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Session, 2011-2016 CONTRACT LAW EFFCT OF AGENCY

Submitted to: Prof. Krishna Kant Diwedi (Assistant Professor(Law) )

Submiteed By: Shatakshi Sharma (Sect.-B, Roll No.609)

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Acknowledgement
The gratification and elation on the completion of this project will be incomplete without mentioning all the people who helped to make it possible, whose guidance and encouragement was valuable to us. We express our sincere and heartiest thanks to Mr. K.K. Diwedi who has been a constant source of inspiration to us in completing the project to its rightful path. We are immensely indebted to for her inspiring guidance and kind suggestion in carrying out the project. We specially thank our parents who gave us a chance to study in this esteemed university, a paradise for legal edification and all who supported, us directly or indirectly, for successful completion of the project work. Last, but not the least; we thank our institution, Chanakya National University of Law, for giving us the opportunity for developing the project

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INDEX

Page No.
1 2 3 4 5

Topic
INTRODUCTION CONTRACT OF AGENCT EFFECT OF AGENCY CONCLUSION REFERENCES

Pg. No.
3 6 10 26 27

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CHAPTER 1 INTRODUCTION

The law of agency is an area of commercial law dealing with a set of contractual, quasicontractual and non-contractual relationships that involve a person, called the agent, that is authorized to act on behalf of another (called the principal) to create a legal relationship with a third party.[1] Succinctly, it may be referred to as the relationship between a principal and an agent whereby the principal, expressly or implicitly, authorizes the agent to work under his control and on his behalf. The agent is, thus, required to negotiate on behalf of the principal or bring him and third parties into contractual relationship. This branch of law separates and regulates the relationships between:

Agents and principals; Agents and the third parties with whom they deal on their principals' behalf; and Principals and the third parties when the agents purport to deal on their behalf.

The common law principle in operation is usually represented in the Latin phrase, qui facit per alium, facit per se, i.e. the one who acts through another, acts in his or her own interests and it is a parallel concept to vicarious liability and strict liability in which one person is held liable in criminal law or tort for the acts or omissions of another. The reciprocal rights and liabilities between a principal and an agent reflect commercial and legal realities. A business owner often relies on an employee or another person to conduct a business. In the case of a corporation, since a corporation is a fictitious legal person, it can only act through human agents. The principal is bound by the contract entered into by the agent, so long as the agent performs within the scope of the agency. A third party may rely in good faith on the representation by a person who identifies himself as an agent for another. It is not always cost effective to check whether someone who is represented as having the authority to act for another actually has such authority. If it is subsequently found

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that the alleged agent was acting without necessary authority, the agent will generally be held liable.

AIMS AND OBJECTIVE

To articulate the concept and the meaning of contracts of agency in the guidelines of decided case laws To get a brief idea regarding the relationship between the agent and the principal To get a line of the effect of agency over the third party which include section 226-238 sections of Indian Contract Act, 1872

RESEARCH METHODOLOGY
The information is gathered, for this project, by following the Doctrinal research which is also known as Traditional or Non Empirical Legal Research. In this research I have carried out my research on a legal proposition or propositions by the way of analyzing the existing statutory provisions and case laws by applying the reasoning and analytical power. Ergo, I have taken help from Library and Websites and have also dealt with the Relevant Statutes, Case laws and Articles as far as possible.

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CHAPTER 2 CONTRACT OF AGENCY

Principle of agency The definition of an agent covers a person employed to do any act for another, and the same applies to its use in ordinary parlance.1It does not limit the employment to one by the principal only. The actual status of the parties must be determined with reference to all the circumstances, and not merely with reference to the words used. The mere fact that a person offers advice or writes letters to another in the matters of business does not establish the relationship of agency. The relation of agency arises whenever a person called the agent has authority to act on behalf of another called the principal and consents so to act. The relationship has its genesis in a contract.2Qui per alium facit per seipsum facere videtur; he who does an act through another is deemed in law to do it himself. Agency is founded on a contract, either express or implied, by which one of the parties confides to the other the management of some business to be transacted in his name or on his account and by which the other assumes to do the business and to render an account of it.The essence of the matter is that the principal authorizes the agent to represent or act for him in bringing or to aid in bringing the principal into contractual relation with a third person. Therefore a person does not become an agent on behalf of another merely because he gives him advice in matters of business. Nor does a mere settlement of the terms of remuneration constitute a contract of agency unless an authority to act is conferred and accepted. The essence of agencyto sell is the delivery of the goods to a person who is to sell these, not as his own property but as the property of the principal who continues to be the owner of the goods and will, therefore, be liable to account for the sale proceeds. The true relationship of the parties in each

1
2

1 Morarji Premji v. Ranchod, 48 Bom 20: 1924 Bom 232: 77 IC 266..

S. Abdul Khader v. Rami Reddy, AIR 1979 SC 553: (1979) 2 SCC 601

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case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the legal relationship.3 By merely giving guarantee for a particular period in regard to carrying out the repairs one can never say that the title to the goods passed. In all makes which are sold say motor cars, refrigerators, fans, motor bicycles, there is always guarantee period during which the manufacturer binds himself to carry out the repairs but all the distributors or all persons who purchase for resale of such goods can never be considered or termed as agents, as contemplated by section 182 of the Indian Contract Act It is only when a person acts as representative of the other in business negotiations that is to say, in the creation, modification or termination of contractual obligations between that other, and the third persons, that he is an agent. The definition of agent given in section 182 is very wide and embraces a servant pure and, simple. The agent carrying out his undertaking within the scope of his authority binds his principal as the agents acts are deemed to be those of his principal. Representative character and derivative authority may be said to be the distinguishing feature of an agent. Where a person is employed by another as accountant to perform the duties of receiving money and of maintaining on his behalf the accounts of transactions, relating thereto, he will be deemed to be the agent of such other person. Where fraud is committed by responsible officers of a corporate body by knowingly representing false facts, the corporate body would be held liable for fraud committed by them. An agent is not a servant but a servant is generally for some purposes his masters agent, the extent of the agency depending upon the duties or position of the servant, and in some cases an independent contractor may also be an agent. According to the definition in section 182 an agent never acts on his own behalf but always on behalf of another. He either represents his principal in any transaction or dealing with a third person, or performs any act for the principal. In either case the act of the agent will be deemed in law to be not his own but of the principal. The crucial test of the status of an agent is that his acts bind the principal. The word agent in itself means very little; the facts must speak for themselves, and if those facts show a state of things different

Snow White Industrial Corp., Madras v. Collector of Central Excise, AIR 1989 SC 1555: (1989) 3 SCC 351.

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to a simple arrangement between a principal and agent, the effect of those facts will not be altered simply because the language of agency has been used in a loose manner.4 In determining legal nature of relationship between the alleged principal and agent the use or omission of the word agent is not conclusive. The Court must examine the true nature of the agreement and the subsequent dealings between the parties, and then decide whether it establishes relationship ofagency under the law. Where delivery can be made in a mode or the option of the sender, the agency through which delivery is made acts as the agent of the tender whereas if delivery is made by way of despatch in the mode stipulated or prescribed by the addressee, the agency through which the article is despatched acts as the agent of the addressee. Modern business has given extension to the terms agent and agency. In many tradesparticularly, for instance, in motor car tradethe so-called agent is merely a favoured and favouring buyer. It is true that in commercial usage, especially in modern contracts, the expression agent or agency has acquired an extended meaning; often the so-called agent is merely a buyer who has been given favourable terms in a particular area to sell the manufacturers or suppliers goods. The use of the expression agency in an agreement has therefore no special importance. Similarly, an agent employed by an insurance company to introduce business to the insurers in not in any real sense of the word their agent. The question of agency is a mixed question of fact and law very largely depending on the evidence in the particular case. Agency need not be created expressly by any written document and can be inferred from the circumstances and the conduct of the parties. A person merely signing letters purporting to emanate from military secretary of ex ruler for the Military Secretary is not acting as agent. There is a distinction between a person employed to do an act for another and a person who does an act at the bidding of another. In the first place the act done is not that of the person employed but of him who employs him. In the second, the act is that of the person himself. Again in the first case, the person employed is an agent of the employer; in the second, he merely acts at the request of another. Then again in the first case, under section 222 the person is entitled to be indemnified against the consequences of all lawful acts done by him in the exercise of his

Ex parte White, 6 Ch A 307; SC on app. John Towels & Co. v. White, 27 LT 78; Suryaprakasaraya v. Mathesons

Coffee Works, 14 MLT 249: 21 IC 322.

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authority as an agent in the latter he is entitled to be indemnified only if there is a contract of indemnity to this effect.5

Chandra Kantaben J. Modi and Narendra Jayantilal Modi v. Vadilal Bapalal Modi, AIR 1989 SC 1269, 1277: (1989) 2 SCC 630.

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CHAPTER 3 EFFECT OF AGENCY

226. Enforcement and consequences of agents 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 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 is the principal. Bs 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. (b) A, being Bs 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. 1. Right of the principal to sue Whereas under the English law the fact that exclusive credit was given to the agent is a defence to the action by the principal, under this section the principal would be entitled to sue in the absence of the special agreement disentitling him to sue; such an agreement can be proved notwithstanding the absence of the words in the absence of a contract to the contrary in the section6 2. If the principal enforces agents contract, he must bear its burden The principal may adopt a contract cum onere. When to the knowledge of the principal, the agent brought a suit to recover damages for breach of the same and obtained a decree thereon, a suit, subsequently brought by the principal against the agent for declaration of title to the decree without offering to reimburse or remunerate the agent is not maintainable, because by this course the principal seeks to avoid

South Indian Railway Ltd. v. Mindi Rama, 27 MLJ 501

11 | P a g e the risk of dismissal of the suit against the third person. He may, however, intervene at any stage in the action which may be commenced by the agent. 3. Government servant as agent The acts of a Government officer bind the Government only when he is acting in the discharge of a certain duty within the limits of his authority or if he exceeded that authority, when the Government in fact or in law directly or by implication ratified the excess.7

227. 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.
Illustration 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. Agent to stand surety for one standing surety for two When an agent authorized to stand surety for one person stands surety for two persons in addition, outside the scope of his authority, the unauthorized act of the agent is clearly separable from his act in standing surety for the person authorized and the principals liability will be restricted to that person only under this section. Ordinary law of agency does not apply to public agents and Government is not bound by the unauthorized acts of its officers. Its liability will be to the extent of power given to such officers, where an agent having authority to take delivery only, Railway cannot rebook goods on application of such

Collector of Masulipatam v. Cavally, 8 MIA 529; Secretary of State v. Kasturi Reddi, 26 Mad 268, 279, 280.

12 | P a g e person. In case of goods sold if price is paid by the buyer to broker but if the broker fails to show that he was authorized to receive payment, the payment to broker is not payment to seller.8

228. Principal not bound when excess of agents 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, theprincipal is not bound to recognize the transaction.
Illustration A, authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of 6,000 rupees. A may repudiate the whole transaction.

1. Agents acts in excess of authority A principal would not be bound by an unauthorized act done by his agent, even though he derived benefit there from, and when the agent did not disclose the name of the principal there can be no claim against the principal. Similarly, the principal is not bound by the act of his agent in excess of his authority. When an agent contracts for delivery of gods contrary to the instruction of the principal as regards the time of delivery, the principal would not be bound by the agents contract as he exceeds the authority. A custom allowing a broker to deviate from the instruction of the principal cannot be enforced. Where a bank makes a payment on a forged cheque, he cannot make the customer liable except on the ground of negligence imputable to the customer. So also would be the case where the agent authorized to draw bills up to a certain amount, draws bills for a larger amount. So where a principal gives authority to borrow, the mooktear has no authority to bind the principal by a statement of account. As a general rule, an agent has no authority to borrow money on account of the principal so as to render the latter liable to the lender, unless the principal has given express authority or previously sanctioned such a course of dealing on the agents part or has subsequently adopted or ratified the loan. An agent entering into compromise of doubtful rights with regard to certain property of his principal a major portion of which was found not

Mayandi v. Raman Chettyar, 1937 Rang 499: 174 IC 915.

13 | P a g e under dispute as principals title has no authority to enter into compromise and the whole compromise fails. An agent authorized to act in reference to the principals land and the charges thereon cannot bind him by acknowledging a personal debt. Where an agent acting in collusion with a third party does an act without the consent of his principal, and the act isdetrimental to the interests of the principal, the latter is not bound by the act.9

2. When the principal is bound by agents acts in excess of authority The principle, on when the principal may, in certain cases, be held bound by the acts of his agent in excess of the agents authority, is that the principalhas, by his words or conduct, induced a third person to believe that the agents acts were within the scope of his authority. So in a case the right of a third party against the principal on a contract of his agent, though made in excess of the agents authority, was nevertheless enforced where the evidence showed that the contracting party had been led into an honest belief in the existence of the authority to the extent apparent to him. Where certain railway clerks exceeded their authority in accepting boxes containing fireworks for despatch by passenger train but which could not be sent by passenger train, the railway company was bound to despatch the goods by goods train with all reasonable speed and was not entitled to charge a higher rate.10

228. Principal not bound when excess of agents 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, theprincipal is not bound to recognize the transaction. Illustration A, authorizes B to buy 500 sheep for him. B buys 500 sheep and 200 lambs for one sum of 6,000 rupees. A may repudiate the whole transaction. 1. Agents acts in excess of authority A principal would not be bound by an unauthorized act done by his agent, even though he derived benefit therefrom, and when the agent did not disclose the name of the principal there can be no claim against
9

10

Contracts: Examples & Explanations By Brian A. Blum Pg 231

Ibid

14 | P a g e the principal. Similarly, the principal is not bound by the act of his agent in excess of

hisauthority. When an agent contracts for delivery of gods contrary to the instruction of the principal as regards the time of delivery, the principal would not be bound by the agents contract as he exceeds the authority. A custom allowing a broker to deviate from the instruction of the principal cannot be enforced. Where a bank makes a payment on a forged cheque, he cannot make the customer liable except on the ground of negligence imputable to the customer. So also would be the case where the agent authorized to draw bills up to a certain amount, draws bills for a larger amount. So where a imoktearnama gives authority to borrow, the mooktear has no authority to bind the principal by a statement of account. As a general rule, an agent has no authority to borrow money on account of the principal so as to render the latter liable to the lender, unless the principal has given express authority or previously sanctioned such a course of dealing on the agents part or has subsequently adopted or ratified the loan. An agent entering into compromise of doubtful rights with regard to certain property of his principal a major portion of which was found not under dispute as principals title has no authority to enter into compromise and the whole compromise fails. An agent authorized to act in reference to the principals land and the charges thereon cannot bind him by acknowledging a personal debt. Where an agent acting in collusion with a third party does an act without the consent of his principal, and the actis detrimental to the interests of the principal, the latter is not bound by the act.11 2. When the principal is bound by agents acts in excess of authority The principle, on when the principal may, in certain cases, be held bound by the acts of

his agent in excess of the agents authority, is that the principalhas, by his words or conduct, induced a third person to believe that the agents acts were within the scope of his authority. So in a case the right of a third party against the principal on a contract of his agent, though made in excess of the agents authority, was nevertheless enforced where the evidence showed that the contracting party had been led into an honest belief in the existence of the authority to the extent apparent to him. Where certain railway clerks exceeded their authority in accepting boxes containing fireworks for despatch by passenger train but which could not be sent by passenger train, the railway company was bound to despatch the goods by goods train with all reasonable speed and was not entitled to charge a higher rate. 12

11

Mst. Ram Kaur v. Raghubir Singh, 56 IC 361 (Lah)

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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 consequences 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 tohim from C. 1. Constructive noticea rule of law The principle enunciated in this section is not a mere question of constructive notice or inference of fact, but a rule of law which imputes the knowledge of the agent to the principal, or, in other words, the agency extends to receiving notice on behalf of the principal of whatever is material to be stated in course of the proceedings. This is so both under this section and section 3 of the Transfer of Property Act. A mortgagor employing an attorney, who also acts for the mortgagee in the mortgage transaction, must be taken to have notice of all facts brought to the knowledge of the attorney. So where there are co-vendees and they stand to each other as principal and agent, notice to one is notice to another. Such notice is imputed to the principal and fixes him with knowledge whether it is communicated to him or not though an exception is admitted to this rule where there has been fraud on the part of the agent. In a contract for sale of goods, the vendors gave notice to the agent of the purchaser to take delivery of the goods

16 | P a g e agreed to be sold. Held that this was a sufficient notice and that the vendors were not liable to be sued for breach of contract. On the same principle the knowledge of the chairman and manager of a bank is to be regarded as its own knowledge. Notice of a condition in the bill of lading signed by a broker on behalf of the shipowner should be imputedto the principal. In an application to set aside abatement, the acknowledgement of or information to the solicitor of opposite party in another proceeding cannot be attributed by invoking the doctrine of constructive notice. 2. In course of the business It is important that the knowledge of the agent must have been gained in the course of the business transacted by him for the principal, and the knowledge of the agent prior to his employment does not, therefore, operate as a notice to the principal. Section 229 of the Indian Contract Act provides that anynotice 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 consequences as if it had been given to or obtained by the principal.13 According to the provisions of section 229 of the Contract Act, notice to be received by the agent must be in course of the business transacted by him for the principal. If, therefore, receiving such a notice is not within his authority and if the agents lack of authority in this regard is known to the defendant, then certainly the defendant cannot rely upon service of the notice on such an agent as the service on the principal. 3. Where notice cannot be imputed But constructive notice of a fact which the agent knew cannot be imputed to the principal when it was not to the interest of the agent to disclose the factto the principal and which the agent did not infact disclose. Thus where the notice would involve the confession by an attorney of a fraud practiced by himself, it will not be presumed to have been given to his client. Where the agent, though acting on the principals behalf in some transaction in which his knowledge would otherwise be imputed to his principal, takes part in any fraud or misfeasance against the principal the principal is not bound by the agentsknowledge of such fraud or misfeasance. Where manager and accountant of a company clouding together in execution of a rent note and practice of fraud has been played on company, the agents knowledge is no knowledge of company under section 229. Though notice of facts to an agent is constructive notice thereof to the principal himself where it arises from, or is at the time connected with, the subject matter of his agency, it is quite open to the parties to a
13

Texbook On Contract Law Including Specific Relief By Meena R.L pg no. 123.

17 | P a g e contract to stipulate that this presumption which arises upon general principles of public policy should not arise in any particular case, and that the notice instead of being served on an agent would have to be served on the principal himself.14

230. Agent cannot personally enforce, nor be bound by, contracts on behalf of principal. In the absence of any contact to that effect an agent cannot personally enforce contracts entered into by him on behalf of his principal, nor is hepersonally bound by them. Presumption of contract to 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; (3) Where the principal, though disclosed, cannot be sued.

231. Right 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 principal. If the principal discloses himself before the contract is completed, the other contracting party may refuse to fulfil 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. When a contract is made with an agent in his own name for an undisclosed principal, either the agent or the principal may sue upon it, the defendant in the latter cage being entitled to be placed in the same situation at the time of the disclosure of the real principal as if the principal had been the contractingparty. The first clause of the sections refers to the general case and the rule is that the third party should have, as against the undisclosed principal the same rights which he would have against the agent if the agent had

14

R.S.N. Co. v. Bisweswar, 1928 Cal 371: 116 IC 148.

18 | P a g e been the principal. The second clause deals with the particular case where the principal discloses himself before the, contract is completed. The second clause should be read as governed by the first clause. Section 231 gives the undisclosed principal an option to proceed against the other contracting party; and in case where the former is able to bring his case within the purview of section 211 there is nothing in section 231 which could be said to debar him from seeking his remedy under section 211. But where the refusal of the other contracting party to, perform the contract is due to the agent of an undisclosed principal failing to pay the former his dues under his own separate contract with him, the proper section for the undisclosed principal to proceed under is section 231 and not section 211, and such principal is entitledto a decree only against the other contracting party and not against his agent.15 2. Principal bound by agents fraud or misrepresentation As the principal can take advantage of the contract made by the agent as his undisclosed principal subject to any right which the other contracting partymay have as against the agent, allegations of fraud and misrepresentation made by the agent to the other party are relevant in a suit by the principal against his agent and the other party and should be decided.249 3. Discloses himself The words discloses himself in this section must be construed strictly. The

third partys right to repudiate the contract arises only where the principal himself makes the disclosure; it cannot arise where the disclosure is made by some other person or the information reaches him from some other source. The phrase discloses himself should be distinguished from the comprehensive language neither knows nor has reason to suspect used in the first clause.250 The expression if the principal disclosed himself before the contract is completed in paragraph 2, of the section must be read in the context where the agentmade the contract with a person who did not know or had reason to suspect that he was an agent. Unlike a kucha arhatia the pucca arhatia deals with the constituent as a principal and becomes personally liable to perform his contracts with him. 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

15

Ibid (13) pg 234

19 | P a g e only obtain such performance subject to the right and obligations subsisting between the agent and the other party to the contract. Illustration A, who owes 500 rupees to B, sells 1,000 rupees worth of rice to B. A is acting as agent for C in the transaction, but B has no knowledge nor reasonable ground of suspicion that such is the case. C cannot compel B to take the rice without allowing him to set-off As debt. Scope of the section and third partys rights The rule of the English law, which makes the liability of an undisclosed principal subject to the qualification that he has not bona fide paid the agent, or that the state of accounts has not been altered, is not adopted in the Contract Act. Section 232 is to be read as a qualification of the first portion of para 1 ofsection 231 which gives the principal general right to enforce a contract entered into by his agent. Section 232 qualifies that general right by making it subject to the rights and obligations subsisting between the agent and the other contracting party. The second clause of para 1 of section 231 gives a party contracting with an agent the same rights against the principal only as he would have had against the agent; and section 234 adds a further qualification as to his rights as against the principal. Section 232 adopts the qualification imposed by the English law upon the right of the principal to enforce a contract, viz., that he must take the contractsubject to all the equities, in the same way as if the agent were the principal; but it does not impose upon the right of the other contracting party the qualification laid down by the cases of Thompson v. Davenport, and Armstrong v. Stokes, namely, that the principal has not paid the agent, that the state of account between the principal and the agent has not been altered to the prejudice of the principal. The only qualification to the right of the other contracting party against the principal is that imposed by section 234, namely, that he has not induced the principal to act upon the belief that the agent only will be held liable. 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. Illustration A enters into a contract with B to sell him 100 bales of cotton, and afterwards discovers that B was acting as agent for C. A may sue either B or C, or both, for the price of the cotton.

20 | P a g e 1. Suit against principal and agent jointly or alternatively If the person enters into a contract with another, believing him to be the principal in the transaction, though in fact that other is acting as an agent, but he subsequently discovers who the real principal is, even though he may first have been given credit to the party who subsequently turns out to be an agent, he may nevertheless, upon discovering who the principal is, substitute him as his debtor. Where an agent is personally liable for debt the creditor has the option to proceed either against the principal or the agent. Where it did not appear that in lending the money, the lender (who knew that the money was being borrowed on behalf of certain principals) looked exclusively to the agent for payment, he could proceed to realise the money from the principals. Hence if not restrained by the contract from doing so, in the case of the contract by an agent either the principal or the agent may be held liable under the contract irrespective of the question whether the fact of agency was or was not known at the time of the contract. So loans made to an agent of a company authorized to borrow on its behalf may be recovered from the company, e.g., a loan made to a liquidator, or to the secretary or treasurer. The liability of agent is not limited to the amount which he receives from his authority but he is liable for the full price of the goods supplied. Where, by any wrongful or unauthorized act of an agent, the money or property of a third person comes to the hands of the principal, or is applied for his benefit, the principal is liable jointly and severally, with the agent to restore the amount or value of such money or property. Where because of non-disclosure of a contract between the principal and agent an inference can be drawn that the agent is personally liable and both the principal and agent can be sued. 2. Right of suing principal and agent jointly The words may hold both of them liable in section 233 mean that both the principal and agent may be sued to judgment in one suit. This section gives to the party dealing with an agent who is personally liable a double form of election. He can choose between suing both principal and agent jointly or electing to sue one of them. He may sue both and a decree might be passed against both. But a different view has been also taken. It has been held that under thissection a person may at his election sue either the principal or the agent or he may sue both of them alternatively in a case where he is not sure whom his exact remedy is against but he cannot get judgment against both of them jointly as that would turn a liability which is clearly mutually exclusive into a joint liability. Upon a contract entered into by an agent on behalf of his principal both the principal and the agent are jointly liable to the promisee.

21 | P a g e In any case, where a contract is signed by one person only, evidence to show that another is also a party to the contract is admissible. No question of liability of either the agent or the principal arises as the contract is entered into not only as agent of the other but for self as well. Section 233 cannot be construed as meaning only that the plaintiff might sue both the principal and the agent in the alternative, but that he cannot get judgement against both of them jointly for the amount sued for. 16 3. Judgment against agent if bars suit against principal Where an agent contracts in his own name for an undisclosed principal the person with whom he contracts may sue that agent or he may sue the principal; but if he sues the agent and recovers judgment, he cannot afterwards sue the principal even though the judgment does not result in satisfaction of the debt,and even though at the time of the institution of the earlier suit the existence of the principal was not known. But such second suit would not be barred when the first suit against the agent is dismissed. 4. Waiver When the debtor pays money to the creditors agent who fails to credit it and the creditor sues the debtor and obtains an ex parte decree, the debtor cannot subsequently sue to recover the money paid to the agent owing to his failure in the former suit to take the plea of discharge.

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. To enable the principal (or the agent) to claim exemption from liability, two essential conditions must be satisfied: Firstly, the contracting party should have induced a belief in one of them that he is going to hold

16

Texbook On Contract Law Including Specific Relief By Meena R.L. pg no. 126

22 | P a g e the other alone liable; secondly, this belief should have resulted in a course of action which would not have happened otherwise.

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. This section applies to the case of a person who represents that he has authority from another when he has no authority whatever and to a person who represents that he has a certain authority from another when he has authority of another description, that is, who untruly represents the extent of the authority given to him by another. To render the agent liable under section 235 it is only necessary that the representation should have been untrue in fact and it is not necessary to show that the agent was in any way to blame. The words if his alleged principal does not ratify his acts appear to indicate a named principal 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.

This section is meant to apply to cases where a person enters into a contract with another on the basis that that other person is acting for somebody else. If a person purports to act as agent for an undisclosed principal and there is no undisclosed principal in fact, section 236 applies and he cannot sue on the contract. This section is not restricted to cases where an agent purports to act for a named principal, but follows the rule underlying the cases of Rothschild v. Brookinan, and Robinson v. Mollett, that an agent cannot recover on a contract if he really acts as a principal, Section 236 does not enact that the contract in the circumstances mentioned is voidit provides that the alleged agent cannot require its performance. It follows that since the contract is enforceable by one of the parties and not enforceable by the other, it is a voidable contract. 2. Undisclosed principal and contract as broker

23 | P a g e A broker who enters into a contract for and on behalf of his principal is not entitled to sue upon the contract even though the principal be undisclosed, the ground being that the broker has expressly contracted as a broker. And even if the broker was entitled to enforce the contract upon the footing of Gubboy v. Avetoon, his suit must fail under section 236 if he was in reality acting not as agent but on his own account. So where the plaintiffs purported to act under a contract with the defendant as brokers but really acted on their own account as principals without the knowledge and consent of the defendant, they were not entitled to recover for the latters breach of contract. So where a person in entering into a contract purported to act as agent for an undisclosed principal, but in fact no such principal existed and the person was in reality acting on his own account, he is debarred from suing on the contract by section236. The question whether a selling agent has disqualified himself for the brokerage commission by buying the goods himself does not fall to be decided under section 236. The section, however, has no application where the case of the defendant is that the plaintiff acted as an agent and not as principal. 237. Liability of principal inducing belief that agents 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 acts and obligations were within the scope of the agentsauthority. Illustrations (a) A consigns goods to B for sale, and gives him instructions not to sell under a fixed price. C, being ignorant of Bs instructions, enters into a contract with B to buy the goods at a price lower than the reserved price. A is bound by the contract. (b) A entrusts B with negotiable instruments endorsed in blank. B sells them to C in violation of private orders from A. The sale is good. 1. Estoppel against Principal This section deals with agency by estoppel. A man is not permitted to resist an inference which a reasonable person would necessarily draw from his words or conduct. Strangers can only look to the act of the parties and to the external indicia of property, and not to the private communications which may pass between a principal and his broker; and if a person authorize another to assume the apparent right of disposing of property in the ordinary course of trade, it must be presumed that the apparent authority is

24 | P a g e the real authority. If a person allows another to act on his behalf with other parties and makes them believe that the other person is acting on his behalf, he will be bound by the transactions entered into by the ostensible agent. 17Where articles of association of a company giving power to the managing agents to borrow for the company were adopted, and they were found to be legally invalid, but were treated by the company and submitted to the public as being genuine and legally adopted articles of association of the company, held that the company could not set up the invalidity of the said articles. In a case the right of a third party against the principal on a contract of his agent, though made in excess of the agentsauthority was nevertheless enforced where the evidence showed that the contracting party was led into an honest belief in the existence of the authority to the extent apparent to him. Where an agent, acting within the scope of his implied authority, commits a fraud for his own benefit, the principal is liable to the party defrauded. Where the owner induced third persons to believe that the auction-sale was within the scope of the auctioneers authority, the owner, as principal, was bound by the auction-sale and was liable to third persons for breach of the contract although the auctioneer might have practiced fraud in selling at a price lower than the amount authorized by the owner. Similarly, where a suit is brought against the principal for price of goods supplied on credit for him through his servant, if the plaintiff shows a course of dealing, by which it was a practice for goods to be supplied to the principal through the servant in the course of his employment, it will be, no answer for the principal to say that the particular item of goods did not reach him once the plaintiff has established that they were supplied to his servant for his use. On the other hand, where a servant of a firm with very limited powers orders for goods in the name of the firm with which the vendor had no previous dealings, the vendor could not be said to have been influenced by the fact that the firm held out that the servant as its authorized agent to order goods or its behalf, and so the firm could not be made liable for the goods.

2. Limited authority of the agent A person who deals with an agent whose authority he knows to be limited does so at his peril, in this sense, that should the agent be found to have exceeded his authority the principal cannot be made responsible. In order that the principle of holding out should, in any given case of agency, apply, the act done by the agent, and relied upon to bind the principal, must be an act of that particular class of acts, which the agent is held out as having a general authority on behalf of his principal to do. But if the agent be held out as having a limited authority to do on behalf of his principal acts of a particular class, then

17

R.S.N. Co. v. Bisweswar, 1928 Cal 371: 116 IC 148.

25 | P a g e theprincipal is not bound by an act done outside that authority, even though it be an act of that particular class, because the authority being thus represented to be so limited, the party prejudiced has notice, and should ascertain whether or not the act is authorized. Where the principal did not by any negligent or improper act allow the agent to be apparently invested with an authority beyond or greater than the limited authority which the customer knew him to posses, there could not be any estoppel against the principal in respect of any of the steps in a transaction whereby the customer was deceived by the agent acting beyond his authority.

238. Effect, on agreement, of misrepresentation or fraud by agent. Misrepresentation made or frauds committed, by agents acting in the course of their business for their principals, have the same effect on agreements made had been made or by such by agents the as if

such misrepresentations or

frauds

committed

principals;

but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their authority, do not affect their principals. Illustrations (a) A, being Bs agent for the sale of goods, induces C to buy them by a misrepresentation, which he was not authorized by B to make. The contract is voidable, as between B and C, at the option of C. (b) A, the captain of Bs ship, signs bills of lading without having received on board the goods mentioned therein. The bills of lading are void as between B and the pretended consignor. If an agent, authorized to sell the property, commits a fraud against his principal, the principal is the person who ought to suffer, and not a stranger . But a principal is bound only by acts done by his agent on his behalf in good faith and not by his fraudulent actions when a third person who relies upon such actions is himself a party to the fraud. So where an agent acting in collusion with a third party does an act without the consent of his principal and the act is detrimental to the interests of the principal, the latter is not bound by the act. An agent guilty of fraud, duress or any wrong cannot be permitted to escape personal liability on the ground that it was his principal and not himself who was benefited by such fraud or wrong. The intention of the legislature in acting section 238 was not to lead to any such result. The misrepresentations made or frauds committed by the agents who do not fall within their authority would not affect the principals. An agent not paying money of the principal on demand and who has been improperly dealing with it is liable for interest

26 | P a g e

CHAPTER 5 CONCLUSION
Agency law is concerned with any "principal-agent" relationship; a relationship in which one person has legal authority to act for another. The relationships generally associated with agency law include guardian-ward, executor or administrator-decedent, and employer-

employee. Agency is an agreement, express, or implied, by which one of the parties (called the principal) entrusts to the other (called the agent), the management of some business; to be transacted in his name, or on his account, and by which the agent assumes to do the business and to render an account of it. As a general rule, whatever a man may do by himself, except by virtue of a delegated authority, he may do by an agent18 The acts of agent within the scope of his authority bind the principal under section 226, 227, 228,229,230, 231, 231, 232, 233, 234, 235, 236, 237 and 238 of Indian Contract Act of 1872 and give certain statutory effects. It is necessary for the effect to follow that the agent must have done the act within the scope of his authority. the uncertainty largely due to the fact that the authority des not generate form just one source. It emanates from the principal, but its dimensions upon the legal inferences, which in turn, depends upon the purpose of the agency , the sourrounding circumstances and desire to protect bona fide commercial transactions . for, agency came in to being to promote not to hinder the commerce

18

http://wiki.answers.com/Q/What_is_contract_of_agency#ixzz28hp0sjUY

27 | P a g e

CHAPTER 6 REFERENCES
BOOKS
Contracts: Examples & Explanations By Brian A. Blum Pg 231 Texbook On Contract Law Including Specific Relief By Meena R.L pg no. 123

CASE LAWS
Morarji Premji v. Ranchod, 48 Bom 20: 1924 Bom 232: 77 IC 266.. S. Abdul Khader v. Rami Reddy, AIR 1979 SC 553: (1979) 2 SCC 601 Snow White Industrial Corp., Madras v. Collector of Central Excise, AIR 1989 SC 1555: (1989) 3 SCC 351. Chandra Kantaben J. Modi and Narendra Jayantilal Modi v. Vadilal Bapalal Modi, AIR 1989 SC 1269, 1277: (1989) 2 SCC 630

WEB SITES
http://wiki.answers.com/Q/What_is_contract_of_agency#ixzz28hp0sjUY http://www.scribd.com/doc/19216940/Contract-of-Agency http://www.cgta.org/upload/sampleagencycontract.pdf