Rights of the Agent under Sections 217 to 225 of the Indian Contract Act, 1872: Retainer, Remuneration and When It Becomes Due, Loss of Remuneration for Misconduct, the Agent's Lien, and the Two Indemnities

An agent acts for somebody else's benefit and frequently incurs liabilities in doing so. Sections 217 to 225 give him five protections: he may deduct what is due to him from sums he receives, he may claim remuneration, he may retain the principal's property until he is paid, he may be indemnified against the consequences of what he lawfully does, and he may claim compensation where the principal's own carelessness has injured him. Two limits run through the group and both are strict: misconduct forfeits remuneration for the part misconducted, and no indemnity is available for a criminal act.

1. Right of Retainer: Section 217

Sections 217 and 218, Indian Contract Act, 1872

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.

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 two sections are a matched pair. Section 218 states the agent's duty to account for everything he receives; Section 217 permits him to take his own dues out of it first. The right is a self-help deduction and not a lien: it operates on money actually received in the business of the agency, and it does not extend to money received in some other capacity or in another agency.

2. Remuneration: Sections 219 and 220

Sections 219 and 220, Indian Contract Act, 1872

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.

220. 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.

Illustration (a). A employs B to recover Rs. 1,00,000 from C, and to lay it out on good security. B recovers the Rs. 1,00,000 and lays out Rs. 90,000 on good security, but lays out Rs. 10,000 on security which he ought to have known to be bad, whereby A loses Rs. 2,000. B is entitled to remuneration for recovering the Rs. 1,00,000 and for investing the Rs. 90,000. He is not entitled to any remuneration for investing the Rs. 10,000, and he must make good the Rs. 2,000 to A.

2.1 When remuneration becomes due

The default rule is completion. In the absence of a special contract, nothing is payable until the act the agent was employed to do has been completed.
A special contract may provide otherwise, and commission agreements routinely do, fixing payment on execution of an agreement, on receipt of an advance, or in instalments.
The agent must be the effective cause. Where a commission is payable on a transaction being brought about, the agent must show that his efforts were the effective cause of it, and not merely that the transaction happened after he became involved.
Part performance may earn part payment where the contract is divisible or where the work was done under a series of discrete instructions.
The exception in Section 219 allows an agent to detain money received on goods sold even though the whole consignment has not been sold, which protects a factor dealing in instalments.

2.2 Misconduct and the loss of remuneration

📖 Andrews v. Ramsay & Co., [1903] 2 KB 635

Facts: The plaintiff employed the defendants as agents to sell his property, agreeing to pay them a commission. They found a purchaser and received a deposit, out of which they retained their agreed commission. They had also, without the plaintiff's knowledge, taken a secret commission from the purchaser. On discovering this the plaintiff sued to recover the commission he had paid them.

Held: He was entitled to recover it in full. An agent who takes a secret commission from the other side has put himself in a position inconsistent with his duty to his principal and forfeits his right to any remuneration on that transaction. It is no answer that the principal suffered no loss, or that the price obtained was a good one; the agent has disentitled himself by his own breach of duty.

Ratio: An agent who takes a secret commission forfeits his remuneration on the transaction altogether, in addition to being liable to account for the secret profit, and it is irrelevant that the principal was not prejudiced.

📖 Hippisley v. Knee Brothers, [1905] 1 KB 1

Facts: Auctioneers were employed to sell goods on terms that they would be paid a commission and their out-of-pocket expenses, including the cost of advertising. They charged the principal the full printing charges while in fact receiving a trade discount from the printers, honestly believing that the custom of the trade entitled them to keep it. The principal resisted their claim for commission.

Held: They had to account for the discount, but they were entitled to their commission. Where the agent has acted honestly, and the breach relates to a matter collateral to the main transaction rather than infecting the principal's own contract, the agent is not necessarily deprived of his remuneration. The forfeiture rule in Andrews v. Ramsay applies to dishonest conduct or to a secret benefit taken from the other party to the very transaction.

Ratio: Not every breach of duty forfeits remuneration. An honest agent who must account for an incidental benefit may still recover his commission, while a dishonest agent or one taking a secret commission from the other side loses it.

⚠ Forfeiture is confined to the part misconducted

Section 220 and Illustration (a) draw the line precisely. The agent loses his remuneration in respect of that part of the business which he has misconducted, and not the whole. In the Illustration the agent recovers his fee for collecting the money and for investing the ninety thousand properly, and loses it only for the ten thousand he invested badly, while also making good the loss. Where the misconduct is dishonesty going to the root of the agency, as in Andrews v. Ramsay, the courts have treated the whole transaction as tainted and refused remuneration on all of it; but in the ordinary case of negligence the forfeiture is apportioned.

Each right the Act gives the agent, set against the limit that confines it

3. The Agent's Lien: Section 221

Section 221, Indian Contract Act, 1872

Agent's lien on principal's property. 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.

It is a particular lien. The words in respect of the same confine it to dues relating to the very property retained, unless a general lien is conferred by contract or by Section 171, which names factors and policy-brokers among those who have one.
It extends to immovable property as well as movable, which is unusual and is expressly stated in the section.
It covers papers and documents of the principal that came to the agent in the agency.
Lawful possession is essential, and possession must have been obtained in the capacity of agent and in the course of the agency.
It is lost by parting with possession, by waiver, by a contract to the contrary, and by payment or tender of what is due.
It permits retention only, not sale, which is the general limitation on every lien.

4. The Two Indemnities: Sections 222 and 223

Sections 222, 223 and 224, Indian Contract Act, 1872

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.

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.

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.

	Section 222	Section 223	Section 224
What is covered	The consequences of lawful acts	The consequences of acts done in good faith which injure third persons	Nothing; indemnity is excluded
Condition	The act must be within the authority conferred	The agent must have acted in good faith, that is without knowledge of the wrong	The act is criminal
Effect on third-party claims	The agent is made whole for liabilities lawfully incurred	The agent is made whole even though a third party's rights were injured	The agent bears the consequences himself
Express promise	Not needed; the obligation is statutory	Not needed	Ineffective; an express promise to indemnify a criminal act is unenforceable

Section 223 is the more remarkable of the two, because it indemnifies an agent against liability for injuring the rights of third persons, which Section 222 would not cover since such an act is not lawful as against the person injured. The condition is good faith, and the principle is that of Adamson v. Jarvis, (1827) 4 Bing 66: a person who acts on another's request, in circumstances where the act is not manifestly wrongful to his own knowledge, is entitled to assume that he is being indemnified.

4.1 The limits

Acts outside the authority conferred are not indemnified under Section 222, though they may be ratified under Sections 196 to 200, and ratification brings the indemnity with it.
Acts known by the agent to be wrongful are outside Section 223, which requires good faith.
Criminal acts are excluded absolutely by Section 224, and no express agreement will save them. Such an agreement is in any event void under Section 23 as forbidden by law and opposed to public policy.
The agent's own negligence is not indemnified, since the loss flows from his breach of Section 212 rather than from the act authorised.
An agent who exceeds his authority must bear the consequences of the excess, and may also be liable to the third party for breach of warranty of authority under Section 235.

5. Compensation for the Principal's Neglect: Section 225

Section 225, Indian Contract Act, 1872

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 own want of skill or neglect.

Illustration. 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.

Section 225 is the mirror of Section 212, which makes the agent liable for the direct consequences of his own neglect or want of skill. The obligation runs both ways, and the Illustration shows an ordinary workplace injury caused by the employer's defective arrangements. In modern practice the section overlaps with the law of negligence and with statutory workplace safety obligations, and a claimant will usually have more than one route.

6. The Rights Summarised

Right	Content	Key limit
Retainer, Section 217	To deduct advances, expenses properly incurred and remuneration from sums received in the agency	Only from money received in that agency; Section 218 requires the balance to be paid over
Remuneration, Section 219	Payable on completion of the act, in the absence of a special contract	The agent must be the effective cause of the transaction
No remuneration for misconduct, Section 220	Forfeited in respect of the part of the business misconducted	Dishonesty may taint the whole, per Andrews v. Ramsay; honest breach may not, per Hippisley
Lien, Section 221	To retain goods, papers and property, movable or immovable, until dues are paid	A particular lien only; lost by parting with possession; permits retention, not sale
Indemnity for lawful acts, Section 222	Against the consequences of lawful acts within the authority	Acts outside the authority are excluded unless ratified
Indemnity for good faith acts, Section 223	Against the consequences of acts done in good faith that injure third persons	Good faith is essential
No indemnity for criminal acts, Section 224	Excluded absolutely	An express promise is equally unenforceable
Compensation, Section 225	For injury caused by the principal's own want of skill or neglect	The injury must flow from the principal's conduct

7. The Position Stated Shortly

Section 217 permits the agent to deduct advances, expenses and remuneration from sums received in the agency, and Section 218 requires him to pay over the balance.
Section 219 makes remuneration payable on completion of the act, in the absence of a special contract, and the agent must be the effective cause of the transaction.
Section 220 forfeits remuneration in respect of the part of the business misconducted, as Illustration (a) apportions it.
Andrews v. Ramsay: an agent who takes a secret commission forfeits his remuneration on the transaction entirely, whether or not the principal was prejudiced.
Hippisley v. Knee Brothers: an honest agent who must account for an incidental benefit may still recover his commission.
Section 221 gives a particular lien over goods, papers and property, movable or immovable, permitting retention but not sale.
Section 222 indemnifies the agent against the consequences of lawful acts within his authority.
Section 223 indemnifies him for acts done in good faith even where they injure third persons, on the principle of Adamson v. Jarvis.
Section 224 excludes any indemnity for criminal acts, and an express promise to that effect is unenforceable.
Section 225 requires the principal to compensate the agent for injury caused by his own want of skill or neglect.

8. Related Topics and Provisions

Topic or provision	Connection
Duties of the Agent under Sections 211 to 216	The obligations for which remuneration may be forfeited
Agency under Sections 182 to 238	Creation, authority, delegation and termination
Lien under Sections 170 and 171	Particular and general lien, and factors and policy-brokers
Contract of Indemnity under Sections 124 and 125	The general law of indemnity
Sections 217 to 225, Indian Contract Act	The agent's rights
Section 212, Indian Contract Act	The agent's own liability for want of skill or neglect
Section 235, Indian Contract Act	Liability for acting beyond authority
Section 23, Indian Contract Act	Why an indemnity for a criminal act is void