1. Agency agreement for sale of goods — Dispute over commission and recovery of amount under promissory note — Suit for rendition of accounts. (Para 2 )
Back
Next 
1966 Supreme(SC) 115
SUPREME COURT OF INDIA
K. SUBBA RAO AND V. RAMASWAMI, JJ.
Narandas Morardas Galiwala and others Appellants
Versus
S. P. A. M. Papammal and another, Respondents.
Civil Appeals Nos. 177 and 178 of 1964, dated 25-3-1966.
Advocates appeared
Mr. S. V. Gupte, Solicitor-General of India (Mr. B. Datta, Advocate, and Mr. J. B. Dadachanji, Advocate, of M/s. J. B. Dadachanji and Co., with him), for Appellants; Mr. S.T. Desai, Senior Advocate, (Mr. R. Gopalakrishnan, Advocate, with him), for Respondents.
Important Points
An agent has an equitable right to sue a principal for accounts when the principal holds exclusive knowledge of transactions. Additionally, oral agreements constituting a condition precedent to the enforceability of a written instrument are admissible under Proviso 3 of Section 92 of the Evidence Act.
Subject
Civil Law - Contract Law
Act Referred
Headnote
(A) Indian Contract Act, 1872 - Section 213 - Agency - Right of agent to sue principal for accounts - While the statute specifically recognizes the principal's right to demand accounts from an agent, the statute is not exhaustive - An agent possesses an equitable right to sue the principal for accounts under special circumstances, particularly where accounts are exclusively in the possession of the principal or where remuneration depends on clearings unknown to the agent (Paras 3, 5).
(B) Evidence Act, 1872 - Section 92, Proviso 3 - Promissory Note - Oral agreement as condition precedent - Evidence of a separate oral agreement constituting a condition precedent to the attaching of any obligation under a written instrument is admissible - A collateral oral agreement that a promissory note shall not be enforced until a certain condition is fulfilled (such as the completion of an accounting period) suspends the coming into force of the obligation and falls within the third proviso to Section 92 (Para 6).
Facts of the case:
A principal appointed an agent on a sole agency basis for a specific period and territory. The agent had executed a promissory note in favor of the principal. It was agreed that the indebtedness under the promissory note would be adjusted against the commission earned by the agent. The agent sought rendition of accounts to determine the commission due, while the principal sought recovery of the amount under the promissory note.
Findings of Court:
The court found that the agent was entitled to sue for accounts because the relevant transactions were peculiarly within the knowledge of the principal. Furthermore, the oral agreement regarding the non-enforcement of the promissory note until accounting was a condition precedent to its enforceability, rather than merely a mode of discharge.
Issues: (i) Whether an agent can sue a principal for rendition of accounts in the absence of a statutory provision; (ii) Whether a parole agreement can be admitted to prove a condition precedent to the enforceability of a promissory note under Section 92 of the Evidence Act.
Ratio Decidendi: The right of an agent to sue for accounts is an equitable right arising in special circumstances where the principal holds exclusive knowledge of the transactions. Under the third proviso to Section 92 of the Evidence Act, an oral agreement that suspends the coming into force of an obligation until a condition is met constitutes a condition precedent and is admissible.
Result: Appeals dismissed.
(B) Evidence Act, 1872 - Section 92, Proviso 3 - Promissory Note - Oral agreement as condition precedent - Evidence of a separate oral agreement constituting a condition precedent to the attaching of any obligation under a written instrument is admissible - A collateral oral agreement that a promissory note shall not be enforced until a certain condition is fulfilled (such as the completion of an accounting period) suspends the coming into force of the obligation and falls within the third proviso to Section 92 (Para 6).
Facts of the case:
A principal appointed an agent on a sole agency basis for a specific period and territory. The agent had executed a promissory note in favor of the principal. It was agreed that the indebtedness under the promissory note would be adjusted against the commission earned by the agent. The agent sought rendition of accounts to determine the commission due, while the principal sought recovery of the amount under the promissory note.
Findings of Court:
The court found that the agent was entitled to sue for accounts because the relevant transactions were peculiarly within the knowledge of the principal. Furthermore, the oral agreement regarding the non-enforcement of the promissory note until accounting was a condition precedent to its enforceability, rather than merely a mode of discharge.
Issues: (i) Whether an agent can sue a principal for rendition of accounts in the absence of a statutory provision; (ii) Whether a parole agreement can be admitted to prove a condition precedent to the enforceability of a promissory note under Section 92 of the Evidence Act.
Ratio Decidendi: The right of an agent to sue for accounts is an equitable right arising in special circumstances where the principal holds exclusive knowledge of the transactions. Under the third proviso to Section 92 of the Evidence Act, an oral agreement that suspends the coming into force of an obligation until a condition is met constitutes a condition precedent and is admissible.
Result: Appeals dismissed.
Legal Category Hierarchy
Advocates:
B.DUTTA, J.B.DADACHAN, R.GOPAL KRISHNAN, S.T.DESAI, S.V.Gupta
B.DUTTA, J.B.DADACHAN, R.GOPAL KRISHNAN, S.T.DESAI, S.V.Gupta
Table of Contents
2. Whether an agent can sue a principal for accounts and whether an oral agreement can be proved as a condition precedent to a promissory note's enforceability. (Para 3 , 6 )
3. Agent's right to sue for accounts is an equitable right in special circumstances; oral agreements suspending a promissory note's obligation constitute conditions precedent under Section 92, Evidence Act. (Para 3 , 4 , 5 , 6 )
4. An agent may sue a principal for accounts in equity where records are exclusively with the principal; oral agreements suspending obligation are conditions precedent under Section 92, Evidence Act. (Para 5 , 6 )
5. Appeals dismissed; judgment of the High Court upheld. (Para 7 )
6. Can an agent sue their principal for rendition of accounts?
Yes. While not a statutory right under the Indian Contract Act, it is an equitable right arising in special circumstances, such as when accounts are exclusively in the principal's possession or remuneration depends on information known only to the principal. (Para 3 , 5 )
7. When is an oral agreement admissible to vary the terms of a written instrument under Section 92 of the Evidence Act?
Under Proviso 3 of Section 92, a separate oral agreement constituting a condition precedent to the attaching of any obligation under a contract or instrument may be proved. (Para 6 )
8. Does an agreement to delay the demand of a promissory note constitute a condition precedent?
Yes. A collateral oral agreement not to make a demand until a specified condition is fulfilled suspends the coming into force of the obligation, thus constituting a condition precedent to the attaching of the obligation. (Para 6 )
Judgment
RAMASWAMI, J. : These appeals are brought, by special leave, from the judgment and decree of the Madras High Court dated September 20, 1961 in A. S. Nos. 45 and 202 of 1957.
2. Narandas Morardas Gaziwala and Lakshmi Chand and Co. were two firms of partnership carrying on business in lace and silver thread at Surat in the State of Bombay. They had dealings with another firm at Kumbakonam - Krishna and Company- who acted as their agents for selling their goods in the three districts of Tanjore, Tiruchirapalli and Mathurai in the State of Madras on commission basis. The two partners of Krishna and Co. were Murugesa Chettiar and his wife s sister s husband Gopal Chettiar. It appears that Krishna and Co. was acting as commission agents on behalf of the two firms at Surat from 1944 till 1951 when the partnership of Krishna and Co. became dissolved by mutual agreement between the partners. Murugesa Chettiar, one of the partners of Krishna and Co. took over all the assets and liabilities of the firm on dissolution and the other partner Gopal Chettiar retired from the firm. In respect of the dealings of the two firms at Surat (hereinafter to be referred to as the Surat Firm) with Krishna and Co., the latter became indebted in 1951. On April 1, 1951 Murugesa Chettiar (hereinafter referred to as the plaintiff) executed a promissory note in favour of Narandas Morardas Gaziwala for a sum of Rs. 7,500 the amount ascertained as due and payable by Krishna and Co. in respect of the dealings of that firm with the Surat firm on a settlement of account. It is the case of the plaintiff that on April 1, 1951 the Surat firm constituted Murugesa Chettiar as the sole agent for selling their goods bearing the trade mark "Napoleon" "Vivekananda" and other marks for the three districts for period of 5 years from April 1, 1951 agreeing to pay commission at a flat rate of Rs.2 per mark for all sales effected in those territories either on orders booked by him or not. The case of the plaintiff was that the Surat firm circumvented the terms of this contract of sole agency and privately effected sales through others or direct to customers in those territories. The plaintiff s contention further was that the Surat firm as part of this agreement of sole agency agreed to have its indebtedness under the promissory note adjusted towards the commission that may be earned by him. The plaintiff therefore instituted O. S. No. 87 of 1954 in the District Munsif s Court, Kancheepuram praying for rendition of accounts from April 1, 1951 till the date of the suit in order to ascertain the amount due and payable to him. The Surat firm in its turn instituted O. S. No. 21 of 1954 in the court of Subordinate Judge, Chingleput against the plaintiff seeking to recover the amount due under the promissory note, viz., a sum of Rs. 7,500. By an order of the District Court, Chingleput O. S. No. 87 of 1954 on the file of District Munsif, Kancheepuram was transferred to the file of the Subordinate Judge, Chingleput and taken on his file as O. S. No. 35 of 1955. Both the suits were tried together by consent of parties. On December 12, 1956 the Subordinate Judge held that the plaintiff was constituted as the sole agent on commission basis for the three territories, Tanjore, Tiruchirappalli and Madurai for a period of 5 years as pleaded and proved by him and the Surat firm was liable to render an account of their sales in those territories from April 1, 1951 and accordingly granted a preliminary decree for rendition of accounts. In O. S. No. 21 of 1954 the Subordinate Judge granted a decree for the amount covered by the promissory note but directed that the decretal amount should be adjusted out of the commission that may be found due and payable on taking of accounts in O. S. No. 35 of 1955. The Surat firm preferred an appeal against the decree in O. S. No. 21 of 1954-A. S. No. 45 of 1957. They also preferred an appeal against the decree in O. S. 35 of 1955 to the District Court
