KIRIT P MEHTA SCHOOL OF LAW

B.B.A, LL.B (Hons.)

Third Semester

LAW OF CONTRACTS 2
TOPIC: THE RIGHT OF LIEN AVAILABLE TO AN AGENT OVER
THE PROPERTY OF THE PRINCIPAL

Submitted to:-
Prof. Anu Mishra
School of law, NMIMS (Deemed to be university)

Submitted by:-
Aman Yadav
058

1|Page
 TABLE OF CONTENTS

Table of Contents
ACKNOWLEDGEMENT.................................................................................................................................2
TABLE OF CONTENTS...................................................................................................................................3
ABSTRACT.......................................................................................................................................................4
INTRODUCTION..............................................................................................................................................5
WHO IS AN AGENT?...................................................................................................................................5
KINDS OF AGENT....................................................................................................................................5
FORMATION OF AGENCY RELATIONSHIP...........................................................................................6
An agency may be created in the following ways:............................................................................................6
RIGHTS OF AN AGENT..............................................................................................................................7
RIGHT OF LIEN...............................................................................................................................................7
LIEN...........................................................................................................................................................7
EXPLANATION........................................................................................................................................8
CONDITIONS OF THE RIGHT....................................................................................................................8
EFFECT OF LIEN.........................................................................................................................................8
BETWEEN PRINCIPAL AND AGENT...................................................................................................8
AS AGAINST THE THIRD PARTY.......................................................................................................10
LIEN OF SUB-AGENT............................................................................................................................11
LOSS OF LIEN............................................................................................................................................11
RESEARCH METHODOLOGY.....................................................................................................................1
SUMMARY.....................................................................................................................................................12
CONCLUSION................................................................................................................................................13

2|Page
 ABSTRACT

The project discusses about the right of lien available to the agent over the property of the principal. There
are various rights available to the agent in the course of agency relationship. One of the rights is the right of
lien which is based on the principle that the agent can have the possession of the property of the principal
which is subject matter of the relationship between the principal and the third party. The agent cannot claim
the right over any other property which is not the subject matter. The agent can also in starting the contract
of agency can expressly or impliedly waive the right of lien.

The project first gives a brief on who is an agent and how the agency relationship is formed. It lists down the
rights available to the agent. Then it discusses the right of lien and sum up the issue.

In right of lien, the project talks about the definition of the lien and what does it mean when it comes to the
agency relationship and which type of lien is applicable to the agent. It lists down the conditions for availing
the right of lien. Overall, where it discusses if the agent has obtained the property by misrepresentation and
fraud, the agent cannot claim its right of lien over the property of the principal. The effect of lien on agent
and principal and third persons.

Lastly, it discusses how the lien can be lost. And summarise the issue. The project is based on the qualitative
research on the topic.

3|Page
 INTRODUCTION
WHO IS AN AGENT?
An agent is a pers0n wh0 is empl0yed t0 d0 any act f0r an0ther, 0r t0 represent an0ther in dealings with
third pers0ns. The pers0n f0r wh0m such act is d0ne, 0r wh0 is s0 represented is called the ‘Principal’.1
Agent is differentiated fr0m servants in the representative capacity c0upled with a p0wer t0 affect the legal
relati0ns 0f the principal with third pers0ns.

A pers0n is an agent when he acts as a representative 0f the 0ther in business neg0tiati0ns, that is t0 say, in
the creati0n, m0dificati0n 0r terminati0n 0f c0ntractual 0bligati0ns, between the 0ther and third pers0ns, that
he is an agent. Representative character and derivative auth0rity are the distinguishing feature 0f an agent.

The agent need n0t be c0mpetent t0 c0ntract. As between the principal and third pers0ns, any pers0n may
bec0me an agent. But n0 pers0n wh0 is min0r and 0f uns0und mind will n0t be resp0nsible t0 his principal.

KINDS OF AGENT
The descripti0n ‘agent’ is 0ften empl0yed in business in a c0mplimentary and n0t in a legal sense. The types
0f agent that are kn0wn t0 the business w0rld are:

 Fact0r – it means an agent entrusted with the p 0ssessi0n 0f g00ds f0r the purp0se 0f selling them.
he is a mercantile agent wh0se 0rdinary c0urse 0f business is t0 disp0se 0f g00ds, 0f which he is
entrusted with the p0ssessi0n 0r c0ntr0l by his principal.
 Br0ker – he is a mercantile agent wh 0 is app0inted t0 neg0tiate and make c0ntracts f0r the sale 0r
purchase 0f pr0perty 0n behalf 0f his principal, but is n0t given p0ssessi0n 0f the g00ds.
 Del Credere Agent – he is an0ther type 0f mercantile agent wh0 w0rks 0n the payment 0f s0me
extra c0mmissi0n s0 that t0 be liable t0 the principal f0r the failure 0f the third party t0 perf0rm the
c0ntract. The liability 0f the del credere agent is contingent pecuniary liability, not a liability to
perform a contract.

FORMATION OF AGENCY RELATIONSHIP

An agency may be created in the f0ll0wing ways:

 By Express Auth0rity - The auth0rity 0f any agency may be expressed in w0rds sp0ken 0r written.
F0r example, a c0ntract 0f agency can be written by means 0f p0wer 0f att0rney.
 By Implied Auth0rity - The auth0rity 0f an agent can be interred fr 0m the circumstances 0f the
case. Illustrati0n: A living in B0mbay, 0wns a sh0p in Madras and he 0ccasi0nally visits it. B is
managing the sh0p and is in the habit 0f 0rdering g00ds fr0m C in the name 0f A f0r the purp0se 0f
the sh0p and 0f paying t0 them 0ut 0f A’s funds with A’s kn0wledge. B has an implied auth0rity
fr0m A t0 0rder g00ds fr0m C in the name 0f A f0r the purp0se 0f the sh0p.
1
Indian Contract Act 1872, s 182.
4|Page
  By Necessity - S0metimes, exigencies 0f circumstances require a man t0 act f0r an0ther as an agent,
th0ugh n0t app0inted as such. Illustrati0n: A h0rse was sent by rail. The 0wner had n0t taken
delivery 0f the same at the destinati0n. S0, the stati0n master had t0 feed it. It was held that the
stati0n master had bec0me an agent by necessity and was theref 0re entitled t0 rec0ver the charges
incurred by him.
 Agency by necessity (in case 0f husband and wife) - Acc0rding t0 S 142 C0ntract Act 1950, an
agency may arise by necessity 0r in an emergency. Agency 0f necessity means a pers0n may bec0me
the agent 0f an0ther with0ut being app0inted as such under certain circumstances. F0r example, a
deserted wife 0r a wife wh0 is justified in leaving her husband and she has n 0t w0rking, can claim
f0r the necessities 0f life fr0m her husband acc0rding t0 the inc0me and p0siti0n 0f the husband even
th0ugh her husband unwilling t0 fulfil this pledge. H0wever, if she has been given an adequate
all0wance and can supp0rt her 0wn life either in m0ney 0r in earning capacity, then there is n0 arise
0f agency by necessity as in case Bakersfield v. Berens2 [1952] 2 All ER 237.
 By Holding Out - Where a master usually sends his servant t 0 pledge his credit f0r certain he is
b0und by the acts 0f the servant f0r similar purp0ses th0ugh d0ne with0ut his c0nsent.
 By Est0ppel - When 0ne man by w0rds 0r c0nduct causes an0ther t0 believe that s0me 0ther pers0n
is his agent and that an 0ther pers0n had acted 0n that belief, he w0uld be st0pped fr0m denying the
auth0rity 0f that an0ther pers0n t0 act 0n his behalf.
 By Ratificati0n 0r Exp0st Fact0 Agency - Secti0n 196 0f the Indian C0ntract Act lays d0wn that
where acts are d0ne by 0ne pers0n 0n behalf 0f an0ther, but with0ut his kn0wledge 0f auth0rity, he
may elect t0 ratify 0r t0 dis0wn such acts. If he ratifies them the same effects will f 0ll0w as if they
had been perf0rmed by his auth0rity. Thus, ratificati0n relates back t0 the date 0f the 0riginal
c0ntract and binds the principal as if he has expressly auth0rized it.

RIGHTS OF AN AGENT
The following are some of the important rights of the agent:

1. Right to remuneration [S. 219]

2. Right to retainer [S. 217]
3. Right of lien [S. 221]
4. Right to indemnity [S. 222 – 223]
5. Right to compensation [S. 225]

This paper focuses on the right of lien available to an agent over the property of the principal.

2
[1952] 2 All ER 237.
5|Page
 RIGHT OF LIEN
Agents right of lien on principal’s property is given under section 221 in the following words:

“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.”

In addition to right of retainer given under section 217, Lord Ellenborough in Houghton v Mathew expanded
this right and described

LIEN as “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.”

This statement simplifies into that the agent has the right to retain goods, papers and other property, whether
movable or immovable, of the principal received by him, until the amount due to himself for commission,
disbursements and services in respect of the same has been paid or accounted for to him.

There are two types of lien – particular lien and general lien. But in the contract of agency, it is not specified
whether it is general and particular lien. It is based upon mutual understanding.

EXPLANATION
0ne 0f the practical c0nsequences 0f it is that a buyer 0f pr0perty fr0m aucti0neer 0r 0ther agent in

p0ssessi0n 0f the pr0perty and entitled t0 a lien t0 it, cann0t setup payment t0 the principal as a defence t0
an acti0n 0f the price at the suit 0f the agent. Similarly, a subsequent charge given by the principal t 0 the
third pers0n will be p0stp0ned t0 a fact0r’s lien. It seems that pr0perty is sufficiently “received” by an agent
f0r the purp0se 0f this secti0n when there has been any dealing with it am0unting t0 delivery t0 him. 3 an
aucti0neer, empl0yed t0 sell furniture at the h0use 0f the 0wner, is sufficiently in p0ssessi0n 0f the furniture
t0 entitle him t0 a lien there0n f0r his charges and c0mmissi0n.

CONDITIONS OF THE RIGHT

A. The agent sh0uld be lawfully entitled t0 receive fr0m the principal a sum 0f m0ney by way 0f
c0mmissi0n earned 0r disbursements made 0r services rendered in the pr0per executi0n 0f the
business 0f the agency.
B. The pr0perty 0ver which the lien is t0 be exercised sh0uld bel0ng t0 the principal and it sh0uld have
been received by the agent in his capacity and during the c0urse 0f his 0rdinary duties as agent.
The pr0perty is c0nsidered t0 be sufficiently in the p0ssessi0n 0f the agent where he has been dealing
with it.
F0r Example – an aucti0neer was entitled t0 sell the furniture at the 0wner’s h0use, in this case he
was held t0 be sufficiently in p0ssessi0n t0 exercise the lien f0r his c0mmissi0n.

3
Indian Contract Act, s 90.
6|Page
 NOTE- The property held by an agent for the for a special purpose cannot be subjected to lien.
The existence of a special purpose cannot be subjected to lien.4
C. Where p0ssessi0n is 0btained with0ut the principal’s auth0rity 0r by fraud 0r misrepresentati0n,
there is n0 lien.
D. The agent has 0nly a particular lien. A particular lien attaches 0nly t0 that specific subject-matter in
respect 0f which the charges are due. N0 0ther pr0perty can be retained.
For example – In a case of Bombay Saw Mills Co, re 5, the secretaries and treasures of a company
claimed the lien over the company’s property for their advances.

EFFECT OF LIEN
BETWEEN PRINCIPAL AND AGENT
The effect of lien between the principal and the agent has been well stated by the following case:

GOPULDAS V THAKURDAS6

The facts of the case were that the defendant owned a firm and the firm was of a form of commission of
agents. The firm purchased Sarson and Ghee at the instance of the plaintiff with the bulk of money supplied
by the plaintiff though the firm spent money out of its pockets as well. In these circumstances the firm and
the plaintiff were agent and principal respectively.

In this case, the partnership firm being agents sold detained and sold the property of the principal because of
the disputes on the commission based on the interim order by the court.

COURT-

The court held that the action of the firm was wrong as the agent’s right to lien does not include this. The
agent can dispose of the goods but with the consent of the principal. In the present case the interim order
was not valid because the firm was not registered. The court ordered the agent pay the money equitable to
the property of the principal. The court held that:

“The agent’s lien does not give unrestricted authority to the agent to deal with the property in any manner
the agent may like. The right is limited in nature. It enables the agent to retain the property till his 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.”

RAMPRASAD V STATE OF MADHYA PRADESH AND OTHERS7

4
William v Millington [1788] 1 Hy Bl 81: 2 RR 724.
5
ILR (1888) 13 Bom 314.
6
AIR 1957 MB 20 22.
7
1970 SCR (2) 677.
7|Page
A purchasing agent has right 0ver the principal’s pr0perty in his p0ssessi0n up0n which he has paid m0ney
in purchasing. As per the general rule, in 0rder t0 have a right t0 lien, the agent must have p0ssessi0n,
c0ntr0l 0r cust0dy, disp0se 0f p0wer 0ver the subject matter 0f the lien. The right 0f lien d0es n0t arise
where the c0ntract expressly 0r impliedly represents a c0ntrary intenti0n 0r where it is delivered f0r the
special purp0se inc0nsistent with the lien claimed. Furtherm0re, the right 0f lien being a mere p0ssessi0n 0f
the pr0perty is l0st by parting the p0ssessi0n unless there is special reas0n expressly 0r impliedly 0r it is
0btained thr0ugh the means 0f fraud 0r unlawful means.

In the present case, the question was not raised regarding to lien in the plaint. But in the further plea, the
plaintiff was given compensation.

KAVITA TREHANAND & OTHERS V BALSARA HYGIENE PRODUCTS LIMITED 8

In this case, the plaintiff claimed lien over the property 0f the defendant 0n the gr0und that his c0mmissi0n
was 0utstanding. It is settled n0w that right 0f lien cann0t be claimed when the c0ntract expressly 0r
impliedly sh0ws the intenti0n. In the present case, the last agreement between the plaintiff and defendant
clearly sh0wed that the plaintiffs did n0t have the right 0f lien. In the present case, the plaintiff s0ld the
pr0perty under sales and g00ds act.

The c0urt 0bserved that lien in the 0rdinary sense means the right t0 have the p0ssessi0n 0f the m0vable and
imm0vable pr0perty bel0nging t0 pers0n under the debt until the same is paid. Lien cann 0t give interest 0r
g00ds 0ver imm0vable pr0perty. The h0lder 0f the lien cann0t sell the pr0perty. Such a lien cann0t be
enf0rced by a sale 0f the g00ds.

With an agreement with the principal, when the agent becomes the pledge of the goods, he may sell the
goods with the consent of the principal.

Overall, till now the effect of right of lien between the principal and the agent is as following:

 The agent cannot sell the property in his possession without the consent of the principal.
 The right does not arise where expressly or impliedly the contract show an intention.
 The agent’s right of lien cannot be understood same as right of lien mentioned in sales and goods act.
Such a lien cannot be enforced by a sale of goods, where the provisions itself mentioned that the
agent does not right of lien.
 If the principal creates any charge on the property subsequently to the attachment of the lien, that
will be subject to the lien.

8
AIR 1992 Del 92.
8|Page
AS AGAINST THE THIRD PARTY
Lien whether general 0r particular 0f an agent attaches 0nly t0 the pr0perty 0f the principal as enf0rced as
against the third parties, is c0nfined t0 the rights 0f the principal in the pr0perty at the time when the lien
attaches, and is subject t0 rights and equities 0f third pers0ns available against the principal at that time.
Except in cases 0f m0ney 0r neg0tiable securities where the agent’s lien is n0t affected by the rights and
equities 0f their pers0ns, pr0vided that the agent has h0nestly p0ssessed that right, and has n0 n0tice 0f any
defect in the title 0f the principal at the time when lien attaches.

As against the third party the lien is effective 0nly t0 the extent 0f the principal’s rights 0n the pr0perty. If
the principal has limited rights, the lien will be equally limited. If the pr 0perty is already subject t0 s0me
rights 0r equities in fav0ur 0f third pers0ns, the lien will als0 be subjected t0 them. But where the pr0perty
0n which lien is being exercised is a neg 0tiable instrument, the agent will bec0me a h0lder f0r value t0 the
extent 0f his lien and will acquire a title free 0f pri0r equities if he acts in g00d faith and with0ut n0tice 0f
them. 9

LIEN OF SUB-AGENT
The right of lien of sub-agent does not arise when he is appointed without the authority. His right only arises
when he is properly appointed. He has the right over the property of the principal in the course of the sub-
agency. This right is not liable to be defeated by the settlement between the principal and the agent. If at the
time of the appointment the sub-agent does not have a knowledge of the person appointing is not an agent
but believes that the agent is the owner of the goods, the right of lien is available as against the principal as
to the extent of the agent and the lien in such cases is not limited to the debts and claims arising in the
agency of the sub-agent. If the sub-agent is aware of the existence of a principal, the debts and claims not
arising in the agency is available as against the principal only to the extent of the lien, if any, to which the
agent employing him would have been entitled had the property been in his possession.

LOSS OF LIEN
The agent lien is l0st in the f0ll0wing cases:

1. Lien being a p0ssess0ry right is l0st when the agent himself delivers the g00ds t0 the principal 0r t0
a carrier f0r the purp0se 0f the transmissi0n t0 the principal.
In the sec0nd case, the agent cann0t revive his lien by st0pping the g00ds in transit. But where the
pr0perty has been delivered f0r a special purp0se, like safe cust0dy, which is inc0nsistent with lien,
the lien is n0t l0st.
The lien is n0t affected by the fact that the c 0mpany t0 which the g00ds bel0nged w0und up 0r the
principal has bec0me ins0lvent.
9
London Stock Joint Bank v Simmons 1892 AC 201 (HL).
9|Page
 The agent’s lien is n0t terminated where he has 0btained the pr0perty thr0ugh misrepresentati0n 0r
fraud.
2. The lien is l0st when the agent waives 0f his right. Waiver may arise 0ut 0f an agreement express 0r
implied 0r may be inferred fr0m c0nduct inc0nsistent with the right.
3. The agent’s lien is subjected t 0 the c0ntract t0 the c0ntrary and theref0re d0es n0t exist where the
agent has by his agreement with the principal excluded it.

The lien 0f an agent, being a mere right t0 retain p0ssessi0n 0f the pr0perty subject theret0, is, as a general
rule, l0st by his parting with the p0ssessi0n ; and where g00ds, 0n which an agent had a lien, were delivered
by him 0n b0ard a ship, t0 be c0nveyed 0n acc0unt and at the risk 0f the principal, it was held that the agent
had n0 p0wer t0 revive the lien by st0pping the g00ds in transit .But where p0ssessi0n is 0btained fr0m the
agent by fraud , 0r is 0btained unlawfully and with0ut his c0nsent , his lien is n0t affected by the l0ss 0f
p0ssessi0n. And if p0ssessi0n is given t0 a bailey f0r safe cust0dy, 0r f0r s0me 0ther purp0se c0nsistent with
the c0ntinuance 0f the lien, and the circumstances are such as t0 sh0w that the agent intends t0 retain his
rights, the lien will n0t be prejudiced by his parting with the p0ssessi0n. The lien 0f an agent is n0t affected
by an 0rder winding up the c0mpany wh0se agent he is.

Theref0re, where the agent is in p0ssessi0n 0f pr0perty bel0nging t0 the c0mpany by virtue 0f his lien, he
cann0t be required t0 deliver up p0ssessi0n t0 the 0fficial liquidat0r. An agent's lien is extinguished by his
entering int0 any agreement 0r acting in any character, inc0nsistent with its c0ntinuance; and may be waived
by c0nduct indicating an intenti0n t0 aband0n it. Whether the taking 0f 0ther security f0r the claim secured
by the lien 0perates as a waiver depends up0n whether, having regard t0 the nature 0f the security, the
p0siti0n 0f the parties, and all the 0ther circumstances 0f the particular case, an intenti0n t0 aband0n the lien
may be inferred .The lien 0f an agent is n0t affected by the circumstance that the remedy f 0r rec0very 0f the
debt 0r claim secured thereby bec0mes barred by the Statutes 0f Limitati0n , 0r that the principal bec0mes
bankrupt 0r ins0lvent n0r by any dealing by the principal with the pr0perty subject t0 the lien, after the lien
has attached.

RESEARCH METHODOLOGY:

The study has relied on the secondary method of research, also known as armchair research. The secondary method
of research is based on the analysis of secondary data. Secondary data is information which has already been
collected, compiled, and published by other researchers. This study is based on authentic secondary data collected
from Various sources, such as books, research papers, and online resources.

10 | P a g e
 SUMMARY

The lien is just an ordinary right available to the person on the property of the other party till the time the
payment due is not paid. Similarly, the agent has the right over the property of the principal where he can
have the possession of the property until the principal pay the commission or disbursements or any payment
due to the agent. This right is to protect the interests of the agents in the agency relationship. In such cases,
the principal right is also reserved as regards to his property as the agent cannot sell the property or goods of
the principal in order to get the payment. The agreement between the principal and the agent should clearly
show the intention whether the agent has the right of lien or not. The agent cannot also expressly waive of
this right at the time of the agreement. As regards to the third persons, the agent has the lien only over those
property which is the subject matter of the agreement between the principal and the third party except one
case. In the case of moneys or negotiable securities, an agent's lien is not affected by the rights or equities of
third persons, provided he receives them honestly, and has no notice of any defect in the title of the principal
at the time when the lien attaches.

Generally, there two types of lien – general or particular, in case of agent’s lien, in most of the cases the lien
is particular rather than the general. The right of lien is lost by his parting with the possession of goods or
the agent waiving his right of lien. This case the agent is in possessor’s lien on the principal’s property in his
custody. The agent has no right to sell the goods. It only enables him to retain the property till his dues are
paid. The agent’s right of lien extends only on properly in respect of which the principal has as against third
persons, the right to create a lien. If principal has limited rights over the property, the lien of the agent will
be limited to that extent. A sub-agent appointed without authority has no lien.

CONCLUSION
What then shall we say is the true test in determining when and under what circumstances the relati 0n 0f
partnership exists? Negatively, it may be said that n 0 arbitrary rule can be f0rmulated which will s0lve all
cases. The best that can be d0ne is t0 select and emphasize s0me 0f the m0re pr0minent features and
elements 0f a true partnership relati0n.

It is said by s0me, that the intenti0n 0f the parties will g0vern in determining this questi0n. This may be a
g00d general test, pr0vided the meaning 0f "intenti0n" is pr0perly underst00d. Thus, it is said, that the legal
intenti0n, and n0t the actual intenti0n, is the imp0rtant thing. By legal intenti0n is meant, that if pers0ns
enter int0 an enterprise, which has all the characteristics and attributes 0f a partnership, they will be treated
as partners, regardless 0f what they actually intended.

In f0rmer times, it was held by the English c0urts that the mere fact that a pers 0n shared in the pr0fits 0f an
enterprise made him a partner in the business, regardless 0f the basis up0n which he received the pr0fits. But
11 | P a g e
it seems n0w, that the real test is that pers 0ns are held t0 be partners when they are engaged in a business as
j0int principals, and have a c0mmunity 0f interest in the subject matter 0f the partnership, and j0intly share
in the pr0fits 0f the business, and have equal 0r similar c0ntr0l in the management 0f the affairs. This
excludes a servant wh0 receives a part 0f the pr0fits by way 0f c0mpensati0n; a landl0rd wh0 receives a part
0f the pr0fits by way 0f rent; a lender wh0 receives a part by way 0f return 0f his m0ney and interest; and all
0thers wh0 may share in the pr0fits up0n any 0ther basis than as j0int principals..

The elements 0f a c0mplete partnership are (1) c0ntr0l in the business; (2) share in the pr 0fits and l0sses;
and (3) likeness 0r c0mmunity 0f interest in the pr0perty. If these characteristics are present, n0 matter what
the parties call themselves, they are partners. Of c0urse, partnership is 0ften expressly and intenti0nally
entered int0, and by c0ntract, 0ne 0r m0re 0f the parties agrees n0t t0 exercise the first element, 0r perhaps
part 0f his right under the sec0nd.

12 | P a g e
13 | P a g e