Sections 218 and 219 of the Indian Contract Act 1872: Agent's Duty to Pay Principal and When Remuneration Becomes Due
Sections 218 and 219 form part of the law governing the relationship between a principal and an agent. Section 218 deals with the agent's obligation to hand over money received on the principal's account, while Section 219 states the general rule for the time at which an agent's remuneration becomes payable.
Section 218 - Agent's duty to pay sums received for principal
Statutory text: "Subject to such deductions, the agent is bound to pay to his principal all sums received on his account."
Section 218 imposes a clear accounting and payment obligation on an agent. Money received by the agent on behalf of the principal belongs, subject to lawful deductions, to the principal and must be paid over to the principal.
What does "subject to such deductions" mean?
The expression connects Section 218 with the agent's right of retainer under Section 217. Section 217 permits an agent, out of sums received on the principal's account in the business of the agency, to retain money due for advances made, expenses properly incurred, and remuneration payable for acting as agent. After these permissible deductions, Section 218 requires the balance to be paid to the principal.
Practical effect of Section 218
An agent cannot ordinarily treat money collected for the principal as the agent's own money. The agent must account for the receipts, make only deductions lawfully available under the agency arrangement and the Act, and remit the remaining amount to the principal.
Section 219 - When agent's remuneration becomes due
Statutory text: "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."
Section 219 provides the default rule for payment of an agent's remuneration. Unless the principal and agent have made a special contract providing otherwise, remuneration for performing an act becomes due when that act is completed.
Special contract can alter the default rule
The opening words of Section 219 are important. The statutory timing rule applies "in the absence of any special contract." The principal and agent may therefore agree on a different payment arrangement, subject to the general law governing contracts.
Exception relating to money received from sale of goods
Section 219 also allows an agent to detain money received on account of goods sold even where all goods consigned for sale have not yet been sold or the overall sale transaction has not been fully completed. This operates with the agent's statutory rights concerning money received in the course of the agency.
How Sections 217, 218 and 219 work together
These provisions should be read together. Section 217 identifies amounts that an agent may retain from sums received for the principal. Section 218 requires the agent to pay the principal the balance after permissible deductions. Section 219 determines, unless a special contract provides otherwise, when remuneration for the agent's performance becomes due and also recognizes the stated right to detain sale proceeds.
Key points
Section 218 protects the principal's entitlement to money collected on the principal's account. Section 219 supplies a default rule that remuneration becomes due after completion of the relevant act, while preserving the parties' freedom to agree otherwise and allowing the agent to detain money received on account of goods sold in the circumstances stated in the section.
This article provides general legal information based on the statutory provisions. The terms of the particular agency contract and the facts of a dispute may affect the legal position.