled.
In Green v. Barlett21, an agent was appointed to sell a house. He held an auction but failed to
find a purchaser. One of the persons attending the auction got the details of the principal and
purchased the house without the intervention of the agent. Here because the person buying
the house obtained the information about the principal from the agent bought the house even
without his intervention, but the principal was held liable to pay commission to the agent for
the work done by him.
17
Bauman v. Hulton Press Ltd. 1952, 2 All ER 1121.
18
Dunn Shaw-Pattern Ltd. v. 1981 QB 290 (1981) All ER 482.
19
Saraswati Devi v. Motilal AIR 1982 Raj 108
20
Avtar Singh, Contract and Specific Relief (12th Ed)
21
Green v. Barlet (1863) 14 CNBS 681: 8 LT 503. Approved by privy council in Burchell v. Gowie, 1910 AC
614
SECTION 220, INDIAN CONTRACT ACT, 1872
Agent not entitled to remuneration for business misconducted:
“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.”22
The section explains that if an agent has committed misconduct in the act of his agency, he
shall not be entitled to any remuneration he would have been entitled to had he done his
business in the rightful manner. The reason behind this is that a principal is entitled to have
an honest agent, and it is an honest agent who is entitled to any commission amounting of the
work he does under the contract of agency.23
An agent cannot thus, claim from the principal the expenses incurred in acting contrary to
instructions, nor his remuneration or commission 24; nor where the agent has failed to exercise
proper skill and diligence.25
The law commission of India recommended that certain acts be specified such as would
disentitle the agent from receiving his remuneration:
Misconduct in Section 220, Indian Contract Act, 1872 include the following acts:
- Entering into any transaction which is unlawful on the gface of it or by reason of facts
known to agent;
- Entering into a transaction in violation of the duties arising from the fiduciary
character of the relationship between the principal and the agent, even if the
transaction is adopted by the principal;
- Acceptance or agreement to accept, a bribe or secret commission from a third
person.26
Eg. Where an agent in a plot for sale, sold the property, retained his part of the commission
from his principal with his consent and also without his consent and knowledge received a
commission from the buyer also, the agent shall be held liable not only to account for the
secret commission to the principal but also return the usual commission, which he had
retained.27
Some examples where agents right to remuneration can be taken are:
An agent may therefore not be entitled to remuneration where he disregarded or violated the
directions or instructions of the principal28; where the agent has wrongfully retained money
entrusted to him instead of disposing it according to directions given by the principal; the
agent making secret profits or agreeing to obtain a secret commission for arranging sale.29
remuneration in an agency agreement cannot be forfeited, unless there is inter-dependence
between the act of misconduct and, the performance of work or the fulfilment of condition
upon which the right of remuneration depends.30
In conclusion for this section, whenever an agent misconducts the business of the principal
through any means mentioned above his right to remuneration may stand cancelled and the
22
Section 220, Indian Contract Act, 1872.
23
Purushottam Haridas v. Amruth Ghee Co. AIR 1961 AP 143.
24
Pani Bai v. Sire Kanwar AIR 1981 Raj 184.
25
Shridhar Rao v. Gopal Rao, AIR 1940 Mad 299
26
The 13th Law Commission Report, 1958, para 170.
27
Andrews v. Ramsay & co., (1903) 2 KB 635.
28
A.C Mukherjee v. Municipal Board (1924) All 175.
29
Abdul Rahiman Haji Fakir Mahommad v. D Rangiah Goundam AIR 1914 Mad 145.
30
Peninsular and oriental Steam Navigation Co. v. Johnson, (1938) 60 CLR 189
principal has the right to withhold remuneration or commission for the act so done because it
has been misconducted.
AGENTS RIGHT TO BE INDEMNIFIED
“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.”31
To explain the section mentioned, an illustration is given: A is the agent of B who is the
principal, contracts with him to deliver some goods to C. B does not send the goods to C who
in counter sues A for the breach of contract. A informs B of the same who tells him to defend
the suit. Now the losses occurred by A as a result of the breach done by the principal B, shall
be indemnified by the principal to the agent.
This is a right given to Agents under the Indian Contract Act, 1872 which safeguards them
whenever the principal breaches a contract for which they suffer the damages. This is so
because the agent as the representative of the principal acts wholly on his behalf and not on
his own. A principal is bound to compensate the agent against the consequences of lawful
acts done in exercise of the authority conferred upon him, but not in excess of expressly
stipulated considerations.32 This right of indemnity not only extends to recover the expenses
incurred in the business of the agency but also for any losses or liability incurred in the
exercise of authority as well.33
ACT WITHIN SCOPE OF AUTHORITY
An agent is entitled to reimbursement through indemnity by his principal when he acts within
the scope of authority34, or under the directions of the principal.
To explain this further an example: An agent purchased and booked goods on behalf of the
principal for moneys advanced by him to the principal, but the goods were lost in transit, the
principal was liable to bear the losses.35
However, an Agent making unauthorized decisions is not entitled to indemnity on account it
being an act done outside the scope of authority and the losses suffered by him shall be borne
by himself and not be the principal.36
The act done by the Agent to claim indemnity as remuneration shall be a lawful act as this is
an essential condition; it is not sufficient to show that his act is innocent and performed in
good faith but the act shall also be lawful.37
SECTION 223 OF THE INDIAN CONTRACT ACT,1872
Agents right 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.
An agent is protected against his acts done in good faith at the behest of the principal, and is
entitled to indemnity for them from the principal though such acts cause injury to third
persons.
31
Section 222, Indian Contract Act, 1872.
32
Alopi Prasad and Sons Ltd. v. Union of India, (1960) 2SCR 793, AIR 1960 588
33
Manghi Ram v. Firm of Ram Saran Das- Maman Chand, AIR 1914 lah 407
34
Hazrai Lal v. Hari Ram AIR 1959 Raj 153
35
K Munneya v. K Varadarajulu AIR 1964 AP 17
36
Firm Mathra das Jagan Nath v. Firm Jiwan Mal Gian Chand 1927 Lah 7, AIR 1928 Lah 196
37
Ram Kumar Agarwala v. Lakshmi Nayaran Agarwala AIR 1947 Cal 157
The preceding section deals with indemnity against the consequences of lawful acts; this
section with the consequences of unlawful acts done in good faith. For instance, in a suit for
accounts by the principal against the agent, the agent is entitled to deduct moneys authorized
expended by him for unlawful purposes, though he may not succeed in a suit to recover the
amount so expended. t is clearly settled that an agent cannot claim indemnity in respect of
acts which he knows to be unlawful, even they are not criminal, whether on an express or
implied promise. Any such promise is void as being contrary to public policy.38
38
Alkin v. Jupe (1877) 2 CPD 375 (illegal insurance)
CONCLUSION
Agents right of remuneration arises when an agent does some work for his principal for
which he has to be remunerated or given commission. Most prominent examples of this is of
Commission Agents who work for their principal in return for a reasonable commission for
the said benefit of the principal.
Section 219, Indian Contract Act, 1872 deals with the Agent’s right to remuneration and it
basically states that whenever there is a contract between an agent and principal, expressed or
implied, the agent has a right to remuneration for the work done for the principal irrespective
of the fact that the act causes benefit to the principal or not if it can be shown that the agent
has done his duty with full due care and not misconducted his business.
The remuneration of the agent will only be due when the work has been completed and not
before that unless it is stated in the contract between the principal and the agent. Also,
whenever there is no contract between the two parties then agent can claim remuneration if
he can show that the work or nature of the agency is such that through customs and usage
there must be remuneration given to him which is just and reasonable.
Section 219, basically gives rights and protects the agent’s interest for the work he does for
the principal.
Similarly, under the section 220, Indian Contract Act, 1872 which deals with misconduct of
the agent, whenever an agent misconducts the business of the principal, the principal through
section 220 has a right to revoke the remuneration of the agent which had been due had the
work been done in a proper manner by the agent. This section outlines the situations where
the agents acts maliciously, for example, taking commission from the third party also without
the knowledge of the principal. Here the principal reserves a right to cancel his agency and
revoke or withhold the remuneration given to the agent.
Section 222 deals with the indemnity for the agent when he does an act in the course of
employment which causes him to suffer some damages and losses. He has a right to be
indemnified for the said work by his principal because this was an act done in good faith and
under the course of employment.
BIBLIOGRAPHY
Cases
A.C Mukherjee v. Municipal Board (1924) All 175..................................................................7
Abdul Rahiman Haji Fakir Mahommad v. D Rangiah Goundam AIR 1914 Mad 145.............7
Alkin v. Jupe (1877) 2 CPD 375 (illegal insuranc.....................................................................9
Alopi Prasad and Sons Ltd. v. Union of India, (1960) 2SCR 793, AIR 1960 58......................8
Andrews v. Ramsay & co., (1903) 2 KB 635...........................................................................7
Bauman v. Hulton Press Ltd. 1952, 2 All ER 1121...................................................................6
Dunn Shaw-Pattern Ltd. v. 1981 QB 290 (1981) All ER 482...................................................6
Firm Mathra das Jagan Nath v. Firm Jiwan Mal gian Chand 1927 Lah 7, AIR 1928 Lah 19...8
Green v. Barlet (1863) 14 CNBS 681: 8 LT 503. Approved by privy council in Burchell v.
Gowie, 1910 AC 61................................................................................................................6
Green v. Mules (1861) 30 LJCP 343.........................................................................................4
Hazrai Lal v. Hari Ram AIR 1959 Raj 15..................................................................................8
K Munneya v. K Varadarajulu AIR 1964 AP 1.........................................................................8
Lakshmiji Sugar Mills Co. Ltd v. Banwari Lal Tandon, AIR 1959 AP 370.............................4
Manghi Ram v. Firm of Ram Saran Das- Maman Chand, AIR 1914 lah 40.............................8
Pani Bai v. Sire Kanwar AIR 1981 Raj 184...............................................................................7
Premji Virji v. Sir Edward Sassoon, AIR 1927 Bom 225..........................................................4
Purushottam Haridas v. Amruth Ghee Co. AIR 1961 AP 143...................................................7
Raja Ram Jaiswal v. Ganesh Prasad AIR 1959 All 29..........................................................4, 5
Ram Kumar Agarwala v. Lakshmi Nayaran Agarwala AIR 1947 Cal 15.................................8
Saraswati Devi v. Motilal AIR 1982 Raj 10..............................................................................6
Satchinanda Dutt v. Nritya Nath Mitter, (1923) 50 CAL 878, AIR 1924 CAL 517, 79 IC 2874
Shridhar Rao v. Gopal Rao, AIR 1940 Mad 29.........................................................................7
Tribe v. Taylor 1876 1 CPD 505; Liladhar Chaturbhuj v. Mathurdas Gokuldas AIR 1934
Bom 158, 36 Bom LR 11.......................................................................................................5
Turner v. Goldsmith (1861) 1 QB..............................................................................................5
Vasanji Moolji v. Karsondas Tejpal AIR 1928 Bom 27............................................................5
Statutes
Section 182 of the Indian Contract Act, 1872............................................................................3
Section 219 of the Indian Contract Act, 1872............................................................................3
Section 220, Indian Contract Act, 1872.....................................................................................7
Section 222, Indian Contract Act, 1872.....................................................................................8
Supra, Note.................................................................................................................................4
Books
Avtar Singh, Contract and Specific Relief (12th Ed)..................................................................6
Pollock and Mulla, The Indian Contract and Specific Relief Act (14th Ed, Vol 2)....................5
Other Authorities
The 13th Law Commission Report, 1958, para 170....................................................................7
Articles
https://www.eaa.org.hk/en-us/Information-Centre/Publications/Agency-Law/-6-Agents-
rights-against-principal-under-common.................................................................................4
Unger, J. (1941). Remuneration of Agents. The Modern Law Review, 4(4), 304-307.............5
