CHANAKYA NATIONAL LAW UNIVERSITY

A PROJECT REPORT ON
“CONSEQUENCES OF
AGENT’S CONTRACT”

Submitted To - Mr.K.K.Dwivedi,
Faculty Of Contract Law.

Submitted By –Priyanka Singh

Roll-245.
 ACKNOWLEDGEMENT

We owe the present accomplishment of our project to the faculty Prof. K.K Dwivedi

whose guidance helped us immensely; and to the help extended by the library staff without which

finding books would have been difficult.

We would also like to thank our friends who helped us immensely with materials throughout the

project and without whom we would not have been able to complete it in the present way; And to our

seniors whose contribution in every little way has helped us in the completion of this project. We

would also like to extend our gratitude to all those unseen hands that helped us out at every stage of

this project.
 Table of Contents
1. Research Methodology
2. Introduction
3. Contract of Agency
4. Enforcement and cosequence of Agents Contract

 Actual Authority
1. Express Authority
2. Implied Authority
 Extent Of Agents Authority
5. Rights and Liablities of the principle for the contract entered into by the agent
 Rights
 Duties and Liablities
6. Effect of ratification
 Conditions
7. Rights and Liablites of an agent for a contract made by him
 Rights
 Duties and liablities
8. Rights , Liablities and duties of third person for an agents contract
9. Conclusion
10. Bibliography

RESEARCH METHODOLOGY
AIMS AND OBJECTIVES:

It is the aim of this project to provide an exhaustive analysis of the major issues in regarding the
importance and significance of ‘Consequence of Agents Contract’ under the contract of agency with
specific emphasis on the Indian context.

SCOPE AND LIMITATION:

This project will attempt to leave the reader with a clear idea of the present scenario of
Consequence of agents Contract, along with the major precedents laid down, and the relevant acts
passed in India.

STYLE: The writing style is both analytical and descriptive.

CITATIONS: A uniform method of citations has been used.

INTRODUCTION
In an agency one person (principal) employs another person (agent) to represent him or to act
on his behalf , in dealings with a third person.The act of the agent binds the principal in the
same manner in which he would be bound if does that act himself.Agency in law connotes
the relation which exists where one person has an authority or capacity to create legal relation
between a person occupying the position of principal, and third parties.the essential feature of
an agent is his power of making the principal answerable to third person,viz enabling the
principle to sue the third party. An agent though bound to exercise his authority with all
lawful instructions given to him, is not subject to the direct control or supervision of the
principle. His function is to enter into contract relations on behalf of his principal with third
person.He acts at his discretion and judgement but within the limits of his authority

The project is devoted on the contract of agency and particularly the consecquence of Agents
contract. The Rights,Liablity and duties arising out of the contract of agency is discussed in
the project

CONTRACT OF AGENCY
Section 182 of The Indian Contract Act deals with contract of agency

According to sec182:

 Who is an AGENT?
 Who is a PRINCIPAL?

182. "Agent" and "principal" defined -

An "agent" is a person employed to do any act for another, or to represent another
in dealing with third persons. The person for whom such act is done, or who is so
represented, is called the "principal".

The emphasis is on the power of the agent to represent his principal in dealings with the third
persons. But the above definition is wide enough to embrace a servant pure and simple, even
a casual employee, a man who is engaged by me in the street to black my shoes; but it cannot
for a moment be contended that they are all to be placed in the same category”1. Thus what
distinguishes an agent from other person is the representative capacity coupled with a power
to effect the legal relation of the principal and the third persons.

184. Who may be an agent -

As between the principal and third persons, any person may become an agent, but
no person who is not of the age of majority and sound mind can become an agent,
so as to be responsible to the principal according to the provisions in that behalf
herein contained.

The agent need notbe competent to contract. Section 184 lays down very clearly that as “as
between the principal and the third persons any person may become an agent”. Ordinarily an
agent incurs no personal liability while contracting for his principal and, therefore, it is not
necessary that he should be competent to contract.2thus a person may contract witha minor
agent, but the minor will not be responsible to his principal.3

A company may act as an agent beyond its capacity4

1
Vivian Bose J in Kalyani v Tirkaram, AIR 1935 Nag 255.
2
Mohommedally v. Schiller (1889)13 Bom 470
De souza Re , AIR 1932 All 374
3
Foreman v. Great Western Railway (1878) 38 LT 851
4
Bell Houses ltd v. City Wall Properties , (1966) 2 WLR 1323
A person may act as trustee despite his contractual competence.5

Enforcement and Consequences of agent's contracts

According to section 226

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.
5
Shantiniketan Coop H.S. Ltd v. Disit Registrar Of Coop Societies, AIR 2002 Guj 428
Illustrations
 A buys goods from B, knowing that he is an agent for their sale, but not knowing who
is the principal. B’s principal is the person entitled to calim 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.
 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 obligations to pay the sum question to
B.
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 controversy6. 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.
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.”7

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.

6
Municipal Corporation Of Delhi v. Jagdish Lal, AIR 1970 SC 7
Sardar Gurcharan Singh v Mahendra Singh (2004) 1 MPLJ 252 (MP)
7
J.L.Montrose, actual and apparent authority,(1938) 16 Can BR 757, 761.
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, 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 business8.

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 liable9.
 An agent cannot borrow on behalf on behalf of his principalunless 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
authorisation10
 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 it11

Implied Authority
8
Attwood v. Munnings (1827) 7 B&C 278
9
Ried v Rigby (1894) 2 QB 40
10
Raymond Woollen Mills Ltd v. Coal India Ltd1998 1 Cal HN 53.
11
Ferguson vUm Chand Boid(1905) 33 Cal 343.
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 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
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.
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 case12
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 th 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 isages of a
particular market or sale13. 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.

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
12
(1859) 7 CB (NS) 145.
13
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
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 agent14.

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 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.
14
Greer V.Down Supply Co., (1927)2 KB 28
Montagu v Forwood (1893)2 QB 350 (CA).
Essentials
 Acts of the agent swaying away from his authority Eg; may have entered into a
contract which he is not authorised to do.
 Both the authorised and the unauthorised cannot be separated from each other
Then 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.15

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.

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

15
Vijayalatha Chit Fund Pvt Ltd v. Krishna Shetty, (1988)1Ker LJ 143.
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 authorityof 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.16

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 contracts17

16
Wilson v. Turnman (1843) 6 M&G 236.
17
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.
 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.18

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.19This 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 the contract if he professed to act for his principal,20though he will then be
liable to compensate the third party for his loss.21

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
18
China pacific Ltd v. FCI, (1981) 3WLR 860 HL.
19
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)
20
Lewis v. Nicholson, (1852) 18 QB 502
21
Jenkins V. Hutchinson, (1849) 13 QB 744.
 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.22
2. Principal Unnamed
Where an agent contracts for an undisclosed principal, he definitely is personally
liable being a party to the contract.23 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 contractand
surrounding circumstances.24
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 factor25 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.26
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.’27 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 -

22
Tutika Basavaraju v. Parry and Co., (1903) 27 Mad 315
Radhakrishna Sivadutta Rai v. Tayeballi Dawoodbai, AIR 1962 SC 538.
23
Castrol Ltd v. Admiral Shipping Ltd, (2005) 3 Bom. CR 507.
24
See Bowstead on Agency, 10th ex, p 236
25
Fisher v. Marsh (1865) 6 B&S 411
26
Williams v. Millington(1788) 1 HBL 81, 2 RR 724.
27
Subramania v. Narayanan (1900) 24 Mad 130.
A person untruly representing himself to be the authorised 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.28
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 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.

28
Saffron Walden B.S v Rayner, (1880) 14 Ch D 406
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 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.

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.29 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.30

Undisclosed Principal Cannot Intervene Against Express Terms

29
Said v. Butt (1920) 3 KB 497.
30
TREITEL Law Of Contract, 540.
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”,31 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.

31
Humble v. Hunter (1848) 12 QB 310,317
 CONCLUSION
Therefore ,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. Rights, Liabilities and Duties of the agent is discussed and the
consequence of the acts of agent is mentioned in the project.An agent can perform all the acts
within the scope of his authority.the rights, liabilities and duties of principle ,agent has been
mentioned .thus we conclude tht the liability arises when authority is transgressed.
 Bibliography

1. Pollock & Mulla, Indian Contract Act and Specific Relief Acts, (Nilima
Bhadbhade ed., 12th edn., New Delhi: Buttersworth, 2001).
2. PR Aiyer, The Law Lexicon, (2nd edn., New Delhi: Wadhwa & Company
Nagpur, 1997).
3. Prof.G.C.V. Subba Rao, Law of Contract & Specific Relief Act,1963
(Hyderabad: S.Gogia & Co.,2004)
4. Avtar singh on Law Of Contract and Specific Releif.

Websites -

1. www.legalserviceindia.com
2. www.outlaw.com

3. www.manupatra.com

4. www.wikipedia.com