Right of Lien

INTRODUCTION:-

In the absence of any contract to the contrary 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, disbursement and services in respect of the same has been paid or accounted for to him.

In addition to the above right of retainer Lord ELLENBOROUGH in HOUGHTON V. MATHEW [1] described and expended lien “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”.[2]

The condition of the right are:

1.The agent should be lawfully entitled to receive from the principal a sum of money by way of commission earned or disbursements made or services rendered in the proper execution of the business of agency.

2.The property over which the lien to be exercised should belong to the principal  and it should have been received by the agent.[3] The property is considered to be sufficient  in the possession of the agent where he has  been dealing with it. Thus where an auctioneer was engaged to sell furniture at the owner’s house, he was held to be sufficiently in possession to exercise lien for his commission. The property held by an agent for a special purpose implicitly excludes the right.[4]similarly, where possession is obtained without  the principal’s  authority or by fraud or misrepresentation, there is no lien, briefly, the agent’s possession must be lawful.

3.The agent has only a particular lien. A particular lien attached only to that specific-matter in respect of which the charges[5] are due. No other property can be retained.

4.For example in BOMBAY SAW MILLS CO. RE:[6]

The secretaries and treasurers [7] of a company’s property for their advances.

SCOTT J rejected the claim “ because  the sums advanced and expended were not as required (by section)221 ‘ disborsements and services in respects of the property on which the lien was claimed ,but were loans made on behalf of the company generally and for the purpose of the whole concern.”[8]

EFFECT OF LIEN:-

The effect of the lien as between the principal and the agent has been thud stated by A.H.KHAN J in GOPALDAS V. THAKURDAS[9]

“ the agent’s lien does not give unrestricted authority to the agent to deal with the property in any manner the agent  to deal with the property in any manner the agent may like. The right is limited in nature. It enable  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”.[10] 

A partnership firm acting as the clearing and forwarding agents of the principal detained the goods of the principal because of  a disputes about their commission  amount and had the goods sold on an interim court order. The firm was held to be in the wrong, it had no right to sell because lien does not give that right. An agent can no doubt dispose of the goods with the consent of the principal or with the court order, but in this case the order of the court was not valid because the firm being not registered could not have filed a suit. The sale was wrongful. The court directed the firm to keep intact the money equivalent of the value of the goods so that the remedy of accounts would be effectively

Available to the principal.[11]

 Where however , in terms of his agreement with the principal, the agents has become a pledge of the goods, he may sell them after giving a reasonable notice to the principal og his intention to sell.

As against he third parties the lien is effective only to the extent of the principal’s rights on the property. If the principal has limited rights, the lien will be equally limited. If the principal has limited rights. The lien will be equally limited. If the property is already subject to some rights or equities in favour of third persons, the lien will also be subject to them. But where the property on which lien is being exercised is a negotiable instrument, the agent will become a holder for value to the extent of his lien and will acquire a title free of prior equities if he acts in giid faith and with out notice of them.[12]

If the principal creates any charges on the property subsequent to the attachment of the lien. That will be subject to the lien.

LOSS OF LIEN: -

The agents lien is lost in the following cases:

1.lien, being a possessory right, is lost as soon as possession is lost. Possession is lost when the agent delivers the goods to the principal himself or to a carrier for the purpose of transemission to the principal.

In the latter case the agent cannot revive his lie by stopping the goods in transit[13]. But where the property has been delivered for a special purpose. like safe custody, which is inconsistent with lien, the lien is not lost.

As long as the agent remains in possession, his lien is effectively, and is not affected by the fact that the company to which thaw goods belonged has been ordered to be wound up.[14] Or that the principal has become insolvent. Thaw agents possession is not terminated where property has been obtained from him by unlawful means or by fraud or misrepresentation.

2. the lien is lost, when the agent waiver his right. Waiver may arise out of an agreement express or implied or may be inferred from conduct inconsistent with the right. 

3. The agents lien is subject to a contract to the contrary and ,therefore, does not exist where the agent has by agreement with the principal excluded it.[15]

One practical consequence of this rule is that a buyer of property from an auctioneer, or other agent known to be in possession of the property and entitled to a lien on it, cannot set up payment to the principal as a defence to an action for the price at the suit of the agent [16].

Similarly a subsequent charge given by the principal to a third person will be postponed to a factor's lien. It seems that property is sufficiently" received " by an agent for the purpose of this section when there has been any dealing with it amounting to delivery to him under s. 90 [17]. An auctioneer, employed to sell furniture at the house of the owner, is sufficiently in possession of the fui-niture to entitle him to a lien thereon for his charges and commission [18]. But a lien cannot be acquired by a wrongful act. The possession of the property, therefore, must be obtained by the agent lawfully in order that a lien, whether general or particular, may attach. If he obtains it by misrepresentations [19], or without the principal's authority [20], he has no lien thereon. Nor, where property is entrusted to an agent for a special purpose, can the agent claim any lien, the existence of which is inconsistent with such purpose.

The lien claimable under this section is confined to commission, disbursements, and services in respect of the specific property on which lien is claimed.

Where the secretaries and treasurers of a limited company claimed a lien under this section on "goods, papers, and other property,whether moveable or immoveable," of the company in their possession forloans made on behalf of the company and for the purpose of the whole concern, it was held that the loans, not having been specially assigned tothe property, did not constitute " disbursements and services in respect of" S. 221. that property, and the agents were, therefore, not entitled to the lien claimed.[21]

HOW FAR LIEN EFFECTIVE AGAINST THIRD PERSONS:-

The lien, whether general or particular, of an agent attaches only on property in respect of which the principal has, as against third persons, the right to create a lien [22], and, except in the case of money and negotiable securities, is confined to the rights of the principal in the property at the time when the lien attaches, and is subject to all rights and equities of third persons available against the principal at that time [23]. It seems unnecessary to give illustrations of this rule or to multiply authorities, which are numerous,because an agent's lien being founded on a contract, express or implied, with the principal, it obviously follows that the law must be -as stated. In the case of moneys or negotiable securities, an agent's lien is not affected by the rights or equities of third persons [24], 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 [25].

This does not depend on any principle of agency, but on the rule that any person who takes a negotiable instrument in good, faith and for value acquires a good title notwithstanding any defect in the title of the person from whom he takes it ; a person taking such an instrument under circumstances giving him a lien thereon being considered a holder for value to the extent of the lien [26] Lien of sub-agents. A sub-agent who is employed by an agent without the authority, express or implied, of the principal [27] has no lien, either general or particular, as against the principal [28] But a sub-agent who is properly apnointed has the same right of lien against the principal in respect of debts and claims arising in the course of the sub-agency, on property coming into his possession in the course of the sub-agency, as he would have had against the agent employing him if the agent had been the owner of the property; and this right is not liable to be defeated by asettlement between the principal and agent to which the sub-agent is not a party [29]. If a sub-agent properly appointed has no knowledge that the person employing him is an agent, but believes on reasonable grounds, at the time when the lien attaches, that the agent is the owner of the property and is acting on his own behalf, the sub-agent's lien, whether general or particular, is available against the principal to the same extent as it would have been against the agent if the agent had been the owner of the property ; and the lien is not in such a case limited to debts and claims arising in the course of the sub-agency [30]. If, however, the sub-agent is aware of the existence of a principal at the time when the lien attaches, his general lien in respect of debts and claims not arising in the course of the sub-agency is available 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[31].

The lien of an agent, being a mere right to retain possession of the property subject thereto, is, as a general rule, lost by his parting with the possession ; and where goods, on which an agent had a lien, were delivered by him on board a ship, to be conveyed on account and at the risk of the principal, it was held that the agent had no power to revive the lien by stopping the goods in transit .But where possession is obtained from the agent by fraud , or is obtained unlawfully and without his consent , his lien is not affected by the loss of possession. And if possession is given to a bailey for safe custody, or for some other purpose consistent with the continuance of the lien, and the circumstances are such as to show that the agent intends to retain his rights, the lien will not be prejudiced by his parting with the possession . The lien of an agent is not affected by an order winding up the company whose agent he is.

Therefore where the agent is in possession of property belonging to the company by virtue of his lien he cannot be required to deliver up possession to the official liquidator. An agent's lien is extinguished by his entering into any agreement or acting in any character , inconsistent with its continuance ; and may be waived by conduct indicating an intention to abandon it. Whether the taking of other security for the claim secured by the lien operates as a waiver depends upon whether, having regard to the nature of the security, the position of the parties, and all the other circumstances of the particular case, an intention to abandon the lien may be inferred .The lien of an agent is not affected by the circumstance that the remedy for recovery of the debt or claim secured thereby becomes barred by the Statutes of Limitation , or that the principal becomes bankrupt or insolvent  nor by any dealing by the principal with the property subject to the lien, after the lien has attached.

RELEVENT CASES:-

KavitaTrehanandOrs. Vs. Balsara Hygiene Products Limited[32]

Hon'ble Judges:

Anil Dev Singh, J

The defendant has suffered at the hands of the plaintiffs as a result of the sale of goods and stocks belonging to it. As already pointed out the goods and stocks were not liable to be sold under Section 221 of the Contract Act. The goods having been metamorphosed into money by the wrongful act of the plaintiffs under the protective umbrella of the order of the court, to which it was not revealed by the plaintiffs that their partnership was not registered as required under law, money equivalent of goods must be kept in tact so that remedy of account is effectively available to the defendant against the plaintiffs and is not ultimately frustrated and defeated by the one who by virtue of being an agent occupied a position of trust and confidence with his principal qua goods and stock of the latter. This court while adjusting equities and granting relief cannot shut its eyes to the fact that the plaintiffs have taken the advantage of that position and cannot be allowed to retain money representing the value of the goods. According to the statement of Prem Nath Trehan, attorney of the plaintiffs recorded on April 3, 1991 sales are not even reflected in the books of accounts of the firm. An agent is under an obligation to maintain proper accounts. It also needs to be noticed that order dated March 27, 1989 was passed without notice to the defendants despite the fact that the same was of a very drastic nature. What is the use of hearing a party after restraining him from interfering with sale of his goods. Surely, it was not a matter which could not brook any delay. It was a case where one of the main reliefs prayed for in the plaint at the interlocutory stage was granted on the day of institution of the suit.

JUDGMENT:- In the case in hand the plaintiffs claim a lien on the goods to the defendant on the ground that his commission was outstanding. It may be mentioned that the lien does not arise when the possession of the property is acquired by an agent, where a contract expressly or impliedly shows a intention. In the last agreement between the parties it is specifically provided that the plaintiffs will not have any lien over the goods of the defendant However, I am not in a position to give any categorical finding on this aspect of the matter as this position is disputed by the learned counsel forth plaintiff who says that the said agreement has come to an end by efflux o time. Be that as it may, under Section 221 of the Contract Act the lien o an agent extends only to the retention of the property till his dues are paid Section 221 of the Contract Act does not provide for sale of property for satisfaction of the agents dues. Lien over the principal's property is of a very limited nature and is confined to mere right of retainer which may be used as a defense to any action for the recovery of the property brought- against him by the principal. Lien in the ordinary sense means a right toe keep possession of moveable and immoveable properties belonging to a person in debt until the same has been paid off. Lien cannot give any right interest or title in the goods or immoveable property. The holder of the lien cannot sell the property. Even at common law a legal !ien merely confers on the holder of the articles in respect of which it was claimed, a passive right to detain the articles until the debts was paid. Such a lien cannot be enforced by sale of the goods. Sometimes only in rare cases sale could be effect by the order of the court.

The defendant has suffered at the hands of the plaintiffs as a result of the sale of goods and stocks belonging to it. As already pointed out the goods and stocks were not liable to be sold under Section 221 of the Contract Act. The goods having been metamorphosed into money by the wrongful act of the plaintiffs under the protective umbrella of the order of the court, to which it was not revealed by the plaintiffs that their partnership was not registered as required under law, money equivalent of goods must be kept in tact so that remedy of account is effectively available to the defendant against the plaintiffs and is not ultimately frustrated and defeated by the one who by virtue of being an agent occupied a position of trust and confidence with his principal qua goods and stock of the latter. This court while adjusting equities and granting relief cannot shut its eyes to the fact that the plaintiffs have taken the advantage of that position and cannot be allowed to retain money representing the value of the goods. According to the statement of Prem Nath Trehan, attorney of the plaintiffs recorded on April 3, l991 sales are not even reflected in the books of accounts of the firm. An agent is under an obligation to maintain proper accounts. It also needs to be noticed that order dated March 27, l"89 was passed without notice to the defendants despite the fact that the same was of a very drastic nature. What is the use of hearing a party after restraining him from interfering with sale of his goods. Surely, it was not a matter which could not brook any delay. It was a case where one of the main reliefs prayed for io the plaint at the interlocutory stage was granted on the day of institution of the suit.

Gopaldas v. Thakurdas:[33]

It was held as follows:

"20. This agent's lien does not give unrestricted authority to the agent to deal with the properly in any manner the agent may like. The right which the lien confers upon the agent is limited in nature; it enables the agent to retain the property till his dues are paid by the principal. This right can be availed of as a defense if the principal brings an action for the recovery of the property in the possession of the agent or it may afford him a ground to reclaim the property, if the agent has been unlawfully dispossessed of it. But this confers no authority on the agent to sell or otherwise dispose of the properly without the consent of the owner (principal) in order to satisfy his line. See Bala Mal v. Budhumal Air 1926 Lahore 9-i(B). In Mulchand Shib Dhan v. Sheomal Shewo Prasad Air 1929 Lahore 666(C), Shadilal C.J. has observed that : "Where plaintiffs purchase certain goods on behalf of the defendants from whom certain money was due to them, they are entitled to retain possession as agents of the goods until the money is paid, but, without being directed by the defendants to sell [hem, and in the absence of a mercantile custom authorising them to do so, they are not entitled to sell the goods. If they sell them, however, they are liable for the loss sustained by the defendants on account of such unauthorised sale."

"21. To this position of the agent's lien, may be added another stride which the law took and which appears to have extended the limits of the agent's lien. It is said that although "an agent pure and simple may not be justified in selling the principal's goods without his authority, yet where the agent has spent money from his own pocket in purchasing the goods on behalf of the principal, the agent is in the position of a tacit pledgee and can recover as much of his outlay as possible by selling the goods which are in his custody". See Bar Dukan v. Gopal Singh, Air 1928 Lahore 747(D).

22. Although the case does not say that the agent in such circumstances should first serve a notice on the principal before selling the goods, but since the agent's position has been akin to that of a pawnee (he is regarded as a tacit pledgee), I think the logical conclusion of assumption of that position is that like a pledged (pawnee) where there is default in payment of the sum due, the agent can sell the goods only after giving reasonable notice of the sale to the principal." Lahore High Court has been of the same view as is manifest from its decision in Firm of Balla Mal Rakhha Mal v. Budhu Mal Prabh Dial. Air 1926 Lahore 94, wherein it was as follows :

"......THElaw on the subject is contained in S. 221 of the Indian Contract Act- That section provides that in the absence of a contract to the contrary the agent is entitled to retain goods and other property, moveable or immoveable, of the principal received by him until the amount due to himself for commission, disbursement and services in respect of the same has been paid or accounted for to him. It will be observed that under this section the rights conferred upon an agent who has a lien on the principal's property are of a very limited nature and seem to be confined to the mere right of retainer which may be used as a defense to any action for the recovery of the property brought against him or as a matter of title to reclaim the property by action, if he has been unlawfully dispossessed of it."

RAMPRASAD V. STATE OF M.P. AND OTHERS:[34]

Hon'bleJudges: J.C. Shah and K.S. Hegde, JJ

The claim of the appellant was next tried to be supported on the plea that he had a lien over the goods. No such plea was taken in the plaint. An Agent no doubt has a specific lien upon the principal's property in his possession for his compensation and expenses during the course of the agency with reference to that property. Section 221 of the Contract Act provides that in the absence of a 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 him for commission, disbursements and services in respect of the same has been paid or accounted for to him. An agent who is entitled to be reimbursed from the principal's property for the expenses in-curred, advances made or losses sustained during the course of the agency or who is entitled to be compensated for his services has a lien upon the principal's goods or property which comes lawfully in his possession during the course of the agency from which the right to indemnity or compensation arises.

 A purchasing agent has a lien upon the principal's goods in his possession Upon which he has paid money in purchasing. As a general rule in order to have a lien, an agent must have some possession, custody or control or disposing power in or over the subject matter in which the lien is claimed. The lien does not arise where the possession of the property is acquired by the agent under a contract which expressly or impliedly shows contrary intention, or where it is delivered to him for a particular purpose inconsistent with the existence of lien the/eon. The agent has no lien over the property where it is entrusted to him for a special purpose which is inconsistent with the lien claimed. Further the lien of an agent being a mere right to retain possession of the property subject thereto, is lost by parting with the possession of the goods unless at the time of parting with them he reserved expressly or impliedly his right of lien or they are obtained from him by fraud or unlawful means.

The question whether an agent can enforce his lien in a particular case is a mixed question of law and facts. Therefore in the absence of any specific plea, that question cannot be gone into. We do not know the, conditions under which Hetampal Singh was appointed as a licence holder. From the material on record, it is not clear whether the goods in question were taken possession of by the Government in accordance with the conditions of the licence granted to Hetampal Singh.

But coming to the cross-objection filed by the appellant before the High Court, the High Court appears to have completely lost sight of the same. It did not deal with that cross-objection while disposing of the appeal. The trial court did not give any reason for rejecting the plaintiffs claim for interest on the principal amount from the date of the suit till the date of the decree. The plaintiff was entitled to interest on the principal amount of Rs. 19,228/6/- at 4 1/2 per cent per annum from the date of the suit till the date of the decree. The appeal succeeds to that extent. The decree of the trial court as against the second defendant is modified to that extent. In the circumstances of the case we make no order.

[1] 1803 3 bos & p 485,494

[2] Cited by A.H.KHAN in GOPALDAS V. THAKURDAS,AIR 1957 MP 20,22

[3] MEHTA, AJC in PESTOMJI BHIMJI V. RAVJI JAVERCHAND,1934 150 IC (sind)483,447

[4]  WILLIAM V. MILLADGTON,(1788)1HB B1 81:2RR 724

[5] Section 171 confines general lein only to bankers,factors,wharefingers,attorneys and policebrokers. A general agent is not covered to any one of these categories.

[6] ILR (1888) 13 Bom 314

[7]  Who were a sort of managing agents, now banned

[8] At.  P. 321 in Bombay saw mills case. Rocklines Construction v. trupti k. patel ,(2003) 1 CLT 414 (kant),an order  can be issued for delivery of the property where the right does not exist or payment has been  made.

[9] AIR 1957 MB20,22

[10]  The learned judges relied  upon BALAMDAS V. BHUDHUMAL,AIR 1926 lah 94: MULCHAND SHIB DHAN V. SHOE MAL SHEO,

[11] KAVITA TREHAN V. BALSARA HYGIENE PRODUCTS,AIR 1992 DEL 92

[12]  London & joint stock bank v. Simons,(1892)ac 201

[13] KISHAN DAS V. GANESH DAS, AIR 1950 PAT; SWEET V. PYM (1860) 5 RR 497

[14] Chidambara Chettair V. Tinnevelly suger mills co.,(1908 )31 mad 123

[15] RAMPRASAD V. STATE OF M.P.(1969)3 SCC 24,27:AIR 1970 SC 1818:( 1970) 2SCR 677  the right is excluded where the property is accepted for a special pupose.

[16] Robinson v. Butter (1855) 4 E. & B.954

[17] Bryans v. Nix (1839) 4 M. & W.775,51 rr 829

[18] William* v. Millington (1788) 1 H B181.,2 R R

[19] Maddenv. Kempster (1807) 1 Camp.12

[20] Walshe v. Provan (1853) 8 Ex. 843, 91 E. R. 795 ; Gibson v. May (1853) 4 De G. M. & G. 512 ; Leete v. Leete (1879) 48 L. J. P. 61

[21] In re Bombay Sawmills Co., Ltd.  (1889) 13 Bom. 314, 321, 322.

[22] ExparteBeall (1883) 24 Ch. Div. 408 ; Curiliffe v. Blackburn Building Society (1884) 9 App. Gas. 857.

23] London and County Bank v.Ratdiffe(1881) 6 App. Gas. 722; Turner v. LettS(1855) 20 Beav. 185; Holli* v. Claridge(1813) 4 Taunt. 807, 39 R. R. 662, 663; Pratt v. Vizard (1833) 5 B. & Ad. 808, 39 R. R. 660 ; In re Llewellin [1891] 3Ch. 145.

[24] Jones v. Peppercorn (1858) Johns430

[25] Solomons v. Batik of England (1810) 13 East, 135, 12 R. E. 341 ; De laChaumette v. Bank of England (1829) B. & C. 208, 32 R. R. 643 ; Ex parte!) Kingston (1871) L. R. 6 Ch. 632

[26] London and Joint Stock Bank vSimmons [1892] A. C. 201; Misa v. Oiirrie (1876)1 App. Gas. 554.

[27] POLLOCK AND MULLA, INDIAN CONTRACT ACT

[28] Solly v. Rathbone (1814) 2 M. & S 298.

[29] Fisher v. Smith (1878) 4 App. Gas. 1(policy broker's lien for premiums effectiveagainst principal of agent

employing him though he knew him to be an agent, and though the principal had paid the agent the amount due for premiums); Cdliill Y. Dawson (1857) 3 C. B. N. S. 106 ; Mildred v. Maspons (1883) 8 App. Cas. 874.

30]Mannv. Forrester (1814) 4 Camp. (;.) 60, 15 R. R. 724;westwood v. well(1815 4 Camp. 349, 16 R. R. 800 ; Montagu v. Forwood [1893] 2 Q. B. 350 ; all cases of policy brokers, in which it was held that  the broker had a lien against the principal Taylor v. Kymer (1832) 3 B. & Ad. 320,  by a commission agent to buy goods, washeld to have a lien on the goods for ageneral balance due to him from thecommission agent.

[31] Mildred v. Maspotis (1883) 8 App. Cas. 874 ; Levy v. Barnard (1818) 2 Moo. 34, 19R. R. 484 ; Snook v. Davidson (1809) 2 Camp. 218, 11 R. R. 696 ; Ex parteEdwards (1881) 8 Q. B. Div. 282.

[32] AIR 1992 DEL 92

[33] AIR 1957 MP 20,22

[34] AIR 1970 SC 1818