Consequences of Agent's Contract

8/1/2019 Consequences of Agent's Contract

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CHANAKYA NATIONAL LAW UNIVERSITY

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CONTENTS

I. Introduction5 -9II. Contract of agency

III. Consequences of agents contract10-14 Actual Authority Extent Of Agents Authority

IV. Rights and Liabilities of the principle for the contract entered into by theagent...........................................................................................................................15-17

V. Effect of ratification....18-19VI. Rights and Liabilities of an agent for a contract made by him.20-23

VII. Rights , Liabilities and duties of third person for an agents contract..24-27VIII. Conclusion28

Bibliography


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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 anagent, 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.


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Definition

According toSec 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:

a) Whatever a person can do personally shall also be allowed to be done through an agentexcept 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 theagent 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 principaland 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 generallypaid wages or salary.

3) On whose behalf: An agent may work for several principals at the same time. A servantcan serve only one master at a time.

4) Control: An agent is not subject to direct control and supervision of the principal. He isoften 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 whichare within the scope of his authority. But the master is bound by the wrongful acts of

his servant if done in the course of servants employment.


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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. Itmay be expressed or implied (Sec. 186).

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

with standing 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.


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3) Agents Authority in an emergency: According to Sec. 189, an agent has authority in anemergency 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 9a) 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. aprincipal 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.

4) Agency can be created only for those acts which can be delegated by a person toanother.

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.


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5) The agency relationship may be established by a contract between the principal andthe 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 becompetent 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 theprincipal.

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 thescope 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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Enforcement and consequences of Agent's contracts

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 fromB, knowing that he is an agent for their sale, but not knowing who is the

principal.Bsprincipal is the person entitled to claim fromA the price of the goods,

andA cannot, in a suit by the principal, set-off against that claim a debt due to himself from B.1

(b)A, beingBs agent, with authority to receive money on his behalf, receives from Ca sum of

money due toB. Cis 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

controversy2. 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.

1http://www.vakilno1.com/bareacts/indiancontractact/s226.html

2Municipal 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 As funds with As 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

3J.L.Montrose, actual and apparent authority,(1938) 16 Can BR 757, 761.


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Illustration

Where, a principal, while going aboard, authorises 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 business4.

Principles Laid Down By Precedents

If an agent acts outside his authority, inorder to meet the genuine needs of the principal,then the principal would be held liable5.

An agent cannot borrow on behalf on behalf of his principalunless he has clear authorityto 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 expressauthorisation

6

If a third party has a knowledge of the limitation on the agents authority or could havediscovered it by reasonable examination, he would be bound by it7

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.

4Attwood v. Munnings (1827) 7 B&C 278

5Ried v Rigby (1894) 2 QB 40

6Raymond Woollen Mills Ltd v. Coal India Ltd1998 1 Cal HN 53.

7Ferguson vUm Chand Boid(1905) 33 Cal 343.


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Illustration

Ryan v. Pilkington

An estate agent was appointed to find a purchaser of certain property. He accepted a depositfrom a prospective customer and misappropriated it. The principal was held liable, because an

estate agent has an implied authority ti take the deposit

Extent of agent's authority

According to section188.

An agent, having an authority to do an act, has authority do every lawful thing which isnecessary 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.

Illustration

a) A is employed by B, residing in London, to recover at Bombay a debt due to B. a mayadopt 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 purchasetimber and other materials, and hire workmen, for the purposes of carrying on his

business.

Dingle v. Hares case8

An agent wass authorised 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,

8(1859) 7 CB (NS) 145.


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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 sale9. 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.

9Sutton 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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Rights and liabilities of the principal for the contacts 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 agents 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 agent10.

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

10Greer V.Down Supply Co., (1927)2 KB 28

Montagu v Forwood (1893)2 QB 350 (CA).


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Acts of the agent swaying away from his authority. Eg; may have entered into a contractwhich he is not authorised to do.

Both the authorised and the unauthorised 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 authorised and not for other acts.

228. Principal not bound when excess of agent's authority is not separable -

Where an 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.

Essentials

Acts of the agent swaying away from his authority Eg; may have entered into a contractwhich he is not authorised to do.

Both the authorised and the unauthorised cannot be separated from each otherThen the principal is not bound to recognise the acts or the contracts entered into by the agent

for which he was not authorised.

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 authorised work the principal is bound to that

extent.11

237. Liability of principal inducing belief that agent's unauthorized acts

were authorized -

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


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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 hisauthority.

Activities of principal induced the third party to reasonably believe that the agent hasacted 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.

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.


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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.12

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 contracts13

12Wilson v. Turnman (1843) 6 M&G 236.

13Commercial 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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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 reasonabke prudent course

left open to him and that he acted in good faith and the interest of the parties concerned.14

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.

14China pacific Ltd v. FCI, (1981) 3WLR 860 HL.


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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.15This is known as the principle of

agents 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

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 PrincipalWhen 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.18

2. Principal UnnamedWhere 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

15Marine 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)16

Lewis v. Nicholson, (1852) 18 QB 50217

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.


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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 contractand

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 factor21

and an auctioneer, who has a possession coupled with an

interest in the goods which his is employed to sell, not a bare custody, and a specil 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 authorised agent of another, and

20See Bowstead on Agency, 10

thex, p 236

21Fisher v. Marsh (1865) 6 B&S 411

22Williams v. Millington(1788) 1 HBL 81, 2 RR 724.

23Subramania v. Narayanan (1900) 24 Mad 130.


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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.24

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 estopeed 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.

Rights liabilities and duties of a third person for an agents contract

200. Ratification of unauthorized act cannot injure third person -

24Saffron Walden B.S v Rayner, (1880) 14 Ch D 406


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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 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.

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 subsistingbetween 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.25 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

25Said v. Butt (1920) 3 KB 497.

26TREITEL Law Of Contract, 540.

27Humble v. Hunter (1848) 12 QB 310,317


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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.

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. [Sec 227]

A, being owner of a ship and cargo, authorises 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.

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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 consequence as if it had been given to or obtained by the

principal.

Illustrations

(a)A is employed byB to buy from Ccertain goods, of which Cis the apparent owner, and buys

them accordingly. In the course of the treaty for the sale, A learns that the goods really belonged

toD, butB is ignorant of that fact.B is not entitled to set-off a debt owing to him from Cagainst

the price of the goods.

(b) A is employed byB to buy from Cgoods of which Cis the apparent owner.A was, before he

was so employed, a servant ofC, and then learnt that the goods really belonged toD, butB 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

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

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

Comments

When agent can be sued

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

CONCLUSION

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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.

BIBLIOGRAPHY
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Dr. Avatar Singh,Introduction to Law of Partnership, 8th edition, Lucknow, EasternBook Company, 2005.

M.R. Mallick, Goyles The Law of Partnership, 2nd edition, Kolkata, Eastern Law House,2006.

Dr. S.K. Kapoor, Contracts-II, 10th edition, Allahabad, Central Law Agency, 2005.
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Consequences of Agent's Contract