Enforceability of Oral Agreement in analysing the case Narandas Morardas Gaziwala vs. S. P. AmPapammal

By Prarthana Saha

3rd year Law student at Christ Academy Institute of Law, Bengaluru

Abstract

Narandas Morardas Gaziwala v. S. P. Papammal revolves around Agency under Indian Contract Act 1872 and Section 92 of Indian Evidence Act 1872. The present paper aims to cover the ambit of equitable right of the agent to sue the principal for a rendition of accounts. The Indian contract act does not expressly protect the area under equitable rights. Secondly, the paper deals with an oral agreement not to enforce promissory note until certain conditions precedent a fulfilled-such an oral deal, whether proved under Indian Evidence Act 1872, Section 92 Proviso 3. 

Brief Facts

Narandas Gaziwala and Lakshmi Chand & Co., carrying partnership business in lace and thread at Surat, Bombay. Kumbakonam-Krishna & Co. was their agent for selling goods in three districts of Tanjore, Tiruchirapalli, and Mathurai. On dissolution of Krishna & Co., Murugesa Chettiar, a partner, took over all assets and liabilities, and the other partner retired. Krishna & Co. became indebted. In 1951, Murugesa executed a promissory note for the sum of Rs 7,500/- as the amount was due and payable to the Surat Firms regarding the dealings. The case of the Plaintiff was that Surat firm had violated terms of Contract of the sole agency and privately affected sales in those territories, furtherance the Surat firm as part of sole agency, agreed to have its indebtedness under promissory note adjusted towards the commission that was to be earned by the Plaintiff which was at a rate of Rs. 2/- per ‘mark.’ Plaintiff sued the firm for a rendition of accounts for a period of agency; Surat firm sued for recovery of the amount due under the promissory note. Subordinate Court declared Plaintiff as a sole agent, Surat firm being liable to render an account of their sales, also granted decree for the amount covered by a promissory note to be adjusted out of the commission. Both parties appealed to the High Court, in 1961 Court dismissed both the appeals. 

Issues

Whether the agent is entitled to sue the principal for a rendition of accounts?

Whether the agent is entitled to set up a parole agreement to prove condition precedent as to promissory note’s enforceability?

Legal Reasoning 

Section 213 of the Indian Contract Act 1872 confers the principal’s right to sue the agent, and the agent is bound to render proper accounts on demand of the principal. Nonetheless, the other way round is not expressed by the statute. 

Position in England

Under English law, an agent has the right to have accounts taken under ordinary actions. Although in Padwick v. Stanley, an agent to have the right to take funds was not entertained, later in Shepard v. Brown, an agent’s suit against the principal was entertained. In Blyth v. Whiffin, the court observed that an agent could maintain a bill in equity against his principal for an account under special circumstances. The agent’s right to claim an account against the principal for commission due to him on orders from the customers introduced by the agent. 

Position in India

Indian courts followed a similar approach stating that even though an agent does not have a statutory right but under special circumstances, he could provide equitable accounts for a rendition of accounts. In Rama Chandra Madhavadoss Co. v. Moovakat Moidunkutti Birankutti & Bros, Court laid down that an agent will have the right for a rendition of accounts when:

  • All possession of accounts is with the principal 
  • For calculation of commission or 
  • Remuneration depends on the extent of dealings that are only known to the principal.
  • An agent is not aware of the extent of the amount due to him unless his principal’s accounts are gone into. 

The above decision was followed in Ram Lal Kapur & Sons v. Asian Commercial Assurance Co. Ltd by the Lahore High Court and Basant Kumar and others v. Roshan Lal Shrivastava the Nagpur High Court as well. 

The defendants on the second issue contented based on Section 92 of the Evidence Act. Plaintiff is precluded from setting up a parole agreement. The High Court found the promissory note should be discharged by commission payable by Surat firm. Hence, it was a mode of discharge of the note’s obligation and not a condition precedent to its enforceability. Furthermore, Plaintiff was not entitled to adduce any evidence. The promissory note represented an unconditional undertaking to pay an amount that the Plaintiff was already under a liability and can further not plead a contemporaneous agreement. The court on this issue stated that there was a collateral agreement that the obligation under promissory note will not be enforced for 5 years unless the amount was due after accounting for the period of commission agency.  

Analysis

An agent under the statute does not have a statutory right to sue his principal but has an equitable right to sue his principal under special circumstances as laid down by the Hon’ble Court. The court also decided in favor of the Plaintiff granting him a parole agreement, as the obligation of the promissory note fell under proviso (3) of Section 92 of the Indian Evidence Act. The agreement was not related to the mode of discharge but was a condition precedent to enforceability. In Rowland Ady v. Administer – general of Burma, it was observed that it is necessary to distinguish a collateral agreement that alters the instrument’s legal effect. Hence, it was held that when the promissory note through its expressed terms’ payable on demand’, the obligation under the note attaches a collateral agreement (oral) immediately not to make a demand until a particular specified condition is fulfilled with the intention and effect of suspending the force of obligation, such an oral agreement constitutes a condition precedent under Section 92 proviso (3) of Indian Evidence Act, 1872.   

Conclusion 

Supreme Court upholds High Court’s decision stating that the Plaintiff is entitled to a rendition of accounts and the dealings plaintiff is eligible for commissions. Plaintiff had enough proof to support the contention of direct sales made by the Surat firm, which was in contravention to the sole agency’s Contract granted to Plaintiff. The present case fell under special circumstances as the principal alone knew the commissions, thus granting Plaintiff the right to sue Surat firm for accounts for a material period. Hon’ble Court also accepted Plaintiff’s contentions regarding the obligation under promissory note falls within the ambit of Section 92 proviso (3), granting Plaintiff a parole agreement. Under the obligation, the amount is due to be adjusted with the commission. It would not be enforced for 5 years unless the amount was due after completing the commission agents’ period. In simple words, the amount has to be due for the promissory note to be enforced, making it a condition precedent.  

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