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CHANAKYA NATIONAL LAW UNIVERSITY, PATNA



LAW OF CONTRACTS-II
Project on:
CONCEQUENCES OF AGENTS CONTRACT

SUBMITTED TO: SUBMITTED BY :
VIJAY KUMAR VIMAL MOHINI CHOUDHARY
(Faculty for Law of Contracts) Roll No.- 944
2
nd
Year (3
rd
Semester)




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ACKNOWLEDGEMENT

Any project completed or done in isolation is unthinkable. This project,
although prepared by me, is a culmination of efforts of a lot of people.
Firstly, I would like to thank our teacher, Mr. Vijay Kumar Vimal for his
valuable suggestions towards the making of this project.
Further to that, I would also like to express my gratitude towards my
seniors who were a lot of help for the completion of this project.
The contributions made by my classmates and friends are, definitely,
worth mentioning.
I would like to express my gratitude towards the library staff for their
help also.
Last, but far from the least, I would express my gratitude towards the
Almighty for obvious reasons.









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RESEARCH METHODOLOGY:

The researcher will mainly rely on the Doctrinal Source of Methodology and with
the available material it will rely on the data, magazines, journals, articles, text-
books, internet and similar such sources.


HYPOTHESIS:

Agency depends on agreement but not necessarily on contract. As between the
principal and third person, any person may become an agent. As such even a minor
may be an agent. And so thus the principal is however liable for the acts of such an
agent and the agent have several liabilities towards the principal and third party.




















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CONTENTS

1. Introduction
2. Enforcement and Consequences of agent’s contract
# Actual Authority
# Extent of Agents Authority
3. Rights and Liabilities of the principle for the contract entered
into by the agent
4. Effect of ratification
5. Rights and Liabilities of an agent for a contract made by him
6. Rights, Liabilities and duties of third person for an agent’s
contract
7. Conclusion


Bibliography





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CHAPTER-1

INTRODUCTION


Contract of Agency

Agency is a special type of contract. The concept of agency was developed as one cannot
possibly do every transaction himself. Hence, he should have opportunity or facility to transact
business through others like an agent.

Principles of contract of agency-
(a) Expecting matters of a personal nature, what a person can do himself, he can also do it
through agent (e.g. a person cannot marry through an agent, as it is a matter of personal nature).
(b) A person acting through an agent is acting himself, i.e. act of agent is act of principal. Since
agency is a contract, all usual requirements of a valid contract are applicable to agency contract
also except to the extent excluded in the Act. One important distinction is that as per Sec. 185, no
consideration is necessary to create an agency.

Who may employee an agent- Any person who is of the age of majority according to the law to
which he is subject, and who is of sound mind, may employee an agent (Sec. 183). Thus any
person competent to contract can appoint an agent.

Who may be an agent- As between the principal and third person any person can become an
agent, but no person who is not of the age of majority and of sound mind can become an agent,
so as to be responsible to his principal according to the provisions in that behalf herein contained
(Sec. 184). The significance is that a principal can appoint a minor or person of unsound mind as
agent. In such case, the principal is responsible to third parties.

Definition

According to Sec 182 defines an „Agent‟ as “a person employed to do any act for another or
to represent another in dealings with third person”. The person for whom such act is done or
who is represented is called the principal. The relationship between the agent and the
principal is called “agency”.

Principles of Agency

Contracts of agency are based on two important principles, namely:
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a) Whatever a person can do personally shall also be allowed to be done through an agent
except in case of contracts involving personal services such as painting, marriage, singing, etc.
b) He who does not act through a duly authorized agent does it by himself, i.e., the act of the
agent are considered the acts of the principal (Sec. 226).


Difference between an Agent and a Servant

1) Scope of authority: An agent can create a contractual relationship between the principal and
third parties. But a servant cannot create contractual relationship between its employer and third
parties.
2) Remuneration: An agent receives commission for his services. A servant is generally paid
wages or salary.
3) On whose behalf: An agent may work for several principals at the same time. A servant can
serve only one master at a time.
4) Control: An agent is not subject to direct control and supervision of the principal. He is often
discretion. But a servant acts under the direct control and supervision of his master and must
follow all his reasonable order.
5) Liability of principal: The principal is liable for all the wrongful acts of his agent which are
within the “scope of his authority.” But the master is bound by the wrongful acts of his servant if
done in the course of servant’s employment.

Nature of Authority of Agent

According to Sec. 226, the contracts entered into through an agent, and obligation arising from
an act done by an agent, may be enforced in the same manner, and will have the same legal
consequences as if the contracts had been entered into and the acts done by the principal in the
person. In other words, the principal is liable for the acts of the agent in the same manner as
if he himself has done those acts.

The authority of the agent to bind the principal may be of the following types:
1) Actual or real authority: It is the authority conferred by the principal on the agent. It
may be expressed or implied (Sec. 186).

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Example: A of London employed B of Mumbai to recover a debt due. B may adopt any legal
process that may be necessary for the purpose of recovering the debt and may give a valid
discharge for the same. (Illustration (a) Sec.188).
In terms of Sec. 188, an agent has the authority to do every lawful thing which is
necessary to do the act. He can do every lawful thing for the purpose.

2) Ostensible or apparent authority: It is the authority of an agent which appears to
others. When an agent is employed to do a particular business, those dealing with him can
presume that he has the authority to all such acts as are necessary, or incidental to such business.
This authority may coincide with actual authority and may even exceed it.

Example: The kerala high court has held in Valappad Cooperative Society Ltd. vs. Srinivasa
Iyer AIR 1964 Ker. 176, that a person authorized to carry on the business of a cooperative
society must be deemed to have the authority to purchase goods on credit not withstanding that
the society had advanced high enough money for the purpose.
Section 237 incorporates the principle of the ostensible authority which covers cases where agent
has acted without authority of the principal.
3) Agent‟s Authority in an emergency: According to Sec. 189, an agent has authority in
an emergency to do all such acts, for the purpose of protecting his principal from loss as would
be done by a person of ordinary prudence, in his own case ,under similar circumstances.
Example: An agent for sale may have the goods repaired if it be necessary. (Illustration 9 a) to
Sec. 189).

Essential features of agency

Agency has certain essential features. They are as follows:

1) Agency implies that one person (i.e. an agent) brings two other persons (i.e. a principal
and a third person) into contractual relationship.
That means an agent is a connecting link between the principal and the third person.

2) An agent is not a mere a connecting link between the principal and the third party. He
also creates a legal relationship between the principal and the third party.
That is he makes the principal answerable to the third party for his acts and also entitles the
principal to all the benefits accruing from his acts.

3) An agency can be established to do any act which the principal could do lawfully.
That means an agency can be established only for lawful acts. If an agency is established for an
unlawful act it cannot be enforced by law.

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4) Agency can be created only for those acts which can be delegated by a person to another.
That means agency cannot be created for acts which must be done by a person himself and
cannot be delegated to an agent say painting, marrying, singing.
5) The agency relationship may be established by a contract between the principal and the
agent which may be written or oral, or may be established by implications, as in the case of
husband and wife, master and servant etc.
6) Though a valid contract requires that both the contracting parties must be competent to
contract, for a contract of agency, it is enough if only the principal is competent to contract.
The agent need not be competent to contract. In other words an agent may be incompetent to
contract, say a minor, lunatic, idiot etc.

7) There should be the intention on the part of the agent to act on behalf of the principal.
As such, if a person intends to act on behalf of another an agency arises even if the contract
between the parties provides that there is no such relationship. On the other hand if a person
intends to act on his own behalf and not on behalf of another there cannot arise any agency, even
if the person contends that he is an agent.

8) No consideration is necessary to create an agency.
The fact that the principal has agreed to be represented by the agent is a sufficient detriment to
the principal to support the contract the contract of agency. Though no consideration is necessary
to support a contract of agency, an agent may be paid for. That means an agent may be paid for
his services.

9) An agent is appointed with specific instructions and is authorized to act within the scope
of the instructions (i.e. the authority).
As such the agents within the scope of his authority are regarded as the acts of the principal and
such acts bind the principal as if the principal has done them himself.









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CHAPTER-2

ENFORCEMENT AND CONSEQUENCES OF AGENT’S
CONTRACT


226. Enforcement and Consequences of agent's contracts -
Contracts entered into through an agent, and obligations arising from acts
done by an agent, may be enforced in the same manner, and will have the same legal
consequences, as if the contracts had been entered into and the acts done by the principal
in person.

Illustrations:

(a) A buys goods from B, knowing that he is an agent for their sale, but not knowing who the
principal is. B‟s principal is the person entitled to claim from A the price of the goods, and A
cannot, in a suit by the principal, set-off against that claim a debt due to himself from B.
1


(b) A, being B‟s agent, with authority to receive money on his behalf, receives from C a sum of
money due to B. C is discharged of his obligation to pay the sum in question to B.
The function of an agent is to bring about contractual relations between the principal and third
parties. Usually agents are appointed with specific instructions and authorized to act within the
scope of their instructions. Acts of the agent within the scope of the instructions bind the
principal as if he has done them himself. There is a legal maxim regarding agency viz., 'Quit facit
per alium facit per se', which means--"He who does through another does by himself." The act of
an agent is the act of the principal.

It is necessary for this effect to follow that the agent must have done the act within the scope of
his authority, the authority of the agent and more particularly its scope are subjects of some
controversy.
2
The uncertainty is largely due to the fact that the authority of an agent does not
depend upon the source. It emanates from the principal, but its dimensions depend upon legal
inferences, which, in turn, depend upon the purpose of agency, the surrounding circumstances
and a desire to protect the bonafide commercial transactions.




1
http://www.vakilno1.com/bareacts/indiancontractact/s226.html
2
Municipal Corporation Of Delhi v. Jagdish Lal, AIR 1970 SC 7
Sardar Gurcharan Singh v Mahendra Singh (2004) 1 MPLJ 252 (MP)
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The authority of an agent means his capacity to bind the principal. It refers to the sum total
of the facts it has been agreed between principal and agent that the agent should do on
behalf of the principal.
3


Actual authority

Actual authority of an agent is the authority conferred upon him by the principal. It is of two
kinds, namely, express or implied. Sections 186 and 187 provide this

186. Agent's authority may be expressed or implied -
The authority of an agent may be expressed or implied.

187. Definitions of express and implied -
An authority is said to be express when it is given by words spoken or written. An authority is
said to be implied when it is to be inferred from the circumstances of the case; and things spoken
or written, or the ordinary course of dealing, may be accounted circumstances of the case.
Illustration:
A owns a shop in Serampure, living himself in Calcutta, and visiting the shop
occasionally. The shop is managed by B, and he is in the habit of ordering goods from Cin the
name of A for the purposes of the shop, and of paying for them out of A‟s funds with A‟s
knowledge. B has an implied authority from A to order goods from C in the name of a for the
purposes of the shop.

Express Authority

Where the authority is conferred by words, spoken or written, it is called express authority. A
power of attorney, for example, which is a kind of deed and authorizes the agent to do certain
acts is an illustration of express authority. But, however, precisely the authority of an agent may
be drawn, disputes as to its scope are likely to arise. The scope of authority is worked out by the
construction of words in the document.
Illustration:
Where, a principal, while going aboard, authorizes his agent and partner to carry on the
business, and his wife to accept bills on his behalf for his personal business, he was not held
bound when his wife accepted the bills for the business, which the agent was conducting and
which was different from his business.
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3
J.L.Montrose, actual and apparent authority,(1938) 16 Can BR 757, 761.
4
Attwood v. Munnings (1827) 7 B&C 278
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Principles Laid Down By Precedents

# If an agent acts outside his authority, in order to meet the genuine needs of the principal, then
the principal would be held liable.
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# An agent cannot borrow on behalf on behalf of his principal unless he has clear authority to do
so. The power to draw or endorse bills does not include the power to borrow.
# An agent cannot initiate a legal proceeding on behalf of the principal without express
authorization.
6

# If a third party has a knowledge of the limitation on the agent’s authority or could have
discovered it by reasonable examination, he would be bound by it.
7


Implied Authority

An authority is said to be implied when it is to be inferred from the circumstances of the case;
and things spoken or written or the ordinary course of dealing, may be accounted as the
circumstances of the case. The distinction of the express and implied authority is not
fundamental, but depends upon whether the authority is delimited to the words or conduct.
Illustration:
Ryan v. Pilkington
An estate agent was appointed to find a purchaser of certain property. He accepted a deposit
from a prospective customer and misappropriated it. The principal was held liable, because an
estate agent has an implied authority to take the deposit

Extent of agent's authority

According to Section 188.
An agent, having an authority to do an act, has authority do every lawful thing which is
necessary in order to do so such act.
An agent having an authority to carry on a business, has authority to do every lawful thing
necessary for the purpose, or usually done in the course, of conducting such business.





5
Ried v Rigby (1894) 2 QB 40
6
Raymond Woollen Mills Ltd v. Coal India Ltd1998 1 Cal HN 53.
7
Ferguson vUm Chand Boid(1905) 33 Cal 343.
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Illustration:
a) A is employed by B, residing in London, to recover at Bombay a debt due to B. a may adopt
any legal process necessary for the purpose of recovering the debt, and may give a valid
discharge for the same.
b) A constitutes B, his agent to carry on his business of a shipbuilder, B may purchase timber
and other materials, and hire workmen, for the purposes of carrying on his business.

Dingle v. Hare’s case
8

An agent was authorized to sell artificial manure. He had no authority to give any warranty about
the goods. Yet he warranted the buyer that the manure contained 30% phosphate of lime.th
warranty was found out to be false and the principal was sued for its breach. He was held liable,
because it was usual in this trade to give a warranty of this kind. An agent in the trade has
general authority to do all that is usual and necessary in the course of such employment.
Thus, every agent has the implied authority to according to the customs and is ages of a
particular market or sale.
9
The principal is bound by such usages even if he is unaware of them
or even If they conflict with his instructions. But the custom or usage must not be unlawful or
unreasonable. Similarly, a custom which gives the agent liberty to adjust the personal account by
way of set-off or otherwise for the claims of the principal is unreasonable.











8
(1859) 7 CB (NS) 145.
9
Sutton v. Tattham, (1839) 10 A&E 27
Harker v. Edwards, (1887) 57 LJ QB 147
Murugan V. G Ramamurthy, 2006 1 AIR Kant R 196
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CHAPTER-3

RIGHTS AND LIABILITIES OF THE PRINCIPAL FOR THE
CONTRACTS ENTERED INTO BY THE AGENT


RIGHTS:

232. Performance of contract with agent supposed to be principal -
Where one man makes a contract with another, neither knowing nor having reasonable ground to
suspect that the other is an agent, the principal, if he requires the performance of the contract, can
only obtain such performance subject to the rights and obligations subsisting between the agent
and the other party to the contract.

Essentials:
#A contract between an agent and an other person
# The agent‟s identity is not disclosed and the other party has no reasonable to access the truth
of his identity

If both the above conditions are fulfilled, then the principal has the right to obtain the
performance of the contract, so existing between the third party and the agent, subject to the
rights and obligations of the third party and the agent.
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DUTIES AND LIABILITIES:

227. Principal how far bound, when agent exceeds authority -
When an agent does more than he is authorised to do, and when the part of what he does, which
is within his authority, can be separated from the part which is beyond his authority, so much
only of what he does as is within his authority is binding as between him and his principal.

Essentials:
Acts of the agent swaying away from his authority. Eg, may have entered into a contract which he is
not authorized to do.
# Both the authorized and the unauthorized can be separated from each other.
Then the principal would be held liable for the acts or the contracts entered into by the agent for
which he was authorized and not for other acts.

10
Greer V.Down Supply Co., (1927)2 KB 28
Montagu v Forwood (1893)2 QB 350 (CA).
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228. Principal not bound when excess of agent's authority is not separable -
Where an agent does more than he is authorized to do, and what he does beyond the scope of his
authority cannot be separated from what is within it, the principal is not bound to recognize the
transaction.

Essentials :
#Acts of the agent swaying away from his authority Eg; may have entered into a contract which
he is not authorized to do.
# Both the authorized and the unauthorized cannot be separated from each other
Then the principal is not bound to recognize the acts or the contracts entered into by the agent for
which he was not authorized .
So it can be concluded from both sections mentioned above that where an agent exceeds
his authority, actual or apparent (discussed in the preceding issues), the principal is not bound by the
excess work, but where it is separable from the authorized work the principal is bound to that
extent.
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237. Liability of principal inducing belief that agent's unauthorized acts were authorized -
When an agent has, without authority, done acts or incurred obligations to third persons on
behalf of his principal, the principal is bound by such acts or obligations, if he has by his words
or conduct induced such third persons to believe that such act and obligations were within the
scope of the agent's authority.

Essentials:

#Agent has done acts or incurred obligations to third persons, acting away from his authority.
#Activities of principal induced the third party to reasonably believe that the agent has acted
under his authority

Then the principal would be held liable for the acts done or contractual obligations arising out
of the contracts entered into by the agent.





11
Vijayalatha Chit Fund Pvt Ltd v. Krishna Shetty, (1988)1Ker LJ 143.
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CHAPTER-4

Effect of Ratification:


196. Right of person as to acts done for him without his authority, effect of
ratification - Where acts are done by one person on behalf of another, but without his
knowledge or authority, he may elect to ratify or to disown such acts. If he ratifies them, the
same effects will follow as if they had been performed by his authority.


Conditions Of Ratification:

These conditions are under:
1.The act must have been done on behalf of another
2.The act must have been done without the knowledge or authority of the person on whose
behalf the act is done.
If the said conditions are satisfied such other person has two options either to ratify or to disown.
Ratification must be by the person for whom the agent professes to act that an act done for
another by a person not assuming to act for himself, but for such other person, though without
any precedent authority or whatever, becomes the act of the principal, if subsequently ratified by
him, is the known and well established rule of law. In that case the principal is bound by the
act, whether it be for his detriment or his advantage, and whether it be founded on a tort or a
contract, to the same extent as by, and with all the consequences which follow the authority.
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199. Effect of ratifying unauthorized act forming part of a transaction -
A person ratifying any unauthorized act done on his behalf ratifies the whole of the transaction of
which such act formed a part.
A person cannot ratify a part of the transaction which is beneficial and repudiate the rest. So a
ratification of the part of the transaction or some conditions of a contracts amounts to the
ratification of the whole transaction or all the conditions of the contracts.
13





12
Wilson v. Turnman (1843) 6 M&G 236.
13
Commercial banking Co. of Sydney v.Mann (1916) AC1
Bristow v. Whitmore, (1869) 9 HL cas 391
Bhavani Shankar v. Gordhanlal AIR 1943 PC 66.
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CHAPTER-5

RIGHTS, LIABILITIES AND DUTIES OF AN AGENT FOR A
CONTRACT MADE BY HIM


RIGHTS:

189. Agent's authority in an emergency -
An agent has authority, in an emergency, to do all such acts for the purpose of protecting his
principal from loss and would be done by a person or ordinary prudence, in his own case, under
similar circumstances.
This section creates a special authority in emergency. It constitutes the agent into an
agent of necessity to counteract the emergent situation. An act done in the exercise of this
extended authority would bind the principal if the agent was not able to communicate with the
principal and the course he took was necessary in the sense that it was the only reasonable
prudent course left open to him and that he acted in good faith and the interest of the parties
concerned.
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230. Agent cannot personally enforce, nor be bound by, contracts on behalf of principal -
In the absence of any contract to that effect, an agent cannot personally enforce
contracts entered into by him on behalf of his principal, nor is he personally bound by them.
Presumption of Contract To The Contrary -

Such a contract shall be presumed to exist in the following cases:-
(1) Where the contract is made by an agent for the sale or purchase of goods for a
merchant resident abroad
(2) Where the agent does not disclose the name of his principal and
(3) Where the principal, though disclosed, cannot be sued.
Enforceability of Contracts By An Agent

This section lays down a uniform rule that in absence of a contact to the contrary, an agent
cannot sue nor be sued in respect of a contract entered into on behalf of the principal and it is
principal who may be sued thereon or who may sue thereon.
15
This is known as the principle of
agent’s immunity from personal liability. This rule applies even when the agent has contracted
beyond his authority and the principal would not be liable. Even then the agent cannot be sued on

14
China pacific Ltd v. FCI, (1981) 3WLR 860 HL.
15
Marine Container Services South Ltd V Go .Go Garments(1998) 3 SCC 247
Tropic Shipping Co. Ltd v. Kothari Global Co. Ltd(2002) 2 Bom CR 93 (Bom)
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the contract if he professed to act for his principal
16
, though he will then be liable to compensate
the third party for his loss.
17


Presumed Exceptions

1. Foreign Principal
When an agent contracts for a merchant residing abroad there is the presumption that the agent
undertakes personal liability. By virtue of section 230 the presumption has statutory importance
in India. A company registered in England, and having a place of business in India, has been held
to be a foreign principal for the purposes of this presumption and the Indian agent acting for it
was held personally liable.
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2. Principal Unnamed
Where an agent contracts for an undisclosed principal, he definitely is personally liable being a
party to the contract.
19
The presumption may arise even when the agent discloses his
representative character, but not the name of the principal.

3. Non-Existent or Incompetent Principal
An agent is presumed to incur personal liability where he contracts on behalf of the principal
who „though disclosed cannot be sued‟. An agent who contracts for a minor, the minor being not
liable, the agent becomes personally liable.

Contract To the contrary

Whether an agent, apart from the case specially mentioned, is to be taken to have contracted
personally, or merely on behalf of the principal, depends on what appears to have been the
intention of the parties, to be deduced from the nature and terms of the particular contract and
surrounding circumstances.
20


It is also settled law that when an agent has made a contract in the subject matter of which he has
a special property he may, even though he contracted for an avowed principal, sue in his own
name. Such is the case of a factor
21
and an auctioneer, who has a possession coupled with an

16
Lewis v. Nicholson, (1852) 18 QB 502
17
Jenkins V. Hutchinson, (1849) 13 QB 744.
18
Tutika Basavaraju v. Parry and Co., (1903) 27 Mad 315
Radhakrishna Sivadutta Rai v. Tayeballi Dawoodbai, AIR 1962 SC 538.
19
Castrol Ltd v. Admiral Shipping Ltd, (2005) 3 Bom. CR 507.
20
See Bowstead on Agency, 10th ex, p 236
21
Fisher v. Marsh (1865) 6 B&S 411
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interest in the goods which his is employed to sell, not a bare custody, and a special property by
reason of his line.
22


The like rule is laid down by the Indian Courts there an agent enters into a contract as such, if he
has interest in the contracts, he may sue in his own name.
23
The agent in such a case is virtually a
principal to the extent of his interest in the contract.




Duties and liabilities

235. Liability of pretended agent -
A person untruly representing himself to be the authorized agent of another, and thereby
inducing a third person to deal with him as such agent, is liable, if his alleged employer does not
ratify his acts, to make compensation to the other in respect of any loss or damage which he has
incurred by so dealing.
Thus where a person pretends to act as an agent of another, he may be saved by the principal by
ratifying the act. But if no ratification is forthcoming the pretended agent becomes personally
liable to the third party for any loss that he may have suffered upon the representation of the
authority. Where the pretension is to matter of law the agent would not be liable.
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236. Person falsely contracting as agent not entitled to performance -
A person with whom a contract has been entered into in the character of agent, is
not entitled to require the performance of it if he was in reality acting, not as agent,
but on his own account.
Where a person has, in fact, no principal, yet persuades the other to contract with him as
an agent of the another, he is stopped from saying that he had no principal and since the contract
was with his principal and not with him he has no locus standi to sue under that right. So he
would be personally liable for any loss suffered.




22
Williams v. Millington(1788) 1 HBL 81, 2 RR 724.
23
Subramania v. Narayanan (1900) 24 Mad 130.
24
Saffron Walden B.S v Rayner, (1880) 14 Ch D 406

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CHAPTER-6
RIGHTS, LIABILITIES AND DUTIES OF A THIRD PERSON
FOR AN AGENT’S CONTRACT

200. Ratification of unauthorized act cannot injure third person – An act done by one
person on behalf of another, without such other person's authority, which, if done with authority,
would have the effect of subjecting a third person to damages, or of terminating any right or
interest of a third person, cannot, by ratification, be made to have such effect.

231. Rights of Parties to a contract made by agent not disclosed -
If an agent makes a contract with a person who neither knows, nor has reason to suspect,
that he is an agent, his principal may require the performance of the contract; but the other
contracting party has, as against the principal, the same rights as he would have had as against
the agent if the agent had been the principal.

If the principal discloses himself before the contract is completed, the other contracting party
may refuse to fulfill the contract, if he can show that, if he had known who was the principal in
the contract, or if he had known that the agent was not a principal, he would not have entered
into the contract.

232. Performance of contract with agent supposed to be principal -
Where one man makes a contract with another, neither knowing nor having reasonable
ground to suspect that the other is an agent, the principal, if he requires the performance of the
contract, can only obtain such performance subject to the rights and obligations subsisting
between the agent and the other party to the contract.

Subject To Equities
Firstly, the other contracting party would have against the principal “The same rights
which he would have had against the agent if the agent had been the principal”. This declaration
of section 231 is further supplemented by Section 232 which says that “The principal, if he
requires the performance of the contract, can only obtain such performance subject to the rights
and obligations subsisting between the agent and the other party to the contract.” The main
concern of these sections is to ensure that the third party is not put into any disadvantage by the
intervention of the principal.

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Third Party Right To Repudiate the Executory Contract
Secondly, if the principal discloses himself before the contract is completed, the third
party may repudiate the contract if he can show that if he had known who the principal was or
that the agent was not the principal, he would not have contracted.
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The right of the third party
to repudiate the contract arises only when the identity of the undisclosed principal would have
been so material to him that if he had known the true facts, he would not have contracted. An
undisclosed principal cannot intervene when he knows that the other party would not have dealt
with him.
26


Undisclosed Principal Cannot Intervene Against Express Terms
Lastly, an undisclosed principal cannot intervene if some express or implied term of the
contract excludes him from doing so. Where, for example, an agent described himself in the
contract as “owner”,
27
it shows an intention to make a personal contract and consequently
precludes the undisclosed principal from intervening.

Election By The Third Party

233. Right of person dealing with agent personally liable -
In cases where the agent is personally liable, a person dealing with him may hold either him or
his principal, or both of them, liable.
It is at the discretion of the third party, in cases where the agent is personally liable, to choose
amongst the principal and the agent and hold them liable. The third party can also make both
principal and the agent liable jointly.

Estoppel Of The Third Party

234. Consequence of Inducing agent or principal to act on belief that principal or agent will
be held exclusively liable -
When a person who has made a contract with an agent induces the agent to act upon the belief
that' the Principal only will be held liable, or induces the principal to act upon the belief that the
agent only will be held liable, he cannot afterwards hold liable the agent or principal
respectively.
If the third party leads the agent to believe that only the principal would be held liable or
the principal to believe that only the agent would be held liable, he cannot afterwards change his
stance. He would have to confirm himself to the liability of a person whom he has selected by
that process.


25
Said v. Butt (1920) 3 KB 497.
26
TREITEL Law Of Contract, 540.
27
Humble v. Hunter (1848) 12 QB 310,317
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Principal how far bound, when agent exceeds authority:

When an agent does more than he is authorized to do, and when the part of what he does,
which is within his authority, can be separated from the part which is beyond his authority,
so much only of what he does as is within his authority is binding as between him and his
principal. [Sec 227]

A, being owner of a ship and cargo, authorizes B to procure an insurance for 4,000 rupees on the
ship. B procures a policy for 4,000 rupees on the ship, and another for the like sum on the cargo.
A is bound to pay the premium for the policy on the ship, but not the premium for the policy on
the cargo.
28


Principal not bound when excess of agent's authority is not separable:

wherein agent does more than he is authorised to do, and what he does beyond the scope of
his authority cannot be separated from what is within it, the principal is not bound to
recognise the transaction. [Sec 228]

A authorises B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for a sumof 6,000
rupees. A may repudiate the whole transaction.
229. Consequences of notice given to agent - Any notice given to or information obtained by
the agent, provided it be given or obtained in the course of the business transacted by him for the
principal, shall, as between the principal and third parties, have the same legal consequence as if
it had been given to or obtained by the principal.

Illustrations:

(a) A is employed by B to buy from C certain goods, of which C is the apparent owner, and buys
them accordingly. In the course of the treaty for the sale, A learns that the goods really belonged
to D, but B is ignorant of that fact. B is not entitled to set-off a debt owing to him from C against
the price of the goods.

(b) A is employed by B to buy from C goods of which C is the apparent owner. A was, before he
was so employed, a servant of C, and then learnt that the goods really belonged to D, but B is
ignorant of that fact. In spite of the knowledge of his agent, B may set-off against the price of the
goods a debt owing to him from C.
29



28
http://www.vakilno1.com/bareacts/indiancontractact/s227.html
29
http://www.vakilno1.com/bareacts/indiancontractact/s229.html
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230. Agent cannot personally enforce, nor be bound by, contracts on behalf of principal -
In the absence of any contract to that effect, an agent cannot personally enforce contracts entered
into by him on behalf of his principal, nor is he personally bound by them.

PRESUMPTION OF CONTRACT TO THE CONTRARY:

Such a contract shall be presumed to exist in the following cases:-
(1) Where the contract is made by an agent for the sale or purchase of goods for a merchant
resident abroad

(2) Where the agent does not disclose the name of his principal and

(3) Where the principal, though disclosed, cannot be sued.

Comments

Before the agent can be sued it must be pleaded and shown that the principal is undisclosed and
the contract, the breach of which is sued on was entered into by the agent as having contracted
personally. Where the contract is entered into by agent contracting on behalf of a foreign principal
who is named and disclosed, the agent cannot be sued personally nor made personally liable;
Midland Overseas v. “CMBT Tana”, AIR 1999 Bom 401.
30












30
http://www.vakilno1.com/bareacts/indiancontractact/s230.html
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CHAPTER-7
CONCLUSON

The function of an agent is to bring about contractual relations between the principal and third
parties. Usually agents are appointed with specific instructions and authorized to act within the
scope of their instructions. Acts of the agent within the scope of the instructions bind the
principal as if he has done them himself. There is a legal maxim regarding agency viz., 'Quit facit
per alium facit per se', which means--"He who does through another does by himself." The act of
an agent is the act of the principal.


















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BIBLIOGRAPHY


1. Dr. Avatar Singh, Introduction to Law of Partnership, 8th edition, Lucknow,
Eastern Book Company, 2005.
2. M.R. Mallick, Goyle‟s The Law of Partnership, 2nd edition, Kolkata,
Eastern Law House, 2006.

3. Dr. S.K. Kapoor, Contracts-II, 10th edition, Allahabad, Central Law
Agency, 2005.